Q1 2021 Westport Fuel Systems Inc Earnings Call
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Court fuel systems, Inc. First quarter 2021 results conference call.
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Please go ahead Marc.
Thank you and good morning, everyone welcome to Westport fuel systems first quarter 2021 conference call, which is being held to coincide with the press release containing Westport fuel system.
Actual results that was distributed yesterday.
On today's call speaking on behalf of Westport fuel systems is Chief Executive Officer, David Johnson, and Chief Financial Officer, Richard or is Yeti attendance. At this call is open to the public and for media other questions will be restricted to the investment community.
You are reminded that certain statements made on this conference call and our responses to various questions may constitute forward looking statements within the meaning of the U S and applicable Canadian securities laws and as such forward looking statements are made based on our current expectations and involve certain risks and uncertainties actual results may differ materially from those.
Projected in the forward looking statements. So you are cautioned not to place undue reliance on those statements infer.
Information contained in this conference call is subject to and qualified in its entirety by information contained in the company's public filings I'll now turn the call over to you David.
Thanks, Christine good morning.
Everyone.
Thanks for joining us today to review Westport fuel Systems' results for the first quarter 'twenty 'twenty. One this is David Johnson speaking.
If youre new to our story thanks for your interest in on.
On slide you'll see a brief synopsis of that our company.
Following a record fourth quarter close in 2020, we started 2021 the solid revenue growth. Despite the ongoing challenges brought on by COVID-19.
Our H PDI business is ramping well on Europe, and our independent aftermarket delayed OEM and electronics businesses are profitable.
For a comprehensive global offering of Pat clean affordable gas and fuel components and systems offer through a global network of distributors and partners.
Fleets are continuing to gain confidence that our <unk> solutions outperformed.
Demonstrated operational cost savings and reduce carbon emissions and as a result, our products are taken out on an increasing role largely and accelerating the global transition to cleaner fuels, we're driving innovation to power a cleaner tomorrow and changing the way the world loop people and freight.
I'll cover just a few highlights from the first quarter and then provide a business overview before handing over to Richard to go into more detail on our financial performance.
Our revenues were $76 $4 million in the first quarter compared to $67 2 million for Q1 last year, a 14% increase.
Q1 sales revenue in our light duty and heavy duty OEM businesses also increased significantly up 25 per cent versus a year ago quarter.
Like many Oems are H B D. I launch partner is experiencing supply chain production issues due to the global semiconductor shortage.
While our H B D. On manufacturing has thus far been unaffected by this particular issue global shortages are expected to impact revenue and marches through the second quarter. We do however expect the impact of issue to decrease in the second half of 2021.
Our business mix is shifting with growing revenue for H B D I hydrogen in our light duty OEM businesses.
Especially in India, but the ongoing COVID-19 pandemic effects on the resulting shift in sales mix resulted in nearly flat performance of our iam business.
Total gross margins are under pressure and not where you want them to be.
We ended the quarter with $59 7 million as cash and cash equivalents, including gross proceeds of $13 2 million raised for aftermarket equity offering in the three months ended March 31, 2021 for a cumulative total of $27 $6 million raised.
And I've mentally proud of the progress of our global team has made towards sustainable profitability, which is the foundation upon which we will continue to build success.
Westport fuel systems is addressing a huge market 100 billion annually of which roughly half is heavy duty trucking.
On market share for gaseous fuel solutions is growing.
We have substantial regulatory economic and societal tailwind in markets around the world.
Consumers buy our aftermarket conversion kits to save money, while using cleaner fuels and our products also help Oems to respond to regulations, while meeting their customers demands.
We've worked hard to develop a solid reputation as an industry leader in gaseous fuels for the last two decades with sales in 70 countries.
H P. Guy was launched in Europe in 2018, and our share of the market continues to grow.
The EU market for alternative fuel trucks grew by 38 per cent in 2020, despite the impact of COVID-19.
And we finished last year with an H b debt sales rate almost double compared to 2019.
It's unclear H B D on it's not a concept demonstration it's product.
With H B D. I Oems can avoid penalties for C. O. Two noncompliance that are built into the regulations in Europe. For example, it's no improvements are made for today's European diesel powered trucks on.
Those trucks from 2025, we generate a penalty of 38000 year old per truck sold payable by the OEM.
This year, we expect to watch HDI in China, the largest market for natural gas trucking.
H B D like to point out is the only product in production at scale that can fully it cost effectively respond to the regulatory standards for commercial vehicles in Europe, India and China.
