UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of November 2023
Commission File Number: 001-34152
WESTPORT FUEL SYSTEMS INC.
(Translation of registrant's name into English)
1691 West 75th Avenue, Vancouver, British Columbia, Canada, V6P 6P2
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
£ Form 20-F S Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o
EXHIBIT INDEX
| | | | | | | | |
| Exhibit | | Description |
| 99.1 | | |
| 99.2 | | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | WESTPORT FUEL SYSTEMS INC. |
| | |
| | By: | /s/ William E. Larkin |
| | Name: | William E. Larkin |
| | Title: | Chief Financial Officer |
Date: November 7, 2023
| | | | | | | | |
| | Management's Discussion and Analysis |
BASIS OF PRESENTATION
This Management’s Discussion and Analysis (“MD&A”) for Westport Fuel Systems Inc. (“Westport”, the “Company”, “we”, “us”, “our”) for the three and nine months ended September 30, 2023 provides an update to our annual MD&A dated March 13, 2023 for the fiscal year ended December 31, 2022. This information is intended to assist readers in analyzing our financial results and should be read in conjunction with the audited consolidated financial statements, including the accompanying notes, for the fiscal year ended December 31, 2022 and our unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2023. Our unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The Company’s reporting currency is the United States dollar ("U.S. dollar"). This MD&A is dated as of November 7, 2023.
Additional information relating to Westport, including our Annual Information Form (“AIF”) and Form 40-F each for the year ended December 31, 2022, is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov, respectively. All financial information is reported in U.S. dollars unless otherwise noted.
FORWARD-LOOKING STATEMENTS
This MD&A contains forward-looking statements that are based on the beliefs of management and reflects our current expectations as contemplated under the safe harbor provisions of Section 21E of the United States Securities Act of 1934, as amended. Such forward-looking statements include, but are not limited to, the orders or demand for our products (including from our HPDI 2.0TM fuel systems) supply agreement with Weichai Westport Inc. ("WWI"), the timing for the launch of WWI's engine equipped with Westport's HPDI 2.0 fuel systems, the variation of gross margins from our HPDI 2.0 fuel systems product and causes thereof, and the timing for relief of supply chain issues (including those related to semiconductor supply restrictions), opportunities available to sell and supply our products in North America, consumer confidence levels, the recovery of our revenues and the timing thereof, our ability to strengthen our liquidity, growth in our heavy-duty business and improvements in our light-duty original equipment manufacturer ("OEM") business and timing thereof, improved aftermarket revenues, our capital expenditures, our investments, cash and capital requirements, the intentions of our partners and potential customers, monetization of joint venture intellectual property, the performance of our products, our future market opportunities, our ability to continue our business as a going concern and generate sufficient cash flows to fund operations, the availability of funding and funding requirements, our future cash flows, our estimates and assumptions used in our accounting policies, our accruals, including warranty accruals, our financial condition, the timing of when we will adopt or meet certain accounting and regulatory standards and the alignment of our business segments.
These forward-looking statements are neither promises nor guarantees but involve known and unknown risks and uncertainties that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed in or implied by these forward-looking statements. These risks include risks related to revenue growth, operating results, liquidity, our industry and products, the general economy, conditions of the capital and debt markets, government or accounting policies and regulations, regulatory investigations, climate change legislation or regulations, technology innovations, as well as other factors discussed below and elsewhere in this report, including the risk factors contained in the Company’s most recent AIF filed on SEDAR at www.sedar.com. The forward-looking statements contained in this MD&A are based upon a number of material factors and assumptions which include, without limitation, market acceptance of our products, product development delays in contractual commitments, the ability to attract and retain business partners, competition from other technologies, conditions or events affecting cash flows or our ability to continue as a going concern, price differential between compressed natural gas, liquefied natural gas, and liquefied petroleum gas relative to petroleum-based fuels, unforeseen claims, exposure to factors beyond our control as well as the additional factors referenced in our AIF. Readers should not place undue reliance on any such forward-looking statements, which are pertinent only as of the date they were made.
The forward-looking statements contained in this document speak only as of the date of this MD&A. Except as required by applicable legislation, Westport does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after this MD&A, including the occurrence of unanticipated events. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement.
| | | | | | | | |
| | Management's Discussion and Analysis |
GENERAL DEVELOPMENTS
•In February 2023, Westport announced a plan to invest up to $10.0 million in a global manufacturing facility in Changzhou Hydrogen Valley, China.
•In March 2023, Westport signed a third global heavy-duty OEM collaboration agreement to demonstrate the Hydrogen HPDI fuel system ("H2 HPDI™") on an internal combustion engine platform. This collaboration will be funded by the OEM with work commencing immediately and expected to continue throughout 2023.
•In April 2023, we entered into a settlement agreement with Cartesian Capital Group to terminate the Tranche 1 Financing and Consent Agreement in exchange for mutual releases and cash consideration, which included the release of the security interest in our HPDI 2.0 fuel system intellectual property. We paid Cartesian Capital Group $8.7 million, which resulted in the extinguishment of the long-term royalty payable and a loss on extinguishment on royalty payable of $2.9 million.
•In May 2023, Westport showcased its market ready HPDI™ fuel system for commercial vehicles at the Advanced Clean Transportation Expo 2023.
•In June 2023, we completed the share consolidation of our issued and outstanding common shares on a 10:1 basis and regained compliance with NASDAQ's minimum bid requirement. No fractional common shares were issued and any fractional shares were rounded down to the nearest whole common shares. Effective this quarter, the number of outstanding common shares and share units issued have been retroactively adjusted for all periods presented.
•In July 2023, Westport and the Volvo Group signed a letter of intent to establish a joint venture to reduce CO2 emissions from long-haul transport utilizing HPDI technology to accelerate the decarbonization efforts of global OEM customers.
•In August 2023, we announced the expansion of the previously awarded Euro 7 program to develop and supply LPG fuel systems for several vehicle applications for a global OEM. This expanded program is forecasted to generate approximately €63 million in total revenue from 2025 to 2028 and increases the revenue generated from LPG fuel system supply agreements for Euro 6 and 7 programs with this OEM to approximately €255 million.
•In August 2023, we announced the resignation of David Johnson, the Chief Executive Officer (CEO), and named Tony Guglielmin as the Interim CEO until such time a new CEO is appointed.
•In October 2023, we announced the completion of a heavy transport demonstration with our H2 HPDI fuel system equipped prototype truck hauling a refrigerated trailer in Madrid, Spain.
•In November 2023, we entered into a two-year H2 HPDI proof of concept project with a leading global provider of locomotives and related equipment for the freight and transit rail industries. The project will adapt Westport's H2 HPDI fuel system for use with the locomotive OEM engine design.
BUSINESS OVERVIEW
Westport is a global company focused on engineering, manufacturing, and supplying alternative fuel systems and components for transportation applications. Our diverse product offerings, sold under a wide range of established global brands, enable the use of a number of alternative fuels in the transportation sector which provide environmental and/or economic advantages as compared to diesel, gasoline, batteries or fuel cell powered vehicles. The Company's fuel systems and associated components control the pressure and flow of these alternative fuels, including LPG, compressed natural gas ("CNG"), liquified natural gas ("LNG"), renewable natural gas ("RNG") or biomethane, and hydrogen. We supply our products in more than 70 countries through a network of distributors, service providers for the aftermarket and directly to OEMs and Tier 1 and Tier 2 OEM suppliers. We also provide delayed OEM (“DOEM”) offerings and engineering services to our customers and partners globally. Today, our products and services are available for passenger car and light-, medium- and heavy-duty truck and off-road applications.
| | | | | | | | |
| | Management's Discussion and Analysis |
The majority of our revenues are generated through the following IAM and OEM businesses:
| | | | | |
| Independent Aftermarket ("IAM") | We sell systems and components across a wide range of brands, primarily through a global network of distributors that consumers can purchase and have installed onto their vehicles to use LPG or CNG fuels, in addition to gasoline. |
| |
| OEM Businesses | |
| Heavy-duty OEM | We sell systems and components, including HPDI 2.0 fuel system products, to engine OEMs and commercial vehicle OEMs. Our fully integrated HPDI 2.0 fuel systems, enables diesel engines using primarily natural gas fuel to match the power, torque, and fuel economy benefits found in traditional compression ignition engines, resulting in reduced greenhouse gas emissions and the capability to cost-effectively run on renewable fuels. |
| Delayed OEM | We directly or indirectly convert new passenger cars for OEMs or importers, to address local market needs when a global LPG or CNG bi-fuel vehicle platform is not available directly from the OEM. |
| Light-duty OEM | We sell systems and components to OEMs that are used to manufacture new, direct off the assembly line LPG or CNG-fueled vehicles. |
| Electronics | We design, industrialize and assemble electronic control modules. |
| Hydrogen | We design, develop, produce and sell hydrogen components for transportation and industrial applications. Also, we are adapting our HPDI fuel systems to use hydrogen or hydrogen/natural gas blends in internal combustion engines. |
| Fuel storage | We manufacture LPG fuel storage solutions and supply fuel storage tanks to the aftermarket, OEM, and other market segments. |
RISKS, LONG-TERM PROFITABILITY & LIQUIDITY
Global Supply Chain Challenges and Inflationary Environment
The global semiconductor supply, raw materials shortages and inflationary pressure on production input costs continued to affect the automotive industry and will continue to impact our business for the foreseeable future. Our production and end-customer demands are materially impacted by the prolonged supply chain disruption, which continue to put pressure on our margins. We are closely monitoring and making efforts to mitigate the impact of the global shortage of semiconductors, raw materials and parts on our businesses; however, we do not expect this shortage to affect our long-term growth.
Russia-Ukraine conflict
We conduct a portion of our light-duty OEM and IAM businesses in Russia by selling our products to numerous OEMs and other IAM customers. Our Russian business has been a growing and important market for gaseous fuel systems and components. Due to the Russian invasion of Ukraine in late February 2022, the United States, European Union, Canada and other Western countries and organizations have announced and enacted numerous sanctions against Russia to impose severe economic pressure on the Russian economy and government. The sanctions have had a significant impact on our ability to conduct business with our Russian customers due to restrictions caused by ownership and the ability of some Russian customers to pay for goods because of banking restrictions. In addition, recent limitations and restrictions imposed on the export of Russian natural gas have had a significant impact on the price of natural gas (see "Fuel Prices" below). While the full impact of the commercial and economic consequences of the conflict are uncertain at this time, revenues generated in the Russian market were $2.5 million and $10.1 million for the three and nine months ended September 30, 2023 compared to $1.7 million and $6.0 million for the same periods in 2022, with the increase of revenue from both light-duty OEM and IAM businesses. We have realized growth on our 2023 revenue compared to 2022; however, we cannot provide assurance that future developments in the Russian-Ukraine conflict will not continue to have an adverse impact on the ongoing operations and financial condition of our business in Russia.
| | | | | | | | |
| | Management's Discussion and Analysis |
Fuel Prices
Although we have seen a recent decline in LNG and CNG pricing, it has remained above historical levels in 2023. This volatility extends to liquid fuels including crude oil, diesel, and gasoline, given uncertainty in supply levels and European geopolitical risk due to the Russia-Ukraine conflict. Higher gaseous fuel price negatively impacts the price differential of gaseous fuels versus diesel and gasoline, which may impact our customers' decisions to adopt such gaseous fuels as a transportation energy solution in the short-term. We continue to observe softness in demand in our heavy-duty and light-duty OEM sales volumes caused by the uncertainty over the elevated prices of CNG and LNG relative to diesel and gasoline in Europe. Despite pressure on CNG and LNG prices, the increased LPG price differential to gasoline in Europe since the end of 2022 continued in 2023 and was favourable to customer demand, which supported increased sales in our fuel storage business.
Long-term Profitability and Liquidity
We continue to observe high inflationary pressures, global supply chain disruptions, higher interest rates and volatile fuel prices which negatively affect customer demand going forward and have an adverse impact on our production and cost structure.
We believe that we have considered all possible impacts of known events arising from the risks discussed above related to supply chain, fuel prices, and the Russian-Ukraine conflict in the preparation of the unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2023. However, changes in circumstances due to the aforementioned risks could affect our judgments and estimates associated with our liquidity and other critical accounting assessments.
