Q4 2023 Westport Fuel Systems Inc Earnings Call

Operator: Good morning, ladies and gentlemen. My name is Sylvia, and I will be your conference operator. At this time, I would like to welcome everyone to Westport Fuel Systems Q4 2021. Please note that all lines have been placed on mute to prevent any background noise.

Good morning, Ladies and gentlemen, my name is Julie and I will be your conference operator today at this time I would like to welcome everyone to Westport fuel systems Q4, 2023 conference call.

Speaker Change: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session and in fact anytime you acquire paid assistance. Please press star zero and to get into conference QE, you would need to press star followed by one on your telephone keypad and if you would like to withdraw from the question queue simply press.

Operator: After the speaker's remarks, there will be a question and answer. Effect. Anytime. To acquire Paired Assistance, please press star zero.

Operator: And to get on the conference queue, you would need to press star followed by one on your telephone keypad. And if you would like to withdraw from the question queue, simply press star then zero. And I would like to turn the conference over to Ms. Ashley Nuell. Please go ahead. Good morning, everyone. Welcome to Westport Fuel System's fourth quarter conference call for the 2023 fiscal year. This call is being held to coincide with the press release containing Westport's financial results that was issued yesterday. On today's call, speaking on behalf of Westport are Chief Executive Officer and Director Dan Sceli and Chief Financial Officer Bill Larkin. Attendance to this call is open to the public, but questions will be restricted to the investment community.

Speaker Change: And number two and I would like to turn the conference over to MS. Ashley. Please go ahead.

Ashley: Good morning, everyone welcome to Westport fuel Systems' fourth quarter conference call for the 2023 fiscal year. This call is being held to coincide with the press release containing Westport financial results that was issued yesterday on today's call speaking on behalf of Westport, as Chief Executive Officer, and director against July and Chief Financial Officer Bill Larkin.

Ashley: Attendance on this call is open to the public my questions will be restricted to the investment community you're reminded that certain statements made on this conference call and our responses to certain questions may be 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.

Ashley Nuell: You are reminded that certain statements made on this conference call and our responses to certain questions may constitute forward-looking statements within the meaning of the U.S. and applicable Canadian securities laws. As such, forward-looking statements are made based on our current expectations and involve certain risks and uncertainties. With that, I'll turn the call over to you, Dan. Thanks, Ashley.

Expectations and involve certain risks and uncertainties with that I'll turn the call over to Yogesh.

Yogesh: Thanks Ashley.

Daniel Sceli: And good morning everyone. I'm pleased to join you on my first call as CEO and Director of Westport. Today we'll be covering our strategic objectives for 2023, recapping our highlights from last year, and providing an outlook for 2024. I'll then turn the call over to Bill to walk us through our Q4 and annual results. I wanted to start by hitting some of the key highlights and top line numbers for 2023.

Yogesh: And good day, everyone I am pleased to join you on my first call as CEO and director of Westport.

Yogesh: Today, I'll be covering our strategic objectives for 2023 recapping our highlights from last year and providing an outlook for 2024, I'll then turn the call over to Bill to walk us through our Q4 and annual results.

Bill Larkin: I wanted to start by hitting some of the key highlights and top line numbers for 2023 with the recent announcement of the signed investment in Green. We are excited to be in the last stage of finalizing our <unk> joint venture to accelerate the commercialization and global adoption of Westport <unk> fuel system technology for <unk>.

Daniel Sceli: With the recent announcement of the signed investment agreement, we are excited to be in the last stage of finalizing our HPDI joint venture to accelerate the commercialization and global adoption of Westport's HPDI fuel system technology for long haul and off-road applications. We are now working towards closing the joint venture and ensuring it's set up for success from day one. Touching on our financials, for the full year, we generated revenue of $331.8 million as compared to $305.7 million in 2022.

Bill Larkin: Ill halt and off road applications. We are now working towards closing the joint venture and ensuring its set up for success from day one.

Bill Larkin: Touching on our financials for.

Bill Larkin: For the full year, we generated revenue of $331 8 million as compared to $305 7 million in 2022.