We've announced the initial demonstration of the efficiency of hydrogen to each be eye and we've shown on the cost effectiveness of hydrogen integral question engine using H b.
It's increasingly clear there is no panacea for zero carbon transportation across all applications to day, there is and tomorrow, there will be a diversity of technologies a diversity of fuel gas.
Cash is fields are cleaner.
Newell and go all the way to zero carbon hydrogen.
And because our cash is fuel systems are available on affordable today, we will lead the way.
For heavy duty long haul applications, the size weight and cost of batteries not to mention the recharge time make battery electric technology, a nonstarter for this application.
Regarding fuel cells. The demonstration vehicles that Oems have shown include not just the fuel cell that's significant batteries and of course electric motors.
And for both of these concepts the investments required to industrialize batteries fuel cells and voters and then to re architect vehicles is massive.
In North America vehicles, using gaseous fuels are not so common so the existing and accelerating global adoption of gaseous deals may be surprising to some of you with the increasing substitution of renewable fuels like Biomethane. Our products can further decrease the greenhouse gas impact of transportation and they do so much more affordably than batteries.
Patrick vehicles for example against that backdrop I also wanted to share with you the views with two global players are customer Volvo and our partner companies.
You can see both companies forecast on ongoing important role for natural gas over the next two decades and an important role for hydrogen as key ingredients on the pathway to near zero carbon and fossil free transportation.
And the long term view the mix of products that will be sold is to be determined.
We already designed developed produced and sell Hudson could pose for transportation and industrial applications. This area of our business saw substantial growth in 2020 and remained strong in the current quarter, we could see a pathway for continued growth.
The potential for Oems and others to avoid new and significant investments required to develop and manufacture fuel cell electric motors and batteries are incredibly compelling.
Like trucking other high load applications like mining marine and rail have come to rely on the efficiency power durability reliability of diesel engine and H VDI is the only alternative that offers the same performance and yet can leverage existing supply chain manufacturing infrastructure and economies of scale and offer a roadmap on a technology platform.
That has a proven track record and longevity.
We believe the potential to use hydrogen with H PDI and to do so more cost effectively on fuel cells means theres, a very large portion of the future product mix for long haul transportation that will count on Westport fuel systems' products.
November we announced new product development work to apply each day to Pan out.
Two an updated base engine platform designed to meet Euro six Steffi regulations that took effect in 2024.
We interpret this as our customers' confidence in our HVAC systems, and the increasing demand of their fleet customers, who are already realizing the benefits of our <unk> solutions.
In China, our Jv's H PDI engine has been certified and we're pleased with the increased minimum volume commitment for a weight check Westport I'll go into more detail, if we got to try to momentarily for.
For US North America is next U P. S has already adopted natural gas announcing in 2019 debt, they're adding 6000 natural gas vehicles for their fleet and.
In February Reuters reported that Amazon ordered 700 C N G trucks fleets.
Fleets aren't waiting for technology breakthroughs, there are acting now to reduce carbon and our solutions will save the money.
With the path established by our JV with Cummins H P. D. I N North American could take natural gas to the next level.
The joint venture term is scheduled to end on December 31, 2021.
And we're evaluating our strategic alternatives in anticipation of this termination, we see a growing opportunity to sell supply our alternative fuel systems, especially our HDI technology in heavy duty applications in the North American market.
We're making significant progress in China, where our joint venture with weighted power secured certification for the WP 12 natural gas engine powered by HP the attitude right now as.
That's one of the largest suppliers of natural gas engines in China. Our JV currently supplies engines to leading Chinese commercial vehicle OEM and they serve the largest natural gas truck market in the world.
The engine certification and sets us up to serve that market as vehicle Williams completed certifications for there'd be cooperating with our engines.
In the first quarter, we announced the co investment agreement to expand the manufacturing footprint for H B D or acute mind out of injectors in China, and also announced amended agreement terms with waist-high Westport for the supply of a minimum for 25000 HVA systems through December 31, 23 for which represents a 39% increase in the minimum.
Volume compared to the original agreement.
China is already primed for our technology with the largest LNG refueling infrastructure in the world and already has hundreds of thousands of natural gas trucks on the ground. We're bullish about the opportunity that's in front of us from China.
Recently, we presented with ABL, a leading independent engineering firm and analysis showing that the cost advantages of hydrogen fuel H b I quipped internal combustion engines for trucking.
Next we demonstrated that hydrogen with H b that it works very well out of the box delivering efficiency on par with fuel cells in heavy duty applications.