We continue to generate operating losses and negative cash flows from operating activities primarily due to the lack of scale in our heavy-duty OEM business. Despite customer interest in HPDI 2.0 fuel systems, sales of our HPDI 2.0 fuel systems to Volvo Trucks continue to be adversely affected by the impact of the continued volatility in natural gas prices and decreasing end-customer demand. Cash used in operating activities was $7.5 million for the nine months ended September 30, 2023. Despite the successful monetization of the Cummins Westport Inc. ("CWI") joint venture's intellectual property and the sale of CWI in the first quarter of 2022, the loss of income from the equity interest in the former CWI business has had a significant impact on our annual cash flows. In July 2023, we signed a non-binding letter of intent with Volvo Group to establish a joint venture ("HPDI JV") with the intention to accelerate the commercialization and global adoption of our HPDI fuel system technology. We currently expect definitive agreements between Westport and Volvo to be signed by the end of January 2024 and the joint venture to close in the second quarter of 2024.
As at September 30, 2023, we had cash and cash equivalents of $44.0 million. Although we believe we have sufficient liquidity to continue as a going concern beyond November 2024, the long-term financial sustainability will depend on our ability to generate sufficient positive cash flows from all of our operations specifically through working capital improvements, profitable and sustainable growth and on our ability to finance our long-term strategic objectives and operations. In addition to new contract announcements, entering new markets and the recent announcement of the signing of letter of intent to establish HPDI JV with Volvo Group, we are focused on improving profitability through growth in our heavy-duty OEM business driving economies of scale and improvements in our light-duty OEM and IAM businesses, including pricing measures and manufacturing strategies driving margin expansion. If, as a result of future events, we were to determine we were no longer able to continue as a going concern, significant adjustments would be required to the carrying value of assets and liabilities in the accompanying unaudited condensed consolidated interim financial statements and the adjustments could be material.
| | | | | | | | |
| | Management's Discussion and Analysis |
THIRD QUARTER 2023 RESULTS
Revenues for the three months ended September 30, 2023 increased 9% to $77.4 million compared to $71.2 million in the same quarter last year, primarily driven by increased sales volumes in delayed OEM, electronics, fuel storage and additional revenues from the heavy-duty OEM business. These were offset by lower customer sales in the light-duty OEM business.
We reported a net loss of $11.9 million for the three months ended September 30, 2023 compared to net loss of $11.9 million for the same quarter last year. This was primarily the result of:
•$1.9 million increase in gross margin related to higher revenues;
•$1.2 million decrease in foreign exchange losses; and
•lower research and development expenses incurred in our heavy-duty OEM business;
•which was offset by a $4.3 million increase in general and administrative expenses related to severance costs and increased consulting costs.
Westport reported negative $3.0 million Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA", see "Non-GAAP Measures" section in this MD&A) during the third quarter as compared to negative $4.5 million Adjusted EBITDA for the same period in 2022.
| | | | | | | | |
| | Management's Discussion and Analysis |
SELECTED FINANCIAL INFORMATION
The following table sets forth a summary of our financial results:
Selected Consolidated Statements of Operations Data
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30, | | Nine months ended September 30, |
| | | 2023 | | 2022 | | 2023 | | 2022 |
| (expressed in millions of U.S. dollars, except for per share amounts) |
| | | | | | | | |
| | | | | | | | |
| Revenue | | $ | 77.4 | | | $ | 71.2 | | | $ | 244.7 | | | $ | 227.7 | |
Gross margin1 | | $ | 13.2 | | | $ | 11.3 | | | $ | 40.9 | | | $ | 31.7 | |
Gross margin %1 | | 17 | % | | 16 | % | | 17 | % | | 14 | % |
| Income from investments accounted for by the equity method | | $ | 0.4 | | | $ | 0.2 | | | $ | 0.6 | | | $ | 1.0 | |
| Net loss | | $ | (11.9) | | | $ | (11.9) | | | $ | (35.8) | | | $ | (15.8) | |
| Net loss per share - basic and diluted | | $ | (0.68) | | | $ | (0.70) | | | $ | (2.03) | | | $ | (0.92) | |
| | | | | | | | |
| Weighted average basic shares outstanding in millions | | 17.7 | | | 17.1 | | | 17.7 | | | 17.1 | |
| | | | | | | | |
EBIT1 | | $ | (11.8) | | | $ | (10.8) | | | $ | (34.2) | | | $ | (13.0) | |
EBITDA1 | | $ | (8.6) | | | $ | (8.0) | | | $ | (25.0) | | | $ | (4.0) | |
Adjusted EBITDA1 | | $ | (3.0) | | | $ | (4.5) | | | $ | (11.5) | | | $ | (14.9) | |
1These financial measures or ratios are non-GAAP financial measures or ratios. See the section 'Non-GAAP Financial Measures' for explanations and discussions of these non-GAAP financial measures or ratios.
Selected Balance Sheet Data
The following table sets forth a summary of our financial position as at September 30, 2023 and December 31, 2022:
| | | | | | | | | | | | | | |
| | | September 30, 2023 | | December 31, 2022 |
| (expressed in millions of U.S. dollars) | | | | |
| Cash and cash equivalents | | $ | 44.0 | | | $ | 86.2 | |
Net working capital1 | | 70.5 | | | 77.5 | |
| Total assets | | 355.5 | | | 407.5 | |
| Short-term debt | | 6.3 | | | 9.1 | |
| Long-term debt, including current portion | | 35.9 | | | 43.9 | |
| Royalty payable, including current portion | | — | | | 5.5 | |
Other non-current liabilities1 | | 28.7 | | | 31.3 | |
| Total liabilities | | 184.3 | | | 203.5 | |
| Shareholders' equity | | 171.2 | | | 204.0 | |
1These financial measures or ratios are non-GAAP financial measures or ratios. See the section 'Non-GAAP Financial Measures' for explanations and discussions of these non-GAAP financial measures or ratios.
| | | | | | | | |
| | Management's Discussion and Analysis |
RESULTS FROM OPERATIONS
OPERATING SEGMENTS
We manage and report the results of our business through three segments: OEM, IAM, and Corporate as described in the Business Overview. The Corporate business segment is responsible for public company activities, corporate oversight, financing, capital allocation and general administrative duties, such as securing our intellectual property.
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2023 |
| (expressed in millions of U.S. dollars) | Revenue | Operating Loss | Depreciation & Amortization | Equity Income | |
| OEM | $ | 52.9 | | $ | (6.2) | | $ | 2.5 | | $ | 0.4 | | |
| IAM | 24.5 | | (0.9) | | 0.6 | | — | | |
| Corporate | — | | (5.0) | | 0.1 | | — | | |
| Total Consolidated | $ | 77.4 | | $ | (12.1) | | $ | 3.2 | | $ | 0.4 | | |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 |
| Revenue | Operating Income (Loss) | Depreciation & Amortization | Equity Income | |
| OEM | $ | 44.1 | | $ | (7.3) | | $ | 2.1 | | $ | 0.2 | | |
| IAM | 27.1 | | 2.2 | 0.7 | | — | | |
| Corporate | — | | (5.8) | | 0.1 | | — | | |
| Total Consolidated | $ | 71.2 | | $ | (10.9) | | $ | 2.9 | | $ | 0.2 | | |
Revenue for the three and nine months ended September 30, 2023
(expressed in millions of U.S. dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Change | | Nine months ended September 30, | | Change |
| | 2023 | | 2022 | | $ | | % | | 2023 | | 2022 | | $ | | % |
| OEM | $ | 52.9 | | | $ | 44.1 | | | $ | 8.8 | | | 20 | % | | $ | 161.6 | | | $ | 150.2 | | | $ | 11.4 | | | 8 | % |
| IAM | 24.5 | | | 27.1 | | | (2.6) | | | (10) | % | | 83.1 | | | 77.5 | | | 5.6 | | | 7 | % |
| Total Revenue | $ | 77.4 | | | $ | 71.2 | | | $ | 6.2 | | | 9 | % | | $ | 244.7 | | | $ | 227.7 | | | $ | 17.0 | | | 7 | % |
OEM
Revenue for the three and nine months ended September 30, 2023 was $52.9 million and $161.6 million, respectively, compared with $44.1 million and $150.2 million for the three and nine months ended September 30, 2022.
The increases in revenue for the three and nine months ended September 30, 2023 were primarily driven by higher sales volumes in the delayed OEM, electronics and fuel storage business and additional engineering service revenues from the heavy-duty OEM business. These increases are partially offset by lower sales to customers in India in the light-duty OEM business.
IAM
Revenue for the three and nine months ended September 30, 2023 was $24.5 million and $83.1 million, respectively, compared with $27.1 million and $77.5 million for the three and nine months ended September 30, 2022.
The decrease in revenue for the three months ended September 30, 2023 was primarily driven by decreased sales volumes to Africa and European markets partially offset with higher sales volumes to South America.
| | | | | | | | |
| | Management's Discussion and Analysis |
The increase in revenue for the nine months ended September 30, 2023 was primarily driven by increased sales volumes to Africa and South America which is offset by lower sales in Europe.
Gross Margin for the three months ended September 30, 2023
(expressed in millions of U.S. dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30, | | % of | | Three months ended September 30, | | % of | | Change |
| | | 2023 | | Revenue | | 2022 | | Revenue | | $ | | % |
| OEM | | $ | 7.8 | | | 15 | % | | $ | 4.7 | | | 11 | % | | $ | 3.1 | | | 66 | % |
| IAM | | 5.4 | | | 22 | % | | 6.6 | | 24 | % | | (1.2) | | | (18) | % |
| Total gross margin | | $ | 13.2 | | | 17 | % | | $ | 11.3 | | | 16 | % | | $ | 1.9 | | | 17 | % |
OEM
Gross margin increased by $3.1 million to $7.8 million, or 15% of revenue, for the three months ended September 30, 2023 compared to $4.7 million, or 11% of revenue, for the three months ended September 30, 2022. The increase in gross margin is primarily driven by increased sales volumes in the delayed OEM, electronics and fuel storage businesses, as well as increased gross margin in the heavy-duty OEM business due to higher engineering service revenue. This was partially offset by higher production input costs stemming from global supply chain challenges and inflation in logistics, labor and other costs, which we have only partially been able to pass on to our OEM customers.
IAM
Gross margin decreased by $1.2 million to $5.4 million, or 22% of revenue, for the three months ended September 30, 2023 compared to $6.6 million or 24% of revenue, for the three months ended September 30, 2022. The decrease in gross margin related to lower sales in Africa and Europe as well as lower margin sales mix and inflation in South America.
Gross Margin for the nine months ended September 30, 2023
(expressed in millions of U.S. dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine months ended September 30, 2023 | | % of Revenue | | Nine months ended September 30, 2022 | | % of Revenue | | Change |
| | | | | | | $ | | % |
| OEM | | $ | 24.3 | | | 15 | % | | $ | 14.4 | | | 10 | % | | $ | 9.9 | | | 69 | % |
| IAM | | 16.6 | | | 20 | % | | 17.3 | | | 22 | % | | (0.7) | | | (4) | % |
| Total gross margin | | $ | 40.9 | | | 17 | % | | $ | 31.7 | | | 14 | % | | $ | 9.2 | | | 29 | % |
OEM
Gross margin increased by $9.9 million to $24.3 million, or 15% of revenue, for the nine months ended September 30, 2023 compared to $14.4 million, or 10% of revenue, for the nine months ended September 30, 2022.
The increase in gross margin for the nine months ended September 30, 2023 was driven primarily by increased sales volumes in delayed OEM and fuel storage businesses, as well as increased gross margin in the heavy-duty OEM business due to higher unit pricing on HPDI system sales and higher engineering service revenue. This is partially offset by lower margins in the light-duty OEM business due to lower sales volumes as well as the impact of higher production input costs incurred in materials, transportation, and energy costs, which we have only partially been able to pass on to our OEM customers.