Daniel Sceli: In addition, we continued to deliver improved gross margins, both in dollar terms and as a percentage revenue, with total gross margin for 2023 of $48.9 million, or 15% of revenue, as compared to $36.2 million, or 12% of revenue in 2022. We improved our adjusted EBITDA by over $6 million to a negative $21.5 million in 2023, as compared to a loss of $27.8 million in 2022. My first two months with Westport have been a great adventure.

Bill Larkin: In addition, we continued to delivering.

Bill Larkin: Improved gross margins both in dollar terms and as a percentage revenue was total gross margin for 2023 of $48 9 million or 15% of revenue as compared to $36 2 million or 12% of revenue in 2022.

Bill Larkin: We improved our adjusted EBITDA over 6 million by over $6 million to a negative $21 5 million in 2023 as compared to a loss of $27 8 million in 2022.

Bill Larkin: My first two months with Westport has been a great adventure I have visited all of our main facilities gained a deep understanding of our technology and products and learned about Westport strengths and what improvements need to be made to optimize our productivity.

Daniel Sceli: I have visited all our main facilities, gained a deep understanding of our technology and products, and learned about Westport's strengths and what improvements need to be made to optimize our productivity. After assessing Westport's current situation, I established three main priorities for the company in 2024 and beyond, including number one, driving success via our HPDI joint venture with Volvo, number two, improving operational excellence, and number three, reimagining a hydrogen-powered future To ensure that Westport achieves growth and success over the long term, we need disciplined operations that flow from a strong strategic plan. These priorities are consistent with that need and are expected to elevate the performance and the value of our business long into the future. However, in the near term, we have already begun to act in a more disciplined way by cutting costs and making headcount reductions where necessary. As an example, in 2023, our overall headcount declined compared to the previous year, primarily due to the necessity to scale down operations at our facility in Argentina.

Bill Larkin: After assessing Westport current situation I established three main priorities for the company in 2024 and beyond including number one driving success via our <unk> joint venture with Volvo number two improving operational excellence and number three re imagining of hydrogen powered fuel.

Bill Larkin: Sure.

Bill Larkin: To ensure that Westport achieved growth and success over the long term, we need disciplined operations that flow from a strong strategic plan.

Bill Larkin: These priorities are consistent with that need and are expected to elevate the performance and the value of our business long into the future.

Bill Larkin: Wherever in the near term, we have already begun to act in a more disciplined way by cutting costs, and making head count reductions where necessary.

Bill Larkin: As an example in 2023, our overall head count head count declined compared to the previous year, primarily due to the necessity to scale down the operations at our facility in Argentina.

Daniel Sceli: Consolidation efforts in Italy and the closing of our production plant in India. We expect this trend to continue and for our overall headcount to decline compared to certain financial metrics like gross margin as we increase our discipline and focus on operational excellence. I am also excited to announce that earlier this year, we delivered the first LPG fuel system to our global OEM customers. This program is a demonstration of exactly the type of work that our light duty business should be undertaking.

Bill Larkin: Solid Asian efforts in Italy, and closing of our production plant in India.

Bill Larkin: We expect this trend to continue and for our overall head count to decline compared to certain financial metrics like gross margin as we increase our discipline and focus on operational excellence.

Bill Larkin: I'm also excited to announce that earlier this year, we delivered the first LPG fuel system to our global OEM customers. This program is a demonstration of exactly the type of work that our light duty business should be undertaken.

Daniel Sceli: We were able to secure a multi-year program and deliver on this program with minimal capital expenditures and no expansion to our production footprint. Regarding Asia, our recent pivot in India is proving to be beneficial so far. We are seeing some benefits from our restructuring, and our new approach appears to be net positive. This includes leveraging our local partner to deliver components and systems into this market, which is one of the fastest growing markets in the world. Regarding China, facility construction is underway, and capital investment for the assembly lines and other equipment is in progress. Recently, the regulations associated with hydrogen components have changed in China, resulting in a slightly longer timeline to complete the certification of the initial products we plan to launch in China.

Bill Larkin: We were able to secure a multi year program and deliver against this program with minimal capital expenditures and no expansion to our production footprint.

Bill Larkin: Regarding Asia, our recent pivot in India is proving to be beneficial so far.

We are seeing some benefits from our restructuring and our new approach appears to be net positive.

Bill Larkin: This includes leveraging our local partner to deliver components and systems into this market, which is one of the fastest growing markets in the world.