And we presented that data at the Vienna Motor Symposium for review by industry experts just last week.
Among the combustion systems, we investigated we've determined H b debt combustion offers the highest power density highest efficiency most robot system for using hydrogen and shrunk a bunch of engines for heavy duty applications.
We're in discussions with potential partners and customers gain input and to further develop and validate this exciting opportunity.
Though it's still early days, we don't think it's a stretch to say that this could be a game changer for the internal combustion engine and for clean transportation globally.
Before I hand back to Richard I'd like to highlight our commitment to strong governance, social responsibility and environmental sustainability. This is.
Parents, and Westport fuel Systems' DNA strength and diversity of our board is a critical assets. It provides oversight and guidance to the implementation of our strategies and achieving our goals.
At the board level, we have a 50 50 gender mix and more than one third of our global workforce identifies a female.
We're committed to our employees' health and safety with 97 per cent of our employee base being represented by joint Health and safety committees are major operational sites are also ISO certified for environmental management and product quality.
In 2018, we established a sustainability working group that reports directly to me.
Our commitment to the environment is in our DNA, it's in our products and we're committed to reducing the energy and carbon intensity of our global operations.
For those of you know the transportation sector, well recognize some of the talented individuals who joined our team and led their considerable expertise.
On our board Dan Hancock, our chair brings 43 years of experience G M to our company.
During his career he was CEO of Allison transmission and CEO of the Fiat GM powertrain joint venture.
For us that vehicle and powertrain engineering during 36 years career at Opel in Germany.
Dr. Karl Viktor seller debt purchasing and vehicle engineering as a board member at NME and later with the Chief Technical Officer BMW motorcycle Division.
Many of you will also known Tony Gwynn, retiring CFO of Ballard, who joined our board earlier this year.
And on our management team, Jim Arthurs landfill that have 30 years of Westport fuel systems leadership experience Kim.
Kim Smith joined US late last year, bringing his 30 years of experience Daimler Navistar and tier one automotive supplier data.
Nikola class Xiaomi joined us from Italian automotive industry that leads our global manufacturing operations in Italy.
And our CFO Richard or is that he has extensive public company leadership experience with an international mining company and in the telecom sector with Bell, Canada earlier his career.
Our leadership team together represents impressive skills experience and rich geographical and cultural diversity and we're grateful for their commitment to excellence in the pursuit of our objectives.
Now over to you Richard for more detail on our Q1 financial results.
Thank you David.
As David mentioned earlier, our revenues increased 14% year over year for $76 4 million compared to the first quarter 2020, mainly due to the strong performance from our OEM businesses, driven by improving sales volumes and light duty OEM and continued year over year growth in our <unk> product sales.
As much of our sales are in euros revenue has also benefited from a 9% increase in the average euro exchange rate period over period.
Year over year gross margin increased.
For $13 million compared to $4 $3 million per.
Primarily due to a $10 million charge for the field service campaign for a crusher, while each device taken in the first quarter of 2020, which excluded $7 $7 million in insurance recoveries recorded later in the second quarter of that year.
Excluding this charge gross margins experienced pressure on this quarter due to the continued impact of COVID-19 on customer demand primarily in our independent aftermarket business and we also realized lower margins on each PDI product sales and engineering services and in 2020.
Equity income from the CW on joint venture increased to $6 4 million on a year over year improvement of $1 2 million.
Primarily due to reduced R&D expenses.
We recorded a net loss of $3 1 million for two per cent for two cents per share for the first quarter of 2021 compared to a net loss of $15 3 million from 11 cents per share for the same period in 2020.
Besides the positive change in gross margin and picked up in equity income from CW on the current quarter benefited from a decrease in unrealized foreign exchange losses, due mostly to the strengthening of the Canadian dollar, partially offset by increasing operating expenses, including one time severance expenses.
Notwithstanding the challenging business environment, we continued to generate positive adjusted EBITDA of $2 $7 million compared to negative $3 6 million for.
Quarter of 2020.
Turning to our business segment performance.
<unk> revenue for the first quarter of 2021 was $42 7 million, which was <unk> 25 per cent increase year over year in revenue that was primarily driven by increased light duty OEM sales volumes to Russia.
Oems growing sales in our electronics business and higher year over year, each PDI product sales more than offsetting a decline in the lead OEM business that has been affected by the impact on customer demand.
The COVID-19.
As David mentioned previously global supply chain issues related to a lack of semiconductors.