IAM
Gross margin decreased by $0.7 million to $16.6 million, or 20% of revenue, for the nine months ended September 30, 2023 compared to $17.3 million, or 22% of revenue, for the nine months ended September 30, 2022. The decrease in gross margin was primarily driven by lower margin sales mix in Africa and European markets as well as increased material and labour costs and inflation in South America, which also impacted the gross margin percentage compared to the nine months ended September 30, 2022.
| | | | | | | | |
| | Management's Discussion and Analysis |
Research and Development Expenses ("R&D")
(expressed in millions of U.S. dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30, | | Change | | Nine months ended September 30, | | Change |
| | | 2023 | | 2022 | | $ | | % | | 2023 | | 2022 | | $ | | % |
| OEM | | $ | 4.9 | | | $ | 5.7 | | | $ | (0.8) | | | (14) | % | | $ | 15.9 | | | $ | 14.6 | | | $ | 1.3 | | | 9 | % |
| IAM | | 0.9 | | | 0.8 | | | 0.1 | | | 13 | % | | 2.9 | | | 3.1 | | | (0.2) | | | (6) | % |
| | | | | | | | | | | | | | | | |
| Total R&D expenses | | $ | 5.8 | | | $ | 6.5 | | | $ | (0.7) | | | (11) | % | | $ | 18.8 | | | $ | 17.7 | | | $ | 1.1 | | | 6 | % |
OEM
R&D expenses for the three and nine months ended September 30, 2023 were $4.9 million and $15.9 million compared to $5.7 million and $14.6 million for the three and nine months ended September 30, 2022, respectively.
The decrease in R&D expenses for the three months ended September 30, 2023 compared to the same period in the prior year is mainly due to decreased R&D activities related to our engineering resources of our heavy-duty OEM business. The increase in R&D expenses for the nine months ended September 30, 2023 is due to increased R&D spent of our light-duty OEM business.
IAM
R&D expenses for the three and nine months ended September 30, 2023 were $0.9 million and $2.9 million compared to $0.8 million and $3.1 million for the three and nine months ended September 30, 2022, respectively.
Selling, General and Administrative Expenses ("SG&A")
(expressed in millions of U.S. dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30, | | Change | | Nine months ended September 30, | | Change |
| | | 2023 | | 2022 | | $ | | % | | 2023 | | 2022 | | $ | | % |
| OEM | | $ | 6.4 | | | $ | 6.0 | | | $ | 0.4 | | | 7 | % | | $ | 18.9 | | | $ | 17.4 | | | $ | 1.5 | | | 9 | % |
| IAM | | 5.8 | | | 2.9 | | | 2.9 | | | 100 | % | | 14.2 | | | 11.1 | | | 3.1 | | | 28 | % |
| Corporate | | 4.8 | | | 3.1 | | | 1.7 | | | 55 | % | | 12.7 | | | 9.3 | | | 3.4 | | | 37 | % |
| Total SG&A expenses | | $ | 17.0 | | | $ | 12.0 | | | $ | 5.0 | | | 42 | % | | $ | 45.8 | | | $ | 37.8 | | | $ | 8.0 | | | 21 | % |
OEM
SG&A expenses for the three and nine months ended September 30, 2023 were $6.4 million and $18.9 million, compared with $6.0 million and $17.4 million for the three and nine months ended September 30, 2022, respectively. The increase in SG&A expenses for the three months ended September 30, 2023 was primarily driven by severance costs in India. The increase in SG&A for the nine months ended September 30, 2023 was primarily driven by higher outside service costs incurred on trade shows and exhibitions for our HPDI fuel system technology in North America and Asia compared to the same period last year.
IAM
SG&A expenses for the three and nine months ended September 30, 2023 were $5.8 million and $14.2 million, compared with $2.9 million and $11.1 million for the three and nine months ended September 30, 2022, respectively. The increase of SG&A expenses were primarily driven by higher employee compensation, severance costs and outside service costs compared to the same period last year.
Corporate
SG&A expenses for the three and nine months ended September 30, 2023 were $4.8 million and $12.7 million, respectively, compared with $3.1 million and $9.3 million for the three and nine months ended September 30, 2022. The increase of SG&A expenses were primarily driven by severance costs incurred in North America, higher consulting costs and travelling costs compared to the same period last year.
| | | | | | | | |
| | Management's Discussion and Analysis |
Other significant expense and income items for the three and nine months ended September 30, 2023
Foreign exchange gains and losses reflect net realized gains and losses on foreign currency transactions and net unrealized gains and losses on our net U.S. dollar denominated monetary assets and liabilities in our Canadian operations that were mainly comprised of cash and cash equivalents, accounts receivable and accounts payable. In addition, we have foreign exchange exposure on Euro denominated monetary assets and liabilities where the functional currency of the subsidiary is not the Euro. For the three and nine months ended September 30, 2023, we recognized foreign exchange losses of $1.4 million and $4.9 million, respectively, compared to foreign exchange losses of $2.6 million and $6.0 million for the three and nine months ended September 30, 2022, respectively. The foreign exchange losses recognized in the current quarter were primarily driven by unrealized foreign exchange losses that resulted from the translation of Euro dominated debt in our Argentinian subsidiary as well as our U.S. dollar denominated debt in our Canadian legal entities.
Depreciation and amortization for the three and nine months ended September 30, 2023 was $3.2 million and $9.3 million, compared to $2.9 million and $9.0 million for the three and nine months ended September 30, 2022, respectively. The amounts included in cost of revenue for the three and nine months ended September 30, 2023 were $2.1 million and $6.1 million, respectively, compared with $1.8 million and $5.7 million for the three and nine months ended September 30, 2022.
Interest on long-term debt and amortization of discount
(expressed in millions of U.S. dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, | | |
| | | 2023 | | 2022 | | 2023 | | 2022 | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Interest expense on long-term debt | | $ | 0.6 | | | $ | 0.6 | | | $ | 1.9 | | | $ | 1.9 | | | |
| Royalty payable accretion expense | | — | | | 0.2 | | | 0.2 | | | 0.8 | | | |
| Total interest on long-term debt and accretion on royalty payable | | $ | 0.6 | | | $ | 0.8 | | | $ | 2.1 | | | $ | 2.7 | | | |
The decrease in interest expense on long-term debt and accretion on royalty payable for the three months ended September 30, 2023 compared to the prior year period was primarily due to the extinguishment of royalty payable.
Income tax recovery was $0.1 million and income tax expense was $1.1 million for the three and nine months ended September 30, 2023 compared to income tax expense of $1.0 million and $0.9 million for the three and nine months ended September 30, 2022. The increase in income tax expense during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was mainly due to higher taxes from higher profitability of our European operations.
| | | | | | | | |
| | Management's Discussion and Analysis |
CAPITAL REQUIREMENTS, RESOURCES AND LIQUIDITY
Our cash and cash equivalents position decreased by $8.3 million during the third quarter of 2023 to $44.0 million from $52.3 million at June 30, 2023 and decreased by $42.2 million during the first nine months of 2023 from $86.2 million at December 31, 2022. The decrease in cash during the three months ended September 30, 2023 was primarily driven by net cash used in our financing activities for the net repayment of debt, and purchases of equipment.
Cash from Operating Activities
The global supply chain disruptions and high inflation continue to challenge the automotive industry with rising manufacturer costs. This is causing pressure on gross margin and gross margin percentage in the near-term. We are responding with pricing and productivity countermeasures to manage our profitability. For further discussion, see the "Long-term Profitability and Liquidity" sections in this MD&A. These conditions continue to persist. Consequently, the duration and severity of the impact on future quarters is currently uncertain.
For the three months ended September 30, 2023, our net cash from operating activities was $1.1 million, an increase of $9.7 million from net cash used of $8.6 million in the three months ended September 30, 2022. The decrease in cash used in operating activities was primarily driven by the reductions in working capital, specifically in accounts receivable, inventory, prepaid expenses and accounts payable. We had built up inventory to manage against supply chain risk against shortages of raw materials and components during 2022. We continue to take actions to monetize the existing inventory and optimize our inventory levels as well as our continuous efforts in collecting from our accounts receivable during the current quarter.
Cash Used In Investing Activities
For the three months ended September 30, 2023, our net cash used in investing activities was $4.1 million compared to $2.5 million for the three months ended September 30, 2022 as a result of increased investments in property, plant and equipment.
Cash Used In Financing Activities
For the three months ended September 30, 2023, our net cash used in financing activities was $4.4 million compared to net cash used in financing activities of $3.6 million for the three months ended September 30, 2022. In the current quarter, there were repayments towards our long-term debt and we reduced the borrowing from our revolving financing facilities compared to the same period last year.
| | | | | | | | |
| | Management's Discussion and Analysis |
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying amount | | Contractual cash flows | | < 1 year | | 1 - 3 years | | 4-5 years | | > 5 years |
| Accounts payable and accrued liabilities | | $ | 101.5 | | | $ | 101.5 | | | $ | 101.5 | | | $ | — | | | $ | — | | | $ | — | |
| Short-term debt (1) | | 6.3 | | | 6.3 | | | 6.3 | | | — | | | — | | | — | |
| Long-term debt, principal, (2) | | 35.9 | | | 35.5 | | | 10.7 | | | 22.2 | | | 2.3 | | | 0.3 | |
| Long-term debt, interest (2) | | — | | | 6.6 | | | 4.2 | | | 2.2 | | | 0.2 | | | — | |
| | | | | | | | | | | | |
| Operating lease obligations (3) | | 22.2 | | | 25.4 | | | 3.2 | | | 5.2 | | | 2.1 | | | 14.9 | |
| | $ | 165.9 | | | $ | 175.3 | | | $ | 125.9 | | | $ | 29.6 | | | $ | 4.6 | | | $ | 15.2 | |
Notes
(1) For details of our short-term debt, see note 12 in the unaudited condensed consolidated interim financial statements.
(2) For details of our long-term debt, principal and interest, see note 13 in the unaudited condensed consolidated interim financial statements.
(3) For additional information on operating lease obligations, see note 11 of the unaudited condensed consolidated interim financial statements.
SHARES OUTSTANDING
On June 1, 2023, we completed a consolidation of our issued and outstanding common shares on the basis of one common share to ten common shares (see note 16 of the unaudited condensed consolidated interim financial statements). The number of outstanding common stock and share units have been retroactively restated for all periods presented. For the three months ended September 30, 2023 and September 30, 2022, the weighted average number of shares used in calculating the basic and diluted loss per share was 17,666,649 and 17,124,606, respectively. For the nine months ended September 30, 2023 and September 30, 2022, the weighted average number of shares used in calculating the basic and diluted loss per share was 17,664,106 and 17,120,040, respectively. The Common Shares and Share Units (comprising of performance share units, restricted share units and deferred share units) outstanding and exercisable as at the following dates are shown below:
| | | | | | | | | | | | | | | | | | |
| | | September 30, 2023 | | | | November 7, 2023 |
| | | Number | | | | Number | |
| | | | | | | | | |
| Common Shares outstanding | | 17,174,972 | | | | | | 17,174,972 | | |
| Share Units | | | | | | | | |
| Outstanding | | 491,677 | | | | | | 491,677 | | |
| | | | | | | | |
| | | | | | | | |
| | Management's Discussion and Analysis |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our unaudited condensed consolidated interim financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements. We have identified several policies as critical to our business operations and in understanding our results of operations. These policies, which require the use of judgment, estimates and assumptions in determining their reported amounts, include the assessment of liquidity and going concern, warranty liability, revenue recognition, inventories and property, plant and equipment. The application of these and other accounting policies are described in note 3 of our annual consolidated financial statements and our MD&A, for the year ended December 31, 2022, filed on March 13, 2023. Actual amounts may vary significantly from estimates used. There have been no significant changes in accounting policies applied to the September 30, 2023 unaudited condensed consolidated interim financial statements and we do not expect to adopt any significant changes at this time.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the nine months ended September 30, 2023, there were no changes to our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
SUMMARY OF QUARTERLY RESULTS
Our revenues and operating results can vary significantly from quarter to quarter depending on the timing of product deliveries, product mix, product launch dates, R&D project cycles, timing of related government funding, impairment charges, restructuring charges, stock-based compensation awards and foreign exchange impacts. Net income and net loss have and can vary significantly from one quarter to another depending on operating results, gains and losses from investing activities, recognition of tax benefits and other similar events.