Bill Larkin: Regarding China facility construction is underway and capital investment for the Assembly lines and other equipment is in progress recently the regulations associated with hydrogen components have changed in China, resulting in a slightly longer timeline to complete the certification of the initial products, we plan to launch in China.

Daniel Sceli: We therefore anticipate production will commence in the second quarter of 2025, rather than later in 2024, as originally expected. Westport is fortunate to be part of a compelling industry in which alternative fuels are seeing increased support and investment. Many industry experts believe that over the next six years, alternative fuels will become more affordable and easier to access.

Bill Larkin: We therefore anticipate production will commence in the second quarter of 2025.

Bill Larkin: Other than later in 2024 as originally expected.

Bill Larkin: Westport is fortunate to be part of a compelling industry in which alternative fuels are seeing increased support and investments many industry experts believe that over the next six years alternative fuels will become more affordable and easier to access.

Daniel Sceli: Government policies and regulations are also being implemented to support this shift as hydrogen fuel stations are beginning to populate transportation corridors across the EU. By 2030, we expect to see a significant change in the alternative fuels industry. That aligns with Westport's goals of offering more hydrogen fuel-based options to support the future of sustainable transportation. I also wanted to highlight our recent efforts around the commercialization of our products across multiple modes of transport. We are at the intersection of innovation and sustainability, and each program I'm about to discuss represents another step forward in the pursuit of cleaner, more sustainable energy solutions. First, in November of 2022, we announced a collaboration with a leading global OEM in the rail industry. This partnership aims to adapt our hydrogen HPDI fuel system for applications in locomotives and related equipment used in freight and transit rail sets.

Bill Larkin: Government policies and regulations are also being implemented to support this shift as hydrogen fuel stations are beginning to populate the transportation corridors across the EU.

Bill Larkin: By 2030, we expect to see a significant change in the alternative fuels industry.

Bill Larkin: That aligns with Westport goals of offering more hydrogen fuel based options to support the future of sustainable transportation.

Bill Larkin: Yeah.

Bill Larkin: I also wanted to highlight our recent efforts around the commercialization of our products across multiple modes of transport.

Bill Larkin: We are at the intersection of innovation and sustainability in each program I'm about to discuss represents another step forward in our pursuit of cleaner more sustainable energy solutions.

Bill Larkin: First in November of 2023, we announced a collaboration with a leading global OEM in the rail industry.

Bill Larkin: This partnership aims to adapt our hydrogen H PDI fuel system for applications in locomotives and related equipment used in freight and transit rail sectors.

Bill Larkin: By leveraging the power of hydrogen we hope to contribute to a greener future for rail transportation.

Daniel Sceli: By leveraging the power of hydrogen, we hope to contribute to a greener future for rail transportation. Secondly, in December, Westport proudly announced a monumental development program with a global heavy truck manufacturer. This program focuses on adapting our next generation LNG HPDI fuel system to meet the stringent Euro 7 emissions requirements for heavy duty vehicles. With a significant investment of $33 million, funded by the OEM, we are working diligently to integrate cleaner energy solutions into the transportation sector. Lastly, we are engaged in a proof of concept project with a global supplier of power solutions for marine applications. Beginning this quarter, this project will explore the use of our HPDI fuel system fueled with methanol for marine propulsion. With the support of our OEM partner, we aim to explore alternative sustainable energy sources for maritime transportation. Methanol is easier to handle, requires less room and less expense to bunker on a vessel, and it has a lower CO2 footprint than emissions-intensive fossil fuels. The testing of HPDI technology for use with methanol in a marine application is a natural extension of our HPDI technology.

Bill Larkin: Secondly in December Westport, proudly announced monumental development program with a global heavy truck manufacturer. This program focuses on adapting our next generation LNG H P. D. I fuel system to meet the stringent euro seven emissions requirements for heavy duty vehicles with.

Bill Larkin: With a significant investment of 33 million funded by the OEM, we are working diligently to integrate cleaner energy solutions into the transportation sector.

Bill Larkin: Lastly, we are engaged in a proof of concept projects with a global supplier of power solutions for marine applications beginning.

Bill Larkin: Beginning this quarter. This project will explore the use of our H P. D like fuel system fueled with methanol for marine propulsion.