<unk> production and creating bottlenecks in the automotive industry.
<unk>, our <unk> launch partner.
Although the demand for our <unk> technology continues on a positive trajectory our H PDI product sales were lower than in the second half of 2020 due to the supply chain challenges that have affected the production of trucks at our HPA launch for Matt.
These shortages do not currently affect manufacturing will be each PDI system directly and demand for each PDI product has increased even more significantly and is reflected in the year over year increase in revenues.
Gross margin for OEM increased by $11 million to $4 9 million or 11% of revenue for the current quarter compared to negative $6 $1 million on the same period of 2020 gross margin in the prior period.
Reflects the aforementioned $10 million charge for the fuel service campaign. Excluding this charge gross margin for the current quarter increased by $1 million at a consistent gross margin percentage of 11%.
This increase in gross margin was largely due to the higher sales and light duty OEM as discussed previously more than offsetting the pressure on margins in each PDI product sales.
OEM recognized on operating loss of $6 5 million compared to $14 5 million for the same period in 2020 normalizing for the $10 million charge, the operating losses increased by $2 million year over year due to the increase in the average euro exchange rate and higher compensation expense.
Turning to independent after market revenues for the current quarter increased modestly year over year by 2% for $33 $7 million, primarily due to the higher average euro exchange rate, which offset comparatively lower customer demand from our western European customers affected by the continuing impact.
The COVID-19.
Notwithstanding the comparable sales performance gross margin decreased by $2 3 million to $8 1 million per quarter due to the increase in sales mix from lower margin.
Emerging market customers and the challenging recovery in Western Europe.
Besides the gross margin impact operating income decreased $3 2 million to $1 6 million due to some one time severance expenses.
BWI.
Revenue for the first quarter 2021 was $82 3 million, a 7% increase compared to the first quarter 2020.
Net sales for the first quarter or 873 compared to <unk> hundred 13 for the first quarter of 2020, the increase in unit sales in the current year largely reflected the timing of sales on an increase on the map.
<unk> revenue decreased from 21 1 million for $25 8 million due to fewer parts purchases for repairs, reflecting improving product quality.
Gross margin decreased by <unk>.
6 million to $21 million or 26% of revenue compared to 21 6 million for 28% of revenue in the prior year period. The decrease in gross margin and gross margin percentage, primarily reflects product mix on a $1 $9 million warranty provision.
Operating income for the first quarter 2021 increased by $3 7 million year over year to $17 $1 million, primarily reflecting lower R&D expenses.
As mentioned at the outset, our share of <unk> net income for the first quarter of 2021 increased to $6 4 million from $5 3 million from the same period last year.
Turning to the balance sheet on our liquidity.
Cash on the quarter on was approximately $60 million a decrease of $4 five zone compared to the fourth quarter 2020. The decrease in cash was primarily due to debt repayment cash used in operations and capital expenditures on a lower euro exchange rates on our cash held in Europe.
This was partially offset by proceeds of $13 million from equity issued.
Our ATM program during the quarter and $7 $9 million on dividends received from our CW or joint venture.
At the quarter on our total debt stood at 62 million down from $85 million on the fourth quarter 2020, largely due to the repayment of debt on our revolving receivables credit facility from our collections.
Scheduled debt repayment on our term loans on a partial conversion of $2 $5 million convertible notes, we are continuing our efforts to strengthen our balance sheet on ability to fund our long term growth and financial stability.
<unk> unit credit bonds were refinanced subsequent to the quarter.
With principal increased from $5 4 million euros for seven 5 million maturing in the first quarter of 2027 on LOE.
Our cost of borrowing.
Further we are also actively discussing with our vendors on refinancing other terminals and extend maturity and improved borrowing rates based on our investment horizon.
Improving credit profile.
I would like to turn it back to Dave.
Thanks Richard.
From 2021, our focus remains on continued growth at scale in key markets for H P. D on that means Europe, China and in North America and for our light duty business profitable growth through the aftermarket and OEM channels and markets like Turkey, Russia, Egypt, India, and other cost sensitive markets, where our products resonate strongly with the need to deliver on.
Portable transportation and reduce carbon.
And we'll continue our development work with hydrogen H PDI.
Looking further ahead, we believe 1 billion on an annual revenue is a very attainable goal I expect.
Margins to improve as we gain economies of scale and operational leverage closer in line with industry standard performance.
The market fundamentals are in place for the next catalyst for growth are clear.
Talented team dedicated to delivering continued value affordable and sustainable transportation solutions.