The following table provides summary unaudited consolidated financial data for the past years as comparison:
Selected Consolidated Quarterly Operations Data
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended |
| Three months ended | | | 31-Dec-21 | | 31-Mar-22 | | 30-Jun-22 | | 30-Sep-22 | | 31-Dec-22 | | | | 31-Mar-23 | | 30-Jun-23 | | 30-Sep-23 | |
| (expressed in millions of U.S. dollars except for per share amounts) | | | | | (1) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total revenue | | | $ | 82.7 | | | $ | 76.5 | | | $ | 80.0 | | | $ | 71.2 | | | $ | 78.0 | | | | | $ | 82.2 | | | $ | 85.0 | | | $ | 77.4 | | |
| Cost of revenue | | | $ | 73.4 | | | $ | 66.6 | | | $ | 69.5 | | | $ | 59.9 | | | $ | 73.5 | | | | | $ | 68.9 | | | $ | 70.6 | | | $ | 64.2 | | |
| Gross margin (2) | | | $ | 9.3 | | | $ | 9.9 | | | $ | 10.5 | | | $ | 11.3 | | | $ | 4.5 | | | | | $ | 13.3 | | | $ | 14.4 | | | $ | 13.2 | | |
| Gross margin percentage (2) | | | 11.2% | | 12.9% | | 13.1% | | 15.9% | | 5.8% | | | | 16.2% | | 16.9% | | 17.1% | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | | $ | 5.4 | | | $ | 7.7 | | | $ | (11.6) | | | $ | (11.9) | | | $ | (16.9) | | | | | $ | (10.6) | | | $ | (13.2) | | | $ | (11.9) | | |
| EBITDA (2) | | | $ | 8.4 | | | $ | 11.7 | | | $ | (7.7) | | | $ | (8.0) | | | $ | (13.5) | | | | | $ | (6.3) | | | $ | (10.1) | | | $ | (8.6) | | |
| Adjusted EBITDA (2) | | | $ | 10.0 | | | $ | (6.1) | | | $ | (4.3) | | | $ | (4.5) | | | $ | (12.9) | | | | | $ | (4.5) | | | $ | (4.0) | | | $ | (3.0) | | |
| U.S. dollar to Euro average exchange rate | | | 0.87 | | 0.89 | | 0.94 | | 0.99 | | 0.98 | | | | 0.93 | | 0.92 | | 0.95 | |
| U.S. dollar to Canadian dollar average exchange rate | | | 1.26 | | 1.27 | | 1.28 | | 1.31 | | 1.36 | | | | 1.35 | | 1.34 | | 1.35 | |
| Earnings (loss) per share | | | | | | | | | | | | | | | | | | | | |
| Basic | | | $ | 0.40 | | | $ | 0.50 | | | $ | (0.70) | | | $ | (0.70) | | | $ | (1.00) | | | | | $ | (0.62) | | | $ | (0.77) | | | $ | (0.68) | | |
| Diluted | | | $ | 0.30 | | | $ | 0.40 | | | $ | (0.60) | | | $ | (0.70) | | | $ | (1.00) | | | | | $ | (0.62) | | | $ | (0.77) | | | $ | (0.68) | | |
Notes
(1) During the first quarter of 2022, we recorded a $19.1 million gain on sale of investment from the sale of our interest in Cummins Westport Inc. ("CWI") and the monetization of the related intellectual property.
(2) These financial measures or ratios are non-GAAP financial measures or ratios. See the section 'Non-GAAP Financial Measures' for explanations and discussion of these non-GAAP financial measures or ratios.
| | | | | | | | |
| | Management's Discussion and Analysis |
Non-GAAP Measures:
In addition to the results presented in accordance with U.S. GAAP, we used EBIT, EBITDA, Adjusted EBITDA, gross margin, gross margin as a percentage of revenue, net working capital, and non-current liabilities (collectively, the “Non-GAAP Measures") throughout this MD&A. We believe these non-GAAP measures provide additional information that is useful to stakeholders in understanding our underlying performance and trends through the same financial measures employed by our management. We believe that EBIT, EBITDA, and Adjusted EBITDA are useful to both management and investors in their analysis of our ability to generate liquidity by producing operating cash flow to fund working capital needs, service debt obligations and fund capital expenditures. Management also uses these non-GAAP measures in its review and evaluation of the financial performance of the Company. EBITDA is also frequently used by stakeholders for valuation purposes whereby EBITDA is multiplied by a factor or "EBITDA multiple" that is based on an observed or inferred relationship between EBITDA and market values to determine the approximate total enterprise value of a company. We believe these non-GAAP financial measures also provide additional insight to stakeholders as supplemental information to our U.S. GAAP results and as a basis to compare our financial performance period-over-period and to compare our financial performance with that of other companies. We believe that these non-GAAP financial measures facilitate comparisons of our core operating results from period to period and to other companies by, in the case of EBITDA, removing the effects of our capital structure (net interest income on cash deposits, interest expense on outstanding debt and debt facilities), asset base (depreciation and amortization) and tax consequences. Adjusted EBITDA provides this same indicator of Westport's EBITDA from operations and removing such effects of our capital structure, asset base and tax consequences, but additionally excludes any unrealized foreign exchange gains or losses, stock-based compensation charges and other one-time impairments and costs that are not expected to be repeated in order to provide greater insight into the cash flow being produced from our operating business, without the influence of extraneous events. Readers should be aware that non-GAAP measures have no standardized meaning under U.S. GAAP and accordingly may not be comparable to the calculation of similar measures by other companies. Non-GAAP measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | | | | | | | | | | | | | | | | 31-Dec-21 | | 31-Mar-22 | | 30-Jun-22 | | 30-Sep-22 | | 31-Dec-22 | | 31-Mar-23 | | 30-Jun-23 | | 30-Sep-23 |
| (expressed in millions of U.S dollars) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue | | | | | | | | | | | | | | | | | | | $ | 82.7 | | | $ | 76.5 | | | $ | 80.0 | | | $ | 71.2 | | | $ | 78.0 | | | $ | 82.2 | | | $ | 85.0 | | | $ | 77.4 | |
| Less: Cost of revenue | | | | | | | | | | | | | | | | | | | 73.4 | | | 66.6 | | | 69.5 | | | 59.9 | | | 73.5 | | | 68.9 | | | 70.6 | | | 64.2 | |
| Gross margin | | | | | | | | | | | | | | | | | | | $ | 9.3 | | | $ | 9.9 | | | $ | 10.5 | | | $ | 11.3 | | | $ | 4.5 | | | $ | 13.3 | | | $ | 14.4 | | | $ | 13.2 | |
| Gross margin % | | | | | | | | | | | | | | | | | | | 11.2 | % | | 12.9 | % | | 13.1 | % | | 15.9 | % | | 5.8 | % | | 16.2 | % | | 16.9 | % | | 17.1 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2023 | | December 31, 2022 | | |
| (expressed in millions of U.S. dollars) | | | | | | | | | | |
| Accounts receivable | | | | | | $ | 100.9 | | $ | 101.6 | | |
| Inventories | | | | | | 76.9 | | 81.6 | | |
| Prepaid expenses | | | | | | 6.1 | | 7.8 | | |
| | | | | | | | | | |
| Accounts payable and accrued liabilities | | | | | | (101.5) | | (98.8) | | |
| Current portion of operating lease liabilities | | | | | | (3.2) | | (3.4) | | |
| Current portion of warranty liability | | | | | | (8.7) | | (11.3) | | |
| Net working capital | | | | | | $ | 70.5 | | $ | 77.5 | | |
| | | | | | | | |
| | Management's Discussion and Analysis |
| | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2023 | | December 31, 2022 | | |
| (expressed in millions of U.S. dollars) | | | | | | | | | | |
| Total liabilities | | | | | | $ | 184.3 | | $ | 203.5 | | |
| Less: | | | | | | | | | | |
| Total current liabilities | | | | | | 132.4 | | 135.5 | | |
| Long-term debt | | | | | | 23.2 | | 32.2 | | |
| Long-term royalty payable | | | | | | — | | 4.4 | | |
| Other non-current liabilities | | | | | | $ | 28.7 | | $ | 31.4 | | |
EBIT and EBITDA
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | | | | | | | | | | | | | | | | | | | | | 31-Dec-21 | | 31-Mar-22 | | | 30-Jun-22 | | 30-Sep-22 | | 31-Dec-22 | | 31-Mar-23 | | 30-Jun-23 | | 30-Sep-23 |
| (expressed in millions of U.S. dollars) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loss before income taxes | | | | | | | | | | | | | | | | | | | | | | | | $ | 4.6 | | | $ | 7.6 | | | | $ | (11.5) | | | $ | (11.0) | | | $ | (16.4) | | | $ | (9.7) | | | $ | (13.0) | | | $ | (12.0) | |
| Interest expense, net (1) | | | | | | | | | | | | | | | | | | | | | | | | 0.3 | | | 1.0 | | | | 0.7 | | | 0.2 | | | 0.1 | | | 0.4 | | | (0.1) | | | 0.2 | |
| EBIT | | | | | | | | | | | | | | | | | | | | | | | | 4.9 | | | 8.6 | | | | (10.8) | | | (10.8) | | | (16.3) | | | (9.3) | | | (13.1) | | | (11.8) | |
| Depreciation and amortization | | | | | | | | | | | | | | | | | | | | | | | | 3.5 | | | 3.1 | | | | 3.1 | | | 2.8 | | | 2.8 | | | 3.0 | | | 3.0 | | | 3.2 | |
| EBITDA | | | | | | | | | | | | | | | | | | | | | | | | $ | 8.4 | | | $ | 11.7 | | | | $ | (7.7) | | | $ | (8.0) | | | $ | (13.5) | | | $ | (6.3) | | | $ | (10.1) | | | $ | (8.6) | |
Notes
(1) Interest expense, net is calculated as interest and other income, net of bank charges and interest on long-term debt and accretion of royalty payables.
Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | | | | | | | | | | | | | | | | | | 31-Dec-21 | | 31-Mar-22 | | | 30-Jun-22 | | 30-Sep-22 | | 31-Dec-22 | | 31-Mar-23 | | 30-Jun-23 | | 30-Sep-23 |
| (expressed in millions of U.S. dollars) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| EBITDA | | | | | | | | | | | | | | | | | | | | | $ | 8.4 | | | $ | 11.7 | | | | $ | (7.7) | | | $ | (8.0) | | | $ | (13.5) | | | $ | (6.3) | | | $ | (10.1) | | | $ | (8.6) | |
| Stock-based compensation | | | | | | | | | | | | | | | | | | | | | 0.6 | | | 0.5 | | | | 0.9 | | | 0.8 | | | 0.2 | | | 0.7 | | | 0.8 | | | (0.3) | |
| Unrealized foreign exchange loss | | | | | | | | | | | | | | | | | | | | | 0.5 | | | 0.8 | | | | 2.5 | | | 2.7 | | | 0.4 | | | 1.1 | | | 2.4 | | | 1.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Asset impairment | | | | | | | | | | | | | | | | | | | | | 0.5 | | | — | | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gain on sale of investment | | | | | | | | | | | | | | | | | | | | | — | | | (19.1) | | | | — | | | — | | | — | | | — | | | — | | | — | |
| Loss on extinguishment of royalty payable | | | | | | | | | | | | | | | | | | | | | — | | | — | | | | — | | | — | | | — | | | — | | | 2.9 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Severance costs | | | | | | | | | | | | | | | | | | | | | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | 4.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted EBITDA | | | | | | | | | | | | | | | | | | | | | $ | 10.0 | | | $ | (6.1) | | | | $ | (4.3) | | | $ | (4.5) | | | $ | (12.9) | | | $ | (4.5) | | | $ | (4.0) | | | $ | (3.0) | |
Condensed Consolidated Interim Financial Statements (unaudited)
(Expressed in thousands of United States dollars)
WESTPORT FUEL SYSTEMS INC.