Bill Larkin: With the support of our OEM partner, we aim to explore alternative sustainable energy sources for maritime transportation.

Bill Larkin: And all of its easier to handle requires less room in less expensive bunker on a vessel and it has a lower C O two footprint and emissions intensive fossil fuels.

Bill Larkin: The testing of H P D I technology for use with methanol and the marine application is a natural extension of our <unk> technology.

Daniel Sceli: We expect that our HPDI fuel system with methanol will be able to provide similar torque, power, and efficiency to diesel, while also potentially reducing NOx emissions. These initiatives represent more than just technological advancements; they embody our unwavering commitment to a brighter, greener future for generations to come. Through collaboration, innovation, and dedication, Westport is leading the charge toward a world where sustainability and progress go hand in hand. Together, we are embarking on a journey toward a future defined by a cleaner, healthier future for all. Regarding the progress of our HPDI joint venture, as I mentioned above, the investment agreement has been signed. We are in a good place to start working on closing the joint venture and hope to have it operational prior to the end of the second quarter. However, we still have a lot of work ahead of us; even once the JV is closed as a company, we still must have invested significant time and energy into supporting its growth as it begins its journey as a standalone enterprise. Volvo and Westport have collaborated for over 15 years and share the vision of creating sustainable transport solutions.

Bill Larkin: We expect that our H P D fuel system with methanol will be able to provide similar torque power and efficiency to diesel while also potentially reducing nox emissions.

Bill Larkin: These initiatives represent more than just technological advancements they embody our unwavering commitment to a brighter greener future for generations to come through.

Bill Larkin: Through collaboration innovation and dedication Westport is leading the charge toward a world where sustainability and progress go hand in hand, together, we are embarking on a journey towards our future defined by a cleaner healthier future for all.

Bill Larkin: Regarding the progress of our H PDI joint venture as I mentioned above the.

Bill Larkin: The investment agreement has been signed we are in a good place to start working on closing the joint venture and hope to have it operational prior to the end of the second quarter.

Bill Larkin: However, we still have a lot of work ahead of us even once the JV is closed as a company, we still must haves and invest significant time and energy into supporting its growth as it begins its journey as a standalone enterprise.

Bogo in Westport have collaborated for over 15 years and share the vision of creating sustainable transport solutions, we look forward to a long and prosperous prosperous future with the vocal team.

Bill Larkin: We look forward to a long and prosperous future with the Volvo team. And with that, I'll hand it over to Bill, who will walk you through our financial results. Good morning, and thank you, Dan.

Bill Larkin: And with that I'll hand, it over to Bill who will walk you through our financial results Bill.

Bill Larkin: Good morning, and thank you Dan.

Bill Larkin: In the fourth quarter of 2023, we generated $87.2 million in revenue. This is a 12% increase compared to $78 million in the prior year period. For the full year, we generated revenue of $331.8 million; this compared to $305.7 million in 2022. For the fourth quarter, the revenue improvement was primarily driven by an increase in our light duty OEM volumes, electronics business, and Engineering Services from the heavy duty OEM business, which was partially offset by lower sales volume in the independent aftermarket, heavy duty OEM volumes, delayed OEM, and fuel storage businesses. They're an independent aftermarket business. Increased sales volumes in Europe were more than offset by lower volumes for Africa and South America.

Bill Larkin: In the fourth quarter of 2023.

Bill Larkin: Generated $87 2 million in revenue.

Bill Larkin: This is a 12% increase compared to $78 million from the prior year.

Your period.

Bill Larkin: For the full year, we generated revenue of 331 8 million this compared to $305 7 million in 'twenty two.

Bill Larkin: For the fourth quarter.

Bill Larkin: The improvement was primarily driven by an increase in our light duty OEM volumes electronics business.

Bill Larkin: No need to hearing services from the heavy duty OEM business, which partially offset by lower sales volume.

Bill Larkin: Aftermarket.

Bill Larkin: V duty OEM volumes delayed OEM and fuel storage businesses.

And our independent aftermarket business increased sales volume in Europe were more than offset by lower volumes for Africa, and South America.

Bill Larkin: Gross margin increased $8 million or 9% of revenue in the quarter. This is up from $4 6 million or 6% of revenue in Q4 2022.