With that I'd like to turn it back to the operator for your questions.
Thank you.
We will now begin the question and answer session.
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The first question comes from Eric Stine with Craig Hallum.
<unk>.
Good morning, everyone.
Good morning.
Hi.
No.
I would love if you could just expand a little bit on your commentary.
<unk> in North America.
Just in the context I know, it's a different market.
Especially.
From a standpoint of non as vertically integrated as say Europe is.
Just maybe some things we should look for.
As part of that because clearly you're focusing on North America more than we.
We've heard on past calls.
Yes. Thanks for the question, Eric we really are inspired by the opportunity in North America.
And I would say most importantly, what we see is a.
The success of CW Y O y.
For a long stretch of time to bring natural gas engines to the marketplace.
And then that creates from my perspective, the opportunity for <unk>, which is that that next level better performance.
The infrastructure is built out and customers have gotten more comfortable with natural gas the benefits of HDI now being demonstrated in Europe, we think.
Sustainability movement that is added to the the other benefits the environmental benefits the economic benefits of our products.
We're really help the market to develop and flourish in North America.
As you know the the Oems we work with around the world all of them are global Oems and so when we have a product in one location, bringing it to another one is a little easier than starting from scratch and so we are we see a big opportunity a big market. Then we think that the move to clean up transportation on a global basis.
It is in fact, a global trend and so we're prepared and eager to serve the north American market with our superior technology.
Got it and is this something that we should think about.
Our 2021 event or something that.
I guess, it's up to your OEM partners, but.
Something that if not in 2021 at the very least it is it's a potential near term event.
So we see it in our sites, but I have to be a let's say pragmatic and reasonable about the timeframe.
Emissions regulations in North America are different than the emissions regulations in Europe and so some work is required the vehicles are different you know theres a fair number of differences.
It's not just to roll the product off the ship and start selling.
Having said that we don't frequently get the chance to talk about our development contract in advance of actual production start and so I'm going to leave the announcements to our customers and so I can't give you any like forward looking on when we might expect those announcements sorry for that.
Right no I understand but.
Encouraging nonetheless.
Okay, maybe just last one for me.
This $1 billion target by the middle of the decade.
Nice to see that just maybe a little more in depth of your thought process, obviously H P. D I b.
But whether it's that or how that breaks down between your segments from a high level and then also how it.
How are you kind of foresee the mix when you're at that level.
By geographic area it would be great.
Yeah, absolutely. So clearly our <unk> product is a very important part of that equation and it's off to the strongest start already or are essentially this is the market for us in Europe today with HPT.
Our lead customer we.
We do expect the Chinese market to be very important in this equation. We're very pleased to announce the contract amendment that we made with our JV Westport <unk> Westport to increase the minimum volume commitment and I want to reinforce that at the minimum volume commitments. So we're talking 25000 units through 2024 at a minimum.
I think and we're going into the largest market for natural gas trucks in the world with a superior product. So I think.
Europe, and China are very very important and we expect North America to come along but perhaps in that kind of context of the mid decade may not be the biggest piece of course.
So I wanted to say that while HPA is critical to this growth trajectory and our targets of $1 billion by mid decade, it's not the only agree we do have a comprehensive portfolio of products and ways to go to market. The OEM channel on the aftermarket channel.
I expect growth at all of those aspects of our business.
Growth in volume revenue and profitability and those are our targets is to do that so.
It all adds up but we're very excited about the prospects for the company in total, but there's lots of work to be done to realize it.
Okay. Thanks, a lot.
Thank you Eric.
And the next question comes from Colin Rusch with Oppenheimer. Please go ahead.
Thanks, So much guys can you speak for the timeframe for the next several kind of important benchmarks Iraq are proving out the hydrogen technology.
And then how you guys are progressing along on that time frame.
Yeah. Thank you I mean this is a I think a really exciting development for the corporation.
Fundamentally as you know Collyn, we had analysis late last year that showed that it would work well.
Put on engineered test cell and fed it from hydrogen and it worked very well exactly in line with our their analysis.
And for Us with H PDI hydrogen is a it's a great fuel Ah just to make it clear for.
For a spark ignited engine, it's actually problematic debt that the fuel has the flammability properties that it does but for HPT I, it's absolutely fantastic because we introduced the fuel electric compression. It started so that really is very much in our favor and we demonstrated that on the engine where we go from here you know about the project we have with Scania are we.