For the three and nine months ended September 30, 2023 and 2022
| | |
| WESTPORT FUEL SYSTEMS INC. |
| Condensed Consolidated Interim Balance Sheets (unaudited) |
| (Expressed in thousands of United States dollars, except share amounts) |
September 30, 2023 and December 31, 2022 |
| | | | | | | | | | | | | | |
| | | September 30, 2023 | | December 31, 2022 |
| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents (including restricted cash) | | $ | 43,967 | | | $ | 86,184 | |
| | | | |
| | | | |
| Accounts receivable (note 4) | | 100,926 | | | 101,640 | |
| Inventories (note 5) | | 76,876 | | | 81,635 | |
| Prepaid expenses | | 6,089 | | | 7,760 | |
| | | | |
| Total current assets | | 227,858 | | | 277,219 | |
| Long-term investments (note 7) | | 5,206 | | | 4,629 | |
| Property, plant and equipment (note 8) | | 65,781 | | | 62,641 | |
| Operating lease right-of-use assets | | 22,513 | | | 23,727 | |
| Intangible assets (note 9) | | 6,858 | | | 7,817 | |
| Deferred income tax assets | | 10,594 | | | 10,430 | |
| Goodwill | | 2,931 | | | 2,958 | |
| Other long-term assets | | 13,776 | | | 18,030 | |
| | | | |
| Total assets | | $ | 355,517 | | | $ | 407,451 | |
| Liabilities and shareholders’ equity | | | | |
| Current liabilities: | | | | |
| Accounts payable and accrued liabilities (note 10) | | $ | 101,505 | | | $ | 98,863 | |
| | | | |
| | | | |
| Current portion of operating lease liabilities (note 11) | | 3,186 | | | 3,379 | |
| Short-term debt (note 12) | | 6,348 | | | 9,102 | |
| Current portion of long-term debt (note 13) | | 12,698 | | | 11,698 | |
| Current portion of long-term royalty payable (note 14) | | — | | | 1,162 | |
| Current portion of warranty liability (note 15) | | 8,672 | | | 11,315 | |
| | | | |
| Total current liabilities | | 132,409 | | | 135,519 | |
| | | | |
| | | | |
| Long-term operating lease liabilities (note 11) | | 19,005 | | | 20,080 | |
| Long-term debt (note 13) | | 23,207 | | | 32,164 | |
| Long-term royalty payable (note 14) | | — | | | 4,376 | |
| Warranty liability (note 15) | | 1,249 | | | 2,984 | |
| Deferred income tax liabilities | | 3,418 | | | 3,282 | |
| Other long-term liabilities | | 5,045 | | | 5,080 | |
| | | | |
| Total liabilities | | 184,333 | | | 203,485 | |
| Shareholders’ equity: | | | | |
| Share capital (Adjusted, note 16): | | | | |
| | | | |
| Unlimited common and preferred shares, no par value | | | | |
| | | | |
| | | | |
17,174,972 (2022 - 17,130,316) common shares issued and outstanding | | 1,244,547 | | | 1,243,272 | |
| Other equity instruments | | 9,002 | | | 9,212 | |
| Additional paid in capital | | 11,516 | | | 11,516 | |
| Accumulated deficit | | (1,060,488) | | | (1,024,716) | |
| Accumulated other comprehensive loss | | (33,393) | | | (35,318) | |
| Total shareholders' equity | | 171,184 | | | 203,966 | |
| Total liabilities and shareholders' equity | | $ | 355,517 | | | $ | 407,451 | |
| Commitments and contingencies (note 18) | | | | |
| | | | |
See accompanying notes to condensed consolidated interim financial statements.
| | | | | | | | | | | | | | | | | |
| Approved on behalf of the Board: | Michele Buchignani | Director | Brenda J. Eprile | | Director |
| | |
| WESTPORT FUEL SYSTEMS INC. |
| Condensed Consolidated Interim Statements of Operations and Comprehensive Income (Loss) (unaudited) |
| (Expressed in thousands of United States dollars, except share and per share amounts) |
Three and nine months ended September 30, 2023 and 2022 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30, | | Nine months ended September 30, |
| | | 2023 | | 2022 | | 2023 | | 2022 |
| Revenue | | $ | 77,391 | | | $ | 71,182 | | | $ | 244,653 | | | $ | 227,690 | |
| | | | | | | | |
| | | | | | | | |
| Cost of revenue and expenses: | | | | | | | | |
| Cost of revenue | | 64,163 | | | 59,910 | | | 203,695 | | | 195,986 | |
| Research and development | | 5,748 | | | 6,473 | | | 18,796 | | | 17,661 | |
| General and administrative | | 12,993 | | | 8,649 | | | 33,307 | | | 26,853 | |
| Sales and marketing | | 4,088 | | | 3,351 | | | 12,557 | | | 10,914 | |
| | | | | | | | |
| Foreign exchange loss | | 1,430 | | | 2,648 | | | 4,926 | | | 5,985 | |
| Depreciation and amortization | | 1,100 | | | 1,074 | | | 3,158 | | | 3,342 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | 89,522 | | | 82,105 | | | 276,439 | | | 260,741 | |
| Loss from operations | | (12,131) | | | (10,923) | | | (31,786) | | | (33,051) | |
| | | | | | | | |
| Income from investments accounted for by the equity method | | 448 | | | 202 | | | 633 | | | 953 | |
| Gain (loss) on sale of investments and assets (note 6) | | (144) | | | — | | | (123) | | | 19,119 | |
| Interest on long-term debt and accretion on royalty payable | | (568) | | | (796) | | | (2,058) | | | (2,695) | |
| Loss on extinguishment of royalty payable (note 14) | | — | | | — | | | (2,909) | | | — | |
| Interest and other income, net of bank charges | | 382 | | | 555 | | | 1,560 | | | 793 | |
| Loss before income taxes | | (12,013) | | | (10,962) | | | (34,683) | | | (14,881) | |
| | | | | | | | |
| Income tax expense (recovery) | | (76) | | | 965 | | | 1,089 | | | 915 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Net loss for the period | | (11,937) | | | (11,927) | | | (35,772) | | | (15,796) | |
| Other comprehensive loss: | | | | | | | | |
| Cumulative translation adjustment | | 3,427 | | | (5,514) | | | (1,925) | | | (10,159) | |
| Comprehensive loss | | $ | (8,510) | | | $ | (17,441) | | | $ | (37,697) | | | $ | (25,955) | |
| | | | | | | | |
| Loss per share: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Net loss per share - basic and diluted | | $ | (0.68) | | | $ | (0.70) | | | $ | (2.03) | | | $ | (0.92) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Weighted average common shares outstanding: | | | | | | | | |
| Basic and diluted | | 17,666,649 | | | 17,124,606 | | | 17,664,106 | | | 17,120,040 | |
| | | | | | | | |
See accompanying notes to condensed consolidated interim financial statements.
| | |
|
| WESTPORT FUEL SYSTEMS INC. |
| Condensed Consolidated Interim Statements of Shareholders' Equity (unaudited) |
| (Expressed in thousands of United States dollars, except share amounts) |
Three and nine months ended September 30, 2023 and 2022 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Shares Outstanding (Adjusted, note 16) | | Share capital | | Other equity instruments | | Additional paid in capital | | Accumulated deficit | | Accumulated other comprehensive income (loss) | | Total shareholders' equity |
| | Three months ended September 30, 2022 |
| July 1, 2022 | | 17,121,903 | | | $ | 1,243,143 | | | $ | 8,516 | | | $ | 11,516 | | | $ | (995,890) | | | $ | (38,139) | | | $ | 229,146 | |
| | | | | | | | | | | | | | |
| Issuance of common shares on exercise of share units | | 7,724 | | | 107 | | | (107) | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Stock-based compensation | | — | | | — | | | 731 | | | — | | | — | | | — | | | 731 | |
| Net loss for the period | | — | | | — | | | — | | | — | | | (11,927) | | | — | | | (11,927) | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (5,514) | | | (5,514) | |
| September 30, 2022 | | 17,129,627 | | | $ | 1,243,250 | | | $ | 9,140 | | | $ | 11,516 | | | $ | (1,007,817) | | | $ | (43,653) | | | $ | 212,436 | |
| | | | | | | | | | | | | | |
| | Nine months ended September 30, 2022 |
| January 1, 2022 | | 17,079,932 | | | $ | 1,242,006 | | | $ | 8,412 | | | $ | 11,516 | | | $ | (992,021) | | | $ | (33,494) | | | $ | 236,419 | |
| | | | | | | | | | | | | | |
| Issuance of common shares on exercise of share units | | 49,695 | | | 1,244 | | | (1,244) | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Stock-based compensation | | — | | | — | | | 1,972 | | | — | | | — | | | — | | | 1,972 | |
| Net loss for the period | | — | | | — | | | — | | | — | | | (15,796) | | | — | | | (15,796) | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (10,159) | | | (10,159) | |
| September 30, 2022 | | 17,129,627 | | | $ | 1,243,250 | | | $ | 9,140 | | | $ | 11,516 | | | $ | (1,007,817) | | | $ | (43,653) | | | $ | 212,436 | |
| | | | | | | | | | | | | | |
| | Three months ended September 30, 2023 |
| July 1, 2023 | | 17,174,972 | | | $ | 1,244,547 | | | $ | 9,312 | | | $ | 11,516 | | | $ | (1,048,551) | | | $ | (29,966) | | | $ | 186,858 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Stock-based compensation | | — | | | — | | | (310) | | | — | | | — | | | — | | | (310) | |
| Net loss for the period | | — | | | — | | | — | | | — | | | (11,937) | | | — | | | (11,937) | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (3,427) | | | (3,427) | |
| September 30, 2023 | | 17,174,972 | | | $ | 1,244,547 | | | $ | 9,002 | | | $ | 11,516 | | | $ | (1,060,488) | | | $ | (33,393) | | | $ | 171,184 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | Nine months ended September 30, 2023 |
| January 1, 2023 | | 17,130,316 | | | $ | 1,243,272 | | | $ | 9,212 | | | $ | 11,516 | | | $ | (1,024,716) | | | $ | (35,318) | | | $ | 203,966 | |
| Issuance of common shares on exercise of share units | | 44,656 | | | 1,275 | | | (1,275) | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Stock-based compensation | | — | | | — | | | 1,065 | | | — | | | — | | | — | | | 1,065 | |
| Net loss for the period | | — | | | — | | | — | | | — | | | (35,772) | | | — | | | (35,772) | |
| Other comprehensive gain | | — | | | — | | | — | | | — | | | — | | | 1,925 | | | 1,925 | |
| September 30, 2023 | | 17,174,972 | | | $ | 1,244,547 | | | $ | 9,002 | | | $ | 11,516 | | | $ | (1,060,488) | | | $ | (33,393) | | | $ | 171,184 | |
| | | | | | | | | | | | | | |
| | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
See accompanying notes to condensed consolidated interim financial statements.
| | |
| WESTPORT FUEL SYSTEMS INC. |
| Condensed Consolidated Interim Statements of Cash Flows (unaudited) |
| (Expressed in thousands of United States dollars) |
Three and nine months ended September 30, 2023 and 2022 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Operating activities: | | | | | | | | |
| Net loss for the period | | $ | (11,937) | | | $ | (11,927) | | | $ | (35,772) | | | $ | (15,796) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
| Depreciation and amortization | | 3,250 | | | 2,900 | | | 9,270 | | | 9,040 | |
| Stock-based compensation expense | | (310) | | | 731 | | | 1,065 | | | 1,972 | |
| Unrealized foreign exchange loss | | 1,430 | | | 2,648 | | | 4,926 | | | 5,985 | |
| Deferred income tax | | (324) | | | 531 | | | (347) | | | — | |
| Income from investments accounted for by the equity method | | (448) | | | (202) | | | (633) | | | (953) | |
| Interest on long-term debt and accretion on royalty payable | | 568 | | | 796 | | | 2,058 | | | 2,695 | |
| Change in inventory write-downs to net realizable value | | 500 | | | 476 | | | 2,078 | | | 1,025 | |
| Loss on extinguishment of royalty payable | | — | | | — | | | 2,909 | | | — | |
| Change in bad debt expense | | 304 | | | 219 | | | 676 | | | 278 | |
| | | | | | | | |
| | | | | | | | |
| (Gain) loss on sale of investment and assets | | 144 | | | — | | | 123 | | | (19,119) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | 2,877 | | | 3,342 | | | 2,305 | | | 5,813 | |
| Inventories | | 3,359 | | | (387) | | | 2,231 | | | (12,270) | |
| Prepaid expenses | | 1,889 | | | (2,555) | | | 3,296 | | | (3,743) | |
| Accounts payable and accrued liabilities | | 844 | | | (2,971) | | | 1,894 | | | (10,251) | |
| | | | | | | | |
| Warranty liability | | (1,061) | | | (2,192) | | | (3,622) | | | (6,671) | |
| | | | | | | | |
| Net cash from (used in) operating activities | | 1,085 | | | (8,591) | | | (7,543) | | | (41,995) | |
| | | | | | | | |
| | | | | | | | |
| Investing activities: | | | | | | | | |
| Purchase of property, plant and equipment and other assets | | (4,081) | | | (2,467) | | | (11,993) | | | (8,450) | |
| | | | | | | | |
| Purchase of intangible assets | | — | | | (78) | | | — | | | (374) | |
| | | | | | | | |
| Proceeds on sale of investments and assets | | — | | | — | | | 133 | | | 31,949 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Net cash from (used in) investing activities | | (4,081) | | | (2,545) | | | (11,860) | | | 23,125 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Financing activities: | | | | | | | | |
| | | | | | | | |
| Repayments of short and long-term facilities | | (11,943) | | | (13,353) | | | (34,819) | | | (49,952) | |
| Drawings on operating lines of credit and long-term facilities | | 7,497 | | | 9,707 | | | 20,593 | | | 35,099 | |
| Payment of royalty payable | | — | | | — | | | (8,687) | | | (5,200) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Net cash used in financing activities | | (4,446) | | | (3,646) | | | (22,913) | | | (20,053) | |
| | | | | | | | |
| Effect of foreign exchange on cash and cash equivalents | | (856) | | | 3,109 | | | 99 | | | 532 | |
| Net decrease in cash and cash equivalents | | (8,298) | | | (11,673) | | | (42,217) | | | (38,391) | |
| Cash and cash equivalents, beginning of period (including restricted cash) | | 52,265 | | | 98,174 | | | 86,184 | | | 124,892 | |
| Cash and cash equivalents, end of period (including restricted cash) | | $ | 43,967 | | | $ | 86,501 | | | $ | 43,967 | | | $ | 86,501 | |
| | |
| WESTPORT FUEL SYSTEMS INC. |
| Condensed Consolidated Interim Statements of Cash Flows (unaudited) |
| (Expressed in thousands of United States dollars) |
Three and nine months ended September 30, 2023 and 2022 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Supplementary information: | | | | | | | | |
| Interest paid | | $ | 686 | | | $ | 578 | | | $ | 2,183 | | | $ | 2,212 | |
| Taxes paid, net of refunds | | 606 | | | 406 | | | 1,638 | | | 1,245 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
See accompanying notes to condensed consolidated interim financial statements.
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
Three and nine months ended September 30, 2023 and 2022 |
1. Company organization and operations:
Westport Fuel Systems Inc. (the “Company”) was incorporated under the Business Corporations Act (Alberta) on March 20, 1995. Westport Fuel Systems Inc. is a global company focused on engineering, manufacturing, and supplying alternative fuel systems and components for transportation applications. The Company’s diverse product offerings sold under a wide range of established global brands enable the use of a number of alternative fuels in the transportation sector which provide environmental and/or economic advantages as compared to diesel, gasoline, batteries or fuel cell powered vehicles. The Company's fuel systems and associated components control the pressure and flow of these alternative fuels, including liquid petroleum gas ("LPG"), compressed natural gas ("CNG"), liquified natural gas ("LNG"), renewable natural gas ("RNG") or biomethane, and hydrogen. The Company supplies its products in more than 70 countries through a network of distributors, service providers for the aftermarket and directly to original equipment manufacturers (“OEMs”) and Tier 1 and Tier 2 OEM suppliers. The Company’s products and services are available for passenger car and light-, medium- and heavy-duty truck and off-road applications.
2. Liquidity and going concern:
In connection with preparing consolidated financial statements for each annual and interim reporting period, the Company is required to evaluate whether there are conditions or events, considered in aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. Substantial doubt exists when conditions and events, considered in aggregate, indicate that it is probable that a company will be unable to meet its obligations as they become due within one year after the date that the consolidated financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans and actions that have not been fully implemented as of the date that the financial statements are issued. When substantial doubt exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both: (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued; and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.
Management's evaluation has concluded that there are no known or currently foreseeable conditions or events that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date these unaudited condensed consolidated interim financial statements ("interim financial statements") are issued. These interim financial statements have therefore been prepared on the basis that the Company will continue as a going concern.
The assessment of liquidity and going concern requires the Company to make judgments about the existence of conditions or events that raise substantial doubt about the ability to continue as a going concern within one year after the date that these interim financial statements are issued. This includes judgments about the Company's future activities and the timing thereof and estimates of future cash flows. Significant assumptions used in the Company's forecasted model of liquidity include forecasted sales, including forecasted increases in sales within the heavy-duty OEM business, forecasted costs and capital expenditures, amongst others. Changes in the assumptions could have a material impact on the forecasted liquidity and going concern assessment.
The Company continues to sustain operating losses and negative cash flows from operating activities. As at September 30, 2023, the Company has cash and cash equivalents of $43,967 and cash flow used in operating activities of $7,543 for the nine months ended September 30, 2023 primarily driven by the operating losses of $31,786 and an increase in working capital. The Company's short-term and long-term debt was $42,253, net of deferred financing fees, of which $19,046 matures within one year from September 30, 2023. The Company has a term loan with Export Development Canada (“EDC”). In September 2023, the Company amended the minimum cash covenant under the EDC term loan reducing the minimum cash requirement from $40,000 to $15,000. If the Company’s cash and cash equivalents fall below the minimum cash requirement, the Company may be required to repay the outstanding amount of the term loan, which was $12,025 at September 30, 2023.
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
Three and nine months ended September 30, 2023 and 2022 |
2. Liquidity and going concern (continued):
The Company is closely monitoring and making efforts to mitigate the impact on the business from global supply chain shortages of semiconductors, raw materials and other parts. Besides shortages, the Company is incurring inflationary pressure on production input costs from sourcing semiconductors, raw materials and parts, higher energy costs in operating the Company's factories and increased labor costs that are impacting margins. The Company sources components globally and is exposed to price risk and inflation risk, which may affect the Company's liquidity.
Management is closely monitoring its financial condition and is working on initiatives to reduce its working capital and increase profitability to improve its cash flow from operating activities. The Company’s current financial projections expect meaningful collections of accounts receivable from key customers and a reduction in inventory levels across the Company’s operations.
The ability to continue as a going concern beyond November 2024 will depend on the Company's ability to generate sufficient positive cash flows from its operations, specifically through working capital improvement, profitable and sustainable growth, and the Company's ability to finance its long-term strategic objectives and operations. If, as a result of future events, the Company was to determine it was no longer able to continue as a going concern, significant adjustments would be required to the carrying value of assets and liabilities in the accompanying, consolidated financial statements and the adjustments could be material.
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
Three and nine months ended September 30, 2023 and 2022 |
3. Basis of preparation:
(a) Basis of presentation:
The interim financial statements have been prepared by the Company and do not include all of the information and disclosures required by accounting principles generally accepted in the United States ("GAAP"). In the opinion of management, all normal recurring accruals and adjustments considered necessary for a fair presentation have been included. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The interim financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements for the year ended December 31, 2022.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the interim financial statements and accompanying notes. Actual results could differ from those estimates.
(b) Foreign currency translation:
The Company’s functional currency is the Canadian dollar and its reporting currency for its interim financial statement presentation is the United States dollar (“U.S. dollar”). The functional currencies for the Company's subsidiaries include the following: U.S. dollar, Canadian dollar, Euro, Argentina Peso, Chinese Renminbi (“RMB”), Swedish Krona, Indian Rupee, and Polish Zloty. The Company translates assets and liabilities of non-U.S. dollar functional currency operations using the period end exchange rates, shareholders’ equity balances using the weighted average of historical exchange rates, and revenues and expenses using the monthly average rate for the period, with the resulting exchange differences recognized in other comprehensive income.
Transactions that are denominated in currencies other than the functional currencies of the Company’s or its subsidiaries' operations are translated at the rates in effect on the date of the transaction. Foreign currency denominated monetary assets and liabilities are translated to the applicable functional currency at the exchange rates in effect on the balance sheet date. Non-monetary assets and liabilities are translated at the historical exchange rate. All foreign exchange gains and losses are recognized in the statement of operations, except for the translation gains and losses arising from available-for-sale instruments, which are recorded through other comprehensive income until realized through disposal or impairment.
Except as otherwise noted, all amounts in these interim financial statements are presented in thousands of U.S. dollars. For the periods presented, the Company used the following exchange rates:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Period ended | | Average for the three months ended | | Average for the nine months ended |
| | September 30, 2023 | | December 31, 2022 | | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
| Canadian Dollar | 1.35 | | | 1.35 | | | 1.34 | | | 1.31 | | | 1.35 | | | 1.28 | |
| Euro | 0.95 | | | 0.94 | | | 0.92 | | | 0.99 | | | 0.92 | | | 0.94 | |
| RMB | 7.30 | | | 6.90 | | | 7.25 | | | 6.85 | | | 7.03 | | | 6.60 | |
| Polish Zloty | 4.36 | | | 4.39 | | | 4.13 | | | 4.71 | | | 4.23 | | | 4.38 | |
| Swedish Krona | 10.90 | | | 10.42 | | | 10.80 | | | 10.55 | | | 10.59 | | | 9.88 | |
| | | | | | | | | | | |
| Indian Rupee | 83.05 | | | 82.69 | | | 82.69 | | | 79.79 | | | 82.35 | | | 77.35 | |
| Argentina Peso | 348.56 | | | 176.79 | | | 306.51 | | | 135.30 | | | 234.07 | | | 118.67 | |
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
Three and nine months ended September 30, 2023 and 2022 |
4. Accounts receivable:
| | | | | | | | | | | | | | |
| | | September 30, 2023 | | December 31, 2022 |
| Customer trade receivables | | $ | 85,791 | | | $ | 82,533 | |
| | | | |
| Other receivables | | 17,920 | | | 19,355 | |
| Income tax receivable | | 903 | | | 818 | |
| Due from related parties (note 17) | | 1,683 | | | 3,974 | |
| Allowance for expected credit losses | | (5,371) | | | (5,040) | |
| | | $ | 100,926 | | | $ | 101,640 | |
5. Inventories:
| | | | | | | | | | | | | | |
| | | September 30, 2023 | | December 31, 2022 |
| Purchased parts | | $ | 59,434 | | | $ | 61,213 | |
| Work-in-process | | 3,403 | | | 2,423 | |
| Finished goods | | 14,039 | | | 17,999 | |
| | | | |
| | | $ | 76,876 | | | $ | 81,635 | |
During the three and nine months ended September 30, 2023, the Company recorded write-downs to net realizable value of $500 and $2,078, respectively (three and nine months ended September 30, 2022 - $476 and $1,025, respectively).
6. Sale of investment:
On February 7, 2022, the Company sold 100% of its shares in Cummins Westport Inc. ("CWI") to Cummins Inc. ("Cummins") for proceeds of $22,200, with Cummins continuing to operate the business as the sole owner. As part of the agreement, Cummins agreed to purchase the Company's interest in the intellectual property with proceeds to the Company of $20,000. The Company received proceeds of $31,445, net of a $10,800 holdback, after the closing date. The holdback will be retained by Cummins for a term of three years to satisfy any extended warranty obligations in excess of the current recorded extended warranty obligation. Any unused amounts will be repaid to the Company at the end of three-year term and, in the event that the holdback is not sufficient to cover the extended warranty obligations, the Company may also be required to supplement this holdback amount to cover valid extended warranty claims.
| | | | | | | | |
| | | December 31, 2022 |
| Proceeds from sale of investment | | $ | 31,445 | |
| Holdback receivable (a) | | 9,713 | |
| Carrying value of investment | | (22,039) | |
| Gain on sale of investment | | $ | 19,119 | |
(a) Holdback receivable is included in other long-term assets in the condensed consolidated interim balance sheet.