Expect a and we're in discussions around other projects like that that will take our hardware our HP get hardware put it on others engines, and then demonstrate the technology first and Dino than vehicle and really that's a I would say kind of a normal development process and so we look forward to getting out of debt early.
Administrative fees and into the product development phase.
For all of important ingredient actually for bringing it all weighted production will be how does the infrastructure development. So this is a very important role for governments around the world to play. So there are a lot of ingredients, but I think you are well aware of that are around the world hydrogen is clearly.
<unk> established as D zero carbon fuel for.
For long haul heavy duty transportation going forward and we think that our hydrogen has a tremendous potential with demonstrated our engine sort of looking for those next projects with customers to for.
Other develop it further validate it and bring it to production.
Perfect and then just from the current supply chain.
What's going on are kind of on.
Globally at this point I know that you guys have kind of proactively.
Got it from inventory and then but wanted to get your sense of how things are trending in terms of procurement.
Availability of components and you kind of just fundamental.
Availability of of hardware, that's you're trying to go through the second and third quarters here.
Yeah, I'm I've been reflecting on this call on because it is a global problem, it's not a westport fuel system, a specific problem, but of course, we face it too and it comes at us.
Different ways it affects our customers since we talked about just moments ago, and so far hasn't so much affected us in terms of our ability to get components, but of course, if our customers affected that affects as kind of the same way.
And I look back actually at what we were doing this time last year, which was as the pandemic started in China and in Italy, We were trying to build those inventories and so we're ordering more than we needed to build up that inventory to have some buffer stock and I can only imagine the scenario that basically everybody was doing that so there was a huge way.
Give us orders and then all of a sudden factory shut down and then everybody stopped their orders and so I think as a as a world [laughter] globally.
We have.
Perturbed the supply lines.
On a very unnatural way as a result of actions taken to try and manage through COVID-19 and so it's going to take some time to work through this and somebody's supply line for very long I was reading recently about the supply lines for chips.
How long back in the supply chain. It is where you actually make the silicon wafer and then go through that it is not my area, especially if it was very interesting. This long supply chain. So we've we've disturbed that I don't think it's on anything that we can't recover from COVID-19 will recover from it but it does take some time in the meantime, it it affects our operations are hopefully.
Not too much so far not so much but our customers' operations. Unfortunately, it already and also hopefully not too much but from my perspective. It is just something we have to work through caused by the pandemic and the supply and demand disruptions that cause that pandemic to some degree is still impinging upon us as you heard from.
Our commentary we have some markets that aren't as strong as we'd like for the D. Because COVID-19 is still causing locked down for you have red and Orange zones, we have problems in India of course, so all these things around the world are.
Unhelpful to running the business and cause a fair bit of work, but so far we've been able to manage them fairly well, but not without impact.
Thank you so much.
Yeah.
My pleasure.
The next question comes from Amit Dayal with H C. Wainwright. Please go ahead.
Thank you good morning, guys.
Looks like we're no we're bracing for some variability in sort of the other quarterly results may come through for the remainder of 2021 compared to sales of historical periods.
Could you give us some sense on.
The revenue cadence.
Potentially but you have visibility on growth for the rest of the year on a quarterly basis.
Yeah.
Is it the fact that the visibility is not so great as we just talked with Colin.
On the last question you know that the supply chain I would say is those are the big variables from the second big variable is the ongoing impact of COVID-19. So India is an important market for us as you know and right now that severely affected.
And frankly, a Europe is.
Still working through getting the vaccine out and recovering.
For a bit of our revenue stream and profitability stream is from consumer products in our aftermarket business. So that does.
Have a lingering and continuing impact on Turkey had a shut down. So you can hear some other countries and some other markets that are important to us or are still severely affected even though here other than that.
In the U S. We've got our vaccines and people are opening up and we're trying to get back to normal. So there are different scenarios around the world and that does affect us and we don't have a crystal ball on it. So this is hence the lack of guidance for the year, but in the long term, we see that Oh, I'm really quite thrilled to see our revenue up for.
On 14% over last year, which was almost unaffected by COVID-19 last year. You know, we just had the tail end of March where COVID-19 started to close our factories and have other negative effects, but the.
14% year over year improvement in our OEM business up by 25%. So we do see a number of very positive signs in total and have a strong outlook for a good year in total, but the quarter by quarter is a very very tough to call at this moment.
Well that's understandable thank you David with.
With respect to some of the same challenges you know on the margin on Opex from I mean.
Crews et cetera from now compared to being chucked it last year.