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
Three and nine months ended September 30, 2023 and 2022 |
7. Long-term investments:
| | | | | | | | | | | | | | |
| | | September 30, 2023 | | December 31, 2022 |
| Weichai Westport Inc. | | $ | 1,824 | | | $ | 1,824 | |
| Minda Westport Technologies Limited (a) | | 3,234 | | | 2,657 | |
| Other equity-accounted investees | | 148 | | | 148 | |
| | | $ | 5,206 | | | $ | 4,629 | |
| | | | |
(a) On September 28, 2023, the Company entered into a Share Purchase Agreement with Uno Minda Limited to sell 26% of the share capital of Minda Westport Technologies Limited ("MWTL") for a consideration of approximately $1,777 upon completion of the transaction. The carrying value of 26% of the share capital of MWTL was $1,682 as at September 30, 2023.
8. Property, plant and equipment:
| | | | | | | | | | | | | | | | | | | | |
| | | | | Accumulated | | Net book |
| September 30, 2023 | | Cost | | depreciation | | value |
| Land and buildings | | $ | 8,557 | | | $ | 2,371 | | | $ | 6,186 | |
| Computer equipment and software | | 9,746 | | | 7,636 | | | 2,110 | |
| Furniture and fixtures | | 8,244 | | | 6,259 | | | 1,985 | |
| Machinery and equipment | | 124,075 | | | 72,065 | | | 52,010 | |
| Leasehold improvements | | 13,977 | | | 10,487 | | | 3,490 | |
| | | $ | 164,599 | | | $ | 98,818 | | | $ | 65,781 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Accumulated | | Net book |
| December 31, 2022 | | Cost | | depreciation | | value |
| Land and buildings | | $ | 8,455 | | | $ | 2,107 | | | $ | 6,348 | |
| Computer equipment and software | | 8,756 | | | 6,740 | | | 2,016 | |
| Furniture and fixtures | | 7,283 | | | 5,606 | | | 1,677 | |
| Machinery and equipment | | 115,235 | | | 66,272 | | | 48,963 | |
| Leasehold improvements | | 13,874 | | | 10,237 | | | 3,637 | |
| | | $ | 153,603 | | | $ | 90,962 | | | $ | 62,641 | |
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
Three and nine months ended September 30, 2023 and 2022 |
9. Intangible assets:
| | | | | | | | | | | | | | | | | | | | |
| | | | | Accumulated | | Net book |
| September 30, 2023 | | Cost | | amortization | | value |
| Brands, patents and trademarks | | $ | 19,591 | | | $ | 12,876 | | | $ | 6,715 | |
| Technology | | 3,916 | | | 3,773 | | | 143 | |
| Customer contracts | | 11,142 | | | 11,142 | | | — | |
| | | | | | |
| | $ | 34,649 | | | $ | 27,791 | | | $ | 6,858 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Accumulated | | Net book |
| December 31, 2022 | | Cost | | amortization | | value |
| Brands, patents and trademarks | | $ | 19,799 | | | $ | 12,189 | | | $ | 7,610 | |
| Technology | | 3,952 | | | 3,745 | | | 207 | |
| Customer contracts | | 11,242 | | | 11,242 | | | — | |
| | $ | 34,993 | | | $ | 27,176 | | | $ | 7,817 | |
| | | | | | |
10. Accounts payable and accrued liabilities:
| | | | | | | | | | | | | | |
| | | September 30, 2023 | | December 31, 2022 |
| Trade accounts payable | | $ | 77,259 | | | $ | 72,934 | |
| Accrued payroll | | 17,374 | | | 17,069 | |
| Taxes payable | | 4,927 | | | 4,425 | |
| Deferred revenue | | 1,945 | | | 4,435 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | $ | 101,505 | | | $ | 98,863 | |
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
Three and nine months ended September 30, 2023 and 2022 |
11. Operating leases right-of-use assets and lease liabilities:
The Company has entered into various non-cancellable operating lease agreements primarily for its manufacturing facilities and offices. The Company's leases have lease terms expiring between 2024 and 2038. Many leases include one or more options to renew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. The average remaining lease term is approximately five years and the present value of the outstanding operating lease liability was determined applying a weighted average discount rate of 3.0% based on incremental borrowing rates applicable in each location.
The components of lease cost are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Operating lease cost: | | | | | | | | |
| Amortization of right-of-use assets | | $ | 753 | | | $ | 833 | | | $ | 2,388 | | | $ | 2,705 | |
| Interest | | 143 | | | 170 | | | 493 | | | 556 | |
| | | | | | | | |
| | | | | | | | |
| Total lease cost | | $ | 896 | | | $ | 1,003 | | | $ | 2,881 | | | $ | 3,261 | |
The maturities of lease liabilities as at September 30, 2023 are as follows:
| | | | | | | | |
| | |
| The remainder of 2023 | | $ | 895 | |
| 2024 | | 3,055 | |
| 2025 | | 2,623 | |
| 2026 | | 2,473 | |
| 2027 | | 2,405 | |
| Thereafter | | 14,038 | |
| Total undiscounted cash flows | | 25,489 | |
| Less: imputed interest | | (3,298) | |
| Present value of operating lease liabilities | | 22,191 | |
| Less: current portion | | (3,186) | |
| Long-term operating lease liabilities | | $ | 19,005 | |
12. Short-term debt:
| | | | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 |
| Revolving financing facilities | | $ | 6,348 | | | $ | 9,102 | |
| | | | |
| | | | |
The Company has a revolving financing facility with Hong Kong and Shanghai Banking Corporation ("HSBC"). This facility is secured by certain receivables of the Company and the maximum draw amount is $20,000, based on the receivables outstanding. As the Company collects these secured receivables, the facility is repaid. The revolving financing facility's advances in either U.S. dollars or Euros bear interest at the secured overnight financing rate plus 3.76% per annum and the Euro short-term rate plus 3.60%, respectively. As at September 30, 2023, the amount outstanding for this loan was $6,348 (December 31, 2022 - $8,308).
Revolving financing facilities include a line of credit with Santander with a maximum draw amount of $800 and bear interest at
a range of 2.02% - 3.04%. As at September 30, 2023, the amount outstanding was nil (December 31, 2022 - $794).
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
Three and nine months ended September 30, 2023 and 2022 |
13. Long-term debt:
| | | | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 |
| Term loan facilities, net of debt issuance costs (a) | | $ | 33,833 | | | $ | 41,934 | |
| | | | |
| | | | |
| Other bank financing | | 508 | | | 512 | |
| Capital lease obligations | | 1,564 | | | 1,416 | |
| Balance, end of period | | 35,905 | | | 43,862 | |
| Current portion | | (12,698) | | | (11,698) | |
| Long-term portion | | $ | 23,207 | | | $ | 32,164 | |
(a) On December 13, 2021, the credit facility and non-revolving term facility with EDC were refinanced into one $20,000 term loan. The refinanced term loan provides an extension of the maturity of the indebtedness to EDC to September 15, 2026, an interest rate of U.S. Prime Rate plus 2.01% per annum and both principal and interest repayments are quarterly. The Company incurred costs of $300 related to this amendment, which are being amortized over the remainder of the loan term from the debt modification date using the effective interest rate method.
As at September 30, 2023, the amount outstanding for this loan was $11,740, net of transaction costs (December 31, 2022 - $14,683). The loan is secured by share pledges over Westport Fuel Systems Canada Inc., Fuel Systems Solutions, Inc., Westport Luxembourg S.a.r.l and by certain of the Company's property, plant and equipment.
On October 9, 2018, and November 28, 2019, the Company entered into two Euro denominated loan agreements with UniCredit S.p.A. (“UniCredit”). On April 29, 2021, the Company and UniCredit amended the terms of the above Euro denominated loan agreements to combine the facilities into one loan facility. This loan matures on March 31, 2027, bears interest at an annual rate of 1.65% and interest is paid quarterly. As at September 30, 2023, the amount outstanding for this loan was $6,977 (December 31, 2022 - $8,044).
On May 20, 2020, the Company entered into a third Euro denominated loan agreement with UniCredit. The effective interest rate of this loan is 1.82% with a maturity date of May 31, 2025. As at September 30, 2023, the amount outstanding for this loan was $1,885 (December 31, 2022 - $2,699). There is no security on the loan as it was made as part of the Italian government's COVID-19 Decreto Liquidità to help Italian companies to secure liquidity to continue operating while mitigating some of the impact of COVID-19.
On July 17, 2020, the Company entered into a fourth Euro denominated loan agreement with UniCredit. The effective interest rate of this loan is 1.75% with a maturity date of July 31, 2026. As at September 30, 2023, the amount outstanding for this loan was $8,725 (December 31, 2022 - $11,273). There is no security on the loan as it was made as part of the Italian government’s COVID-19 Decreto Liquidità.
On August 11, 2020, the Company entered into a Euro denominated loan agreement with Deutsche Bank. The effective interest rate of this loan is 1.7% with a maturity date of August 31, 2026. As at September 30, 2023, the amount outstanding for this loan was $4,506 (December 31, 2022 - $5,235). There is no security on the loan as it was made as part of the Italian government’s COVID-19 Decreto Liquidità.
Throughout the term of certain of these financing arrangements, the Company is required to meet certain financial and non-financial covenants. As of September 30, 2023, the Company is in compliance with all covenants under the financing arrangements.
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
Three and nine months ended September 30, 2023 and 2022 |
13. Long-term debt (continued):
The principal repayment schedule of long-term debt is as follows as at September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Term loan facilities | | | | | | Other bank financing | | Capital lease obligations | | Total |
| Remainder of 2023 | | $ | 3,297 | | | | | | | $ | — | | | $ | 127 | | | $ | 3,424 | |
| 2024 | | 11,676 | | | | | | | 127 | | | 563 | | | 12,366 | |
| 2025 | | 11,104 | | | | | | | 127 | | | 383 | | | 11,614 | |
| 2026 | | 7,261 | | | | | | | 127 | | | 205 | | | 7,593 | |
| 2027 and thereafter | | 495 | | | | | | | 127 | | | 286 | | | 908 | |
| | $ | 33,833 | | | | | | | $ | 508 | | | $ | 1,564 | | | $ | 35,905 | |
14. Long-term royalty payable:
| | | | | | | | | | | | | | |
| | | September 30, 2023 | | December 31, 2022 |
| Balance, beginning of period | | $ | 5,538 | | | $ | 9,947 | |
| Accretion expense | | 240 | | | 791 | |
| Repayment | | (8,687) | | | (5,200) | |
| Loss on extinguishment | | 2,909 | | | — | |
| Balance, end of period | | — | | | 5,538 | |
| Less: current portion | | — | | | (1,162) | |
| Long-term portion | | $ | — | | | $ | 4,376 | |
In April 2023, the Company and Cartesian Capital Group ("Cartesian") entered into a settlement agreement to terminate the Tranche 1 Financing and the Consent Agreement in exchange for mutual releases and cash consideration, which included the release of the security interest in the Company's HPDI 2.0 fuel system intellectual property. The Company repaid Cartesian $8,687 on April 3, 2023 and recorded a $2,909 loss on extinguishment during the three months ended June 30, 2023.
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
Three and nine months ended September 30, 2023 and 2022 |
15. Warranty liability:
A continuity of the warranty liability is as follows:
| | | | | | | | | | | | | | |
| | | September 30, 2023 | | December 31, 2022 |
| | | | |
| Balance, beginning of period | | $ | 14,299 | | | $ | 18,791 | |
| Warranty claims and expenditures | | (3,887) | | | (11,081) | |
| Warranty accruals | | 3,128 | | | 4,338 | |
| Change in estimate | | (2,498) | | | 3,559 | |
| Impact of foreign exchange | | (1,121) | | | (1,308) | |
| Balance, end of period | | 9,921 | | | 14,299 | |
| Less: current portion | | (8,672) | | | (11,315) | |
| Long-term portion | | $ | 1,249 | | | $ | 2,984 | |
16. Share capital, stock options and other stock-based plans:
On June 1, 2023, the Company completed a consolidation of its issued and outstanding common shares on the basis of one new post-consolidation common share for every ten existing pre-consolidation common shares (the "Consolidation"). No fractional common shares were issued and any fractional shares were rounded down to the nearest whole common shares. The number of outstanding common shares and share units issued have been retroactively adjusted for all periods presented.
During the three and nine months ended September 30, 2023, the Company issued nil and 44,656 common shares, respectively, net of cancellations, round down of fractional common shares and upon exercises of share units (three and nine months ended September 30, 2022 – 7,724 and 49,695 common shares, respectively). The Company issues shares from treasury to satisfy share unit exercises.
(a) Share Units (“Units”):
The value assigned to issued Units and the amounts accrued are recorded as other equity instruments. As Units are exercised or vest and the underlying shares are issued from treasury of the Company, the value is reclassified to share capital.
During the three and nine months ended September 30, 2023, the Company recognized a reversal of $265 and expense of $1,238, respectively (three and nine months ended September 30, 2022 - $807 and $2,202 expenses, respectively) of stock-based compensation associated with the Westport Omnibus Plan.
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
Three and nine months ended September 30, 2023 and 2022 |
16. Share capital, stock options and other stock-based plans (continued):
A continuity of the Units issued under the Westport Omnibus Plan as at September 30, 2023 and September 30, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine months ended September 30, 2023 | | Nine months ended September 30, 2022 |
| | | Number of
units | | Weighted
average
grant
date fair
value
(CDN $) | | Number of
units | | Weighted
average
grant
date fair
value
(CDN $) |
| Outstanding, beginning of period | | 317,432 | | | $ | 24.10 | | | 186,643 | | | $ | 29.80 | |
| Granted | | 435,128 | | | 13.78 | | | 254,109 | | | 18.30 | |
| Exercised | | (44,656) | | | 38.56 | | | (49,695) | | | 31.80 | |
| Forfeited/expired | | (216,227) | | | 19.44 | | | (4,216) | | | 28.40 | |
| Outstanding, end of period | | 491,677 | | | $ | 15.73 | | | 386,841 | | | $ | 22.10 | |
| Units outstanding and exercisable, end of period | | — | | | $ | — | | | 111 | | | $ | 65.00 | |
During the nine months ended September 30, 2023, 435,128 share units were granted to certain employees and directors (2022 - 254,109). This included 147,557 restricted share units (“RSUs”) (2022 - 131,970), 185,365 performance share units (“PSUs”) (2022 - 122,139) and 102,206 deferred share units ("DSUs") (2022 - Nil). Values of RSU and DSU awards are generally determined based on the fair market value of the underlying common shares on the date of grant. RSUs typically vest over a three-year period so the actual value received by the individual depends on the share price on the day such RSUs are settled for common shares, not the date of grant. Vesting of DSUs occurs, immediately prior to the resignation, retirement or termination of directorship, in accordance with the terms of Westport's Omnibus Plan The value of PSU awards is determined using the Monte–Carlo simulation model. PSU awards do not have a certain number of common shares that will issue over time, but are based on future performance and other conditions tied to the payout of the PSU.
As at September 30, 2023, $3,622 of compensation cost related to Units awarded has yet to be recognized in results from operations and will be recognized ratably over two years.
(b) Aggregate intrinsic values:
The aggregate intrinsic value of the Company’s share units at September 30, 2023 as follows:
| | | | | | | | |
| | | September 30, 2023 |
| | (CDN $) |
| Share units: | | |
| Outstanding | | $ | 4,047 | |
| Exercisable | | — | |
| | |
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
Three and nine months ended September 30, 2023 and 2022 |
16. Share capital, stock options and other stock-based plans (continued):
(c) Stock-based compensation:
Stock-based compensation associated with the Unit plans is included in operating expenses as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2023 | | 2022 | | 2023 | | 2022 |
| Cost of revenue | | $ | (34) | | | $ | 63 | | | $ | 58 | | | $ | 160 | |
| Research and development | | 133 | | | 110 | | | 397 | | | 291 | |
| General and administrative | | (441) | | | 558 | | | 567 | | | 1,558 | |
| Sales and marketing | | 77 | | | 76 | | | 216 | | | 193 | |
| | | $ | (265) | | | $ | 807 | | | $ | 1,238 | | | $ | 2,202 | |
Of the share-based compensation recovery and expense recognized in the three and nine months ended September 30, 2023, $310 and $1,065 was settled in shares and $45 and $173 was settled in cash respectively (three and nine months ended September 30, 2022 - $731 and $1,972 was settled in shares and $76 and $230 was settled in cash, respectively).
17. Related party transactions:
The Company enters into related party transactions with Minda Westport Technologies Limited and recognized $1,683 of accounts receivable as at September 30, 2023 (December 31, 2022 - $3,974). During the three and nine months ended September 30, 2023, the Company sold inventory to Minda Westport Technologies Limited for $1,519 and $5,581, respectively (three and nine months ended September 30, 2022 - $310 and $2,891, respectively).
18. Commitments and contingencies:
(a) Contractual commitments
The Company is a party to a variety of agreements in the ordinary course of business under which it is obligated to indemnify a third party with respect to certain matters. Typically, these obligations arise as a result of contracts for sale of the Company’s product to customers where the Company provides indemnification against losses arising from matters such as product liabilities. The potential impact on the Company’s financial results is not subject to reasonable estimation because considerable uncertainty exists as to whether claims will be made and the final outcome of potential claims. To date, the Company has not incurred significant costs related to these types of indemnifications.
(b) Contingencies
The Company is engaged in certain legal actions and tax audits in the ordinary course of business and believes that, based on the information currently available, the ultimate outcome of these actions will not have a material adverse effect on the Company's operating results, liquidity or financial position.
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
Three and nine months ended September 30, 2023 and 2022 |
19. Segment information:
The Company manages and reports the results of its business through three segments: OEM, Independent Aftermarket (“IAM”), and Corporate. This reflects the manner in which operating decisions and assessing business performance is currently managed by the Chief Operating Decision Maker (“CODM”).
Financial information by business segment as follows:
| | | | | | | | | | | | | | | |
| Three months ended September 30, 2023 | |
| Revenue | Operating loss | Depreciation & amortization | Equity income | |
| OEM | $ | 52,948 | | $ | (6,181) | | $ | 2,485 | | $ | 448 | | |
| IAM | 24,443 | | (968) | | 625 | | — | | |
| Corporate | — | | (4,982) | | 140 | | — | | |
| | | | | |
| | | | | |
| | | | | |
| Total Consolidated | $ | 77,391 | | $ | (12,131) | | $ | 3,250 | | $ | 448 | | |
| | | | | |
| | | | | | | | | | | | | | | |
| Three months ended September 30, 2022 | |
| Revenue | Operating income (loss) | Depreciation & amortization | Equity income | |
| OEM | $ | 44,142 | | $ | (7,265) | | $ | 2,073 | | $ | 202 | | |
| IAM | 27,040 | | 2,145 | | 713 | | — | | |
| Corporate | — | | (5,803) | | 114 | | — | | |
| Total Consolidated | $ | 71,182 | | $ | (10,923) | | $ | 2,900 | | $ | 202 | | |
| | | | | |
| | | | | | | | | | | | | | | |
| Nine months ended September 30, 2023 | |
| Revenue | Operating income (loss) | Depreciation & amortization | Equity income | |
| OEM | $ | 161,581 | | $ | (19,532) | | $ | 6,992 | | $ | 633 | | |
| IAM | 83,072 | | 682 | | 1,876 | | — | | |
| Corporate | — | | (12,936) | | 402 | | — | | |
| | | | | |
| | | | | |
| | | | | |
| Total Consolidated | $ | 244,653 | | $ | (31,786) | | $ | 9,270 | | $ | 633 | | |
| | | | | |
| | | | | | | | | | | | | | | |
| Nine months ended September 30, 2022 | |
| Revenue | Operating income (loss) | Depreciation & amortization | Equity income | |
| OEM | $ | 150,243 | | $ | (19,179) | | $ | 6,367 | | $ | 953 | | |
| IAM | 77,447 | | 1,778 | | 2,371 | | — | | |
| Corporate | — | | (15,650) | | 302 | | — | | |
| Total Consolidated | $ | 227,690 | | $ | (33,051) | | $ | 9,040 | | $ | 953 | | |
| | | | | |
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
Three and nine months ended September 30, 2023 and 2022 |
19. Segment information (continued):
Revenues are attributable to geographical regions based on the location of the Company’s customers and are presented as a percentage of the Company's revenues, as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | % of revenue |
| | | Three months ended September 30, | | Nine months ended September 30, |
| | | 2023 | | 2022 | | 2023 | | 2022 |
| Europe | | 70 | % | | 61 | % | | 69 | % | | 65 | % |
| Asia | | 10 | % | | 15 | % | | 10 | % | | 15 | % |
| Americas | | 13 | % | | 15 | % | | 13 | % | | 12 | % |
| Africa | | 2 | % | | 5 | % | | 4 | % | | 4 | % |
| Other | | 5 | % | | 4 | % | | 4 | % | | 4 | % |
Total assets are allocated as follows:
| | | | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 |
| OEM | | $ | 202,532 | | | $ | 241,795 | |
| IAM | | 143,550 | | | 145,377 | |
| Corporate | | 9,435 | | | 20,279 | |
| Total consolidated assets | | $ | 355,517 | | | $ | 407,451 | |
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
Three and nine months ended September 30, 2023 and 2022 |
20. Financial instruments:
Financial management risk
The Company has exposure to liquidity risk, credit risk, foreign currency risk and interest rate risk.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they are due. The Company has a history of operating losses and negative cash flows from operations. At September 30, 2023, the Company had $43,967 of cash and cash equivalents.
The following are the contractual maturities of financial obligations as at September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying
amount | | Contractual
cash flows | | < 1 year | | 1-3 years | | 4-5 years | | >5 years |
| Accounts payable and accrued liabilities | | $ | 101,505 | | | $ | 101,505 | | | $ | 101,505 | | | $ | — | | | $ | — | | | $ | — | |
| Short-term debt (note 12) | | 6,348 | | | 6,348 | | | 6,348 | | | — | | | — | | | — | |
| Term loan facilities (note 13(a)) | | 33,833 | | | 39,821 | | | 14,095 | | | 23,587 | | | 2,139 | | | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other bank financing | | 508 | | | 514 | | | 133 | | | 127 | | | 127 | | | 127 | |
| | | | | | | | | | | | |
| Capital lease obligations | | 1,564 | | | 1,583 | | | 568 | | | 678 | | | 185 | | | 152 | |
| Operating lease obligations (note 11) | | 22,191 | | | 25,490 | | | 3,186 | | | 5,242 | | | 2,140 | | | 14,922 | |
| | | $ | 165,949 | | | $ | 175,261 | | | $ | 125,835 | | | $ | 29,634 | | | $ | 4,591 | | | $ | 15,201 | |
Fair value of financial instruments
The carrying amounts reported in the condensed consolidated interim balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short-term period to maturity of these instruments.
The short-term and long-term investments represent the Company's interests in Minda Westport Technologies Limited, Weichai Westport Inc. ("WWI") and other investments. Minda Westport Technologies Limited is the most significant of the investments and is accounted for using the equity method. WWI and other investments are accounted for at fair value.
The carrying values reported in the condensed consolidated interim balance sheet for obligations under capital and operating leases, which are based upon discounted cash flows, approximate their fair values.
The carrying values of the term loan facilities, and other bank financing included in the long-term debt (note 13) are carried at amortized costs, which approximate their respective fair values as at September 30, 2023.
| | |
| WESTPORT FUEL SYSTEMS INC. |
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
|
| (Expressed in thousands of United States dollars, except share and per share amounts) |
Three and nine months ended September 30, 2023 and 2022 |
20. Financial Instruments (continued):
The Company categorizes its fair value measurements for items measured at fair value on a recurring basis into three categories as follows:
| | | | | | | | |
| | Level 1 – | Unadjusted quoted prices in active markets for identical assets or liabilities. |
| | | |
| | Level 2 – | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| | | |
| | Level 3 – | Inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
When available, the Company uses quoted market prices to determine fair value and classify such items in Level 1. When necessary, Level 2 valuations are performed based on quoted market prices for similar instruments in active markets and/or model–derived valuations with inputs that are observable in active markets. Level 3 valuations are undertaken in the absence of reliable Level 1 or Level 2 information.
As at September 30, 2023, cash and cash equivalents are measured at fair value on a recurring basis and are included in Level 1.
Westport Fuel Systems (NASDAQ:WPRT)
Historical Stock Chart
From Apr 2024 to May 2024
Westport Fuel Systems (NASDAQ:WPRT)
Historical Stock Chart
From May 2023 to May 2024