How should we think about some of these expenses moving higher for you this year versus last year.
Yes, so I'll comment on the mix, maybe Richard can give you a little insight on our on Iran.
Opex view.
On the mix right now some of our most important markets are still significantly depressed. So Italy. For example is significantly depressed in terms of our aftermarket business and you can easily imagine that India is facing some challenges in Turkey has kept that shutdown I just mentioned so.
We face these things channel.
And I think the quarter over quarter for second quarter will be.
It's a really great story, because it's so bad last year with our shutdowns that really isn't any solid wood.
We'd like to see quarter over quarter improvement sequential quarter improvement as opposed to year over year.
I don't have a number to share for share with you on our forecast, but we're working very hard to manage all the challenges and to be ready for our customers when they're ready to buy our products.
Understood and just last.
Thank you David.
Go ahead.
No. No go ahead sorry. Please go ahead I'm sorry, Yeah, no I was just going on.
One other challenges we're facing.
Is the lingering impact of COVID-19 and some other markets.
Where we had a lot of profitability.
On an after market in Western Europe.
It's just the market that is just recovering and now we're seeing we'll call. It the beginnings where those markets are starting to reopen and so we'll call. It you know profitability will start improving with regards to that side of the house.
With regards to our heavy duty OEM.
Each PDI sales I mean, that's on a temporary thing right now that.
At our launch partners is dealing with them.
We're seeing more call it a lot of interest that they're receiving for their truck.
That it's just a question on more on wait time, right now, but that profitability, we're holding them up.
You know getting back on on the right trajectory in the second half on the year for one thing that you will notice that there's going to be different with regards to and you saw on it.
Little bit foreign exchange the other thing in subsidies.
Last year in the first half on your SEC.
Second on the third quarter last year, there was a lot of wage subsidies.
Moving from the Italian government and we add on another one on the Canadian and Canada as well.
Those numbers year over year.
Our operating expenses on some of our SG&A will be somewhat higher.
Because it'll be there'll be less of those subsidies this year because the we'll call. It the businesses are starting to return.
Okay.
That's helpful. Thank you Richard.
One last one I was going to ask David maybe.
Any any color on tier one partner is with.
On expanding the HPA production in China is it the same partner in Europe, but.
The facilities on in China, I don't know if you can share this but it would be helpful. Thank you.
Yeah, we have.
Our long standing partnership with Delphi, which is now borgwarner.
On our injector and they are a global partner for this production and a.
Our realization of the injector, so I'm very happy to be working with them and bringing this product to the market and expanding that capacity to respond to the demand that's in our forecast so.
Yeah happy to.
Be partnered with such a capable company.
Well listen thank you for that day, but that's all I have.
Thanks, Amit.
Yeah.
The next question comes from Rob Brown with Lake Street capital markets.
Please go ahead.
Hi, good morning.
I'm just wondering if you could expand a little bit on on your comments around the demand with the European launch partner, you're seeing kind of good order activity, even though it's a.
Maybe not coming through the production line yet.
What are you sort of thinking on demand trends.
Yeah.
Yeah overall, Rob the demand looks good to us so we're very encouraged by.
The order for.
The challenges that we're facing right now I would say with our partner related to the supply of components the ability to keep their their lives running because of other components that we can make we can make necessary HDI price.
And the other part of interest yet so you know.
As I've described before.
The market that we see is really strong for the growing market. We've seen it since we launched in 2018 through 19, and frankly to have a volume.
So significantly in 2020 COVID-19 year with the shutdown.
Just reinforced our our.
Our view is that this is a growth product is extremely important.
On the compliance.
Compliance scenarios for OEM for calculating all the time for the C. O two regulations in 2025 and 2030.
On the build out of the infrastructure supports that we're now over 400 LNG stations.
In Europe, so that's a doubling in just the time I've been with the Westport fuel systems. So early great expansion debt fully respond to the increasing pool of vehicles the marketplace.
We see good market share results of the.
Our partner in the market place for natural gas vehicles in the European Union and so frankly, all the all the elements are lining up in the order book looks stronger, but looking forward to getting through the supply chain issues and serving our customers and serving their customers.
Okay. Thank you and then in terms of China.
I think you're waiting for vehicle certifications at this point, where where's that at an average.
To that point at this point.
Yeah, we see good progress and so we're encouraged by the outlook to get the product into the marketplace into customers' hands and I think that was our best represented the TV represented in a public way.
By the announcement that we had recently that we've re written a contract to expand the minimum commitment. My view is anytime a customer is willing to sign up to a minimum commitment that means they're planning to build and sell even more than that their confidence in the product and they're confident in their plans and so I'm really excited to get the product.
Into the marketplace.
There's a multiple Oems working to integrate these engines into their trucks and and bring those trucks all the way to fruition to their customers.
In China as you know is on.
On the order of 100000 natural gas trucks per year.
With spark ignited engines from our joint venture being a main component of that those sales and so we think when the <unk> attitude is ex through our <unk> Westport JV debt.
That will really grow the market. So you know increase the share beyond the 10 per cent that is today total trucking.
And it will.
Start grabbing that share of the mix between spark ignited in HPT I and so we will see a mix shift from zero percent each be guided something much more interesting and you can kind of track that as as what's happened with our lead customer in Europe versus their spark ignited engine competitors and Scott on your tobacco.
So we're real excited about it and we're real eager, but we'll wait for the announcements from the vehicle Oems regarding their lunches and they're elevated practically our customers.
Okay. Thank you I'll turn it over.
Thanks, Rob.
Good morning.
Again, any analysts who wish to ask a question you May press star one now.
Yeah.
The next question comes from Thomas Boyes with Cowen and company.
Please go ahead.
Great. Thank you for taking my questions just two quick ones for me.
First of all on would be could you have a give us a quick update on what youre seeing on the passenger car market.
Places like Italy, or maybe some other key geographies.
Yeah, what we see in passenger car.
In total it maybe just to start with the actually the market in India has been very strong. So this is a really important part of the story that that was seeing some headwinds with the COVID-19 challenge with severe COVID-19 challenges, they're facing but surely that's a temporary and we wish him all the best and stay safe in India, but the.
On the market itself in India.
<unk> adopted a new regulations in April of last year, and so our customer and the leading passenger car OEM in India Maruti Suzuki dropped day offering of diesel engines, because basically with the new emissions regulations. They just got too expensive for the marketplace and they are pivoting to natural gas vehicles to replace those diesel.
So that's kind of the most affordable alternative with respect to low cost of acquisition and look combined with low cost of operations and even better that there they're clean vehicles and they have this building infrastructure of natural gas that is very strong for us in Europe I would tell you that the market is still under some substantial.
Depression, if you will from that from them.
COVID-19 pandemic, so although we're seeing some increase in our in I'll say Western Europe, Italy, and other markets, it's rather modest and what we see is a stronger responses in places like Russia and in India. For example, so we do expect the market in.
And in Western Europe to come back and when.
Looking forward to that and Thats, where our predictability about Q2 and Q3 when it comes back and let the numbers or is that very very challenging.
Great I appreciate the color there and then just for the last one for me.
Wondering maybe what the next steps were around service support for the Cummins Westport to be longer term.
Being communicated to fleets that maybe would be.
I'd be reluctant to buy in the last year of the JV to give them credit some confidence there.
Okay.
Yeah, I think we've been pretty clear within the JV that there there won't be any disruption to servers to support customers don't need to be worried about that aspect.
Whether or not they should purchase of Cummins Westport engine in Q2 for your Q4 of this year. So while we continue to evaluate the strategic alternatives as it's come and stats in terms of what comes next debt.
Our view is collectively between ourselves to come inside that customers will not be disrupted in any way shape or form.
So I think that's.
It's not to be worried about and debt.
I'm on I'm sure that the customers are hearing that message from Cummins Westport Cummins in us quite clearly.
Great. Thanks, again I appreciate it.
Thanks, Tom that's good to hear you.
Okay cool.
A question and answer session.
I would like to turn the conference back over to management for any closing for Mike.
Yes, thank you very much everybody for joining us.
You know I'm I'm really quite pleased and proud of what we accomplished in 2020 and are pleased to put up a year over year performance improvements in terms of the top line for the company. We have some ongoing headwinds in terms of COVID-19 for sure.
But the fundamentals of our company and the products, we bring to the marketplace and the way the marketplace is developing now in Europe next in China.
And already in North America with respect to natural gas engines are really tells the fundamental story that gives us the confidence around our $1 billion target for a mid decade.
The story of Westport fuel systems on the products, we bring to the market as a growth story and we're hard at work to support that growth story and realize that in the coming years. Thanks again for your time and attention and all your support you all have a good day.
Okay, Okay Cool day conference call.
On a disconnect your lines.
Thank you for participating and have a pleasant day.
Yeah.
Yes.
Yeah.
Yeah.
Yeah.
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