Bill Larkin: Gross margin increased to $8 million, or 9% of revenue, in the quarter. This is up from $4.6 million, or 6% of revenue, in Q4 2022. Gross margin for the full year was $48.9 million, or 15% of revenue, as compared to $36.2 million, or 12% of revenue in 2022. Higher sales volumes across multiple businesses and increased gross margin in our heavy-duty OEM business driven by higher Engineering Services revenue drove improvements in our gross margin. However, gross margin was offset by higher production costs stemming from limited supply chain challenges in inflation, specifically in logistics and labor costs.

Bill Larkin: Gross margin for the full year was $48 9 million or 15% of revenue compared to $36 2 million or 12% of revenue in 2022.

Higher sales volumes across multiple businesses and increased gross margin and our heavy duty OEM business driven by the higher engineering services revenue.

Bill Larkin: Drove improvements in our gross margin.

Bill Larkin: Gross margin was offset by higher production cost stemming from both.

Bill Larkin: The supply chain challenges and inflation.

Bill Larkin: But typically in logistics and labor cost.

Bill Larkin: We're continuously working with our customers to pass through the impacts of cost increases where we can. Lastly, we did record $5 million in inventory write-downs during the fourth quarter of 2023, $4.5 million of which related to our heavy duty business and negatively impacted our gross margin. Without the impact of the inventory write-downs, gross margin for the quarter would have been approximately 15% of revenue.

Bill Larkin: Continuously working with our customers to pass through the impacts of cost increases where we can.

Bill Larkin: Lastly, we did record $5 million and inventory write downs during the fourth quarter of 2023.

Bill Larkin: Which $4 5 million related to our heavy duty business and negatively impacted our gross margin.

Bill Larkin: Excluding the impact of the inventory write downs gross margin for the quarter would've been approximately 15% of revenue.

Bill Larkin: In the fourth quarter of 2023, adjusted EBITDA with lots of $10 million.

Bill Larkin: This is an improvement compared to a loss of $12 9 million in Q4 of 2022.

Bill Larkin: Total adjusted EBIT loss for 2023 was 21 and a half million dollars as compared to a loss of $27 8 million in 2022.

Bill Larkin: In the fourth quarter of 2023, adjusted EBITDA had a loss of $10 million. That's an improvement compared to a loss of $12.9 million in Q4 of 2022. Total adjusted EBIT loss for 2023 was $21.5 million as compared to a loss of $27.8 million in 2022.

Bill Larkin: The improvements in revenue and gross margin drove positive improvements in adjusted EBITDA, which were partially offset by higher research and development expenditures to further invest in our hydrogen.

Bill Larkin: Duty OEM businesses.

Increases in G&A expense, which include a $4 5 million of severance cost.

Bill Larkin: Increases in sales and marketing expenditures to support hydrogen marketing activities as well as increased corporate expenses.

Bill Larkin: The improvements in revenue and gross margin drove positive improvements in adjusted EBITDA, which were partially offset by higher research and development expenditures to further invest in our hydrogen and light-duty OEM businesses, and increases in G&A expense, which included $4.5 million of severance costs. Increases in sales and marketing expenditures to support hydrogen marketing activities as well as increased corporate expenses, including consulting and legal fees related to ongoing activities, including finalizing our HPDI joint venture. We expect this trend with respect to increased costs associated with setting up our joint venture to continue through the first half of 2024 as we move forward towards closing. OEM revenue for the fourth quarter of 2023 was $61.2 million; that's compared to $47.8 million in the prior year period, and $222.8 million for the full year of 2023 compared to $198 million for 2022.

Bill Larkin: Clean consulting and legal fees related to ongoing activities to include finalizing our H PDI joint venture.

Bill Larkin: We expect this trend with respect to increased costs associated with setting up our joint venture to continues to be the first half of 'twenty 'twenty four as we move forward towards closing.

Bill Larkin: OEM revenue for the fourth quarter of 2023 was $61 2 million as compared to $47 8 million in the prior year period.

Bill Larkin: And $222 8 million for the full year of 2023 compared to $198 million for 2022.

Bill Larkin: The increase in revenue for the fourth quarter, it's primarily driven by increased sales volumes and light duty OEM electronics businesses.

Bill Larkin: As well as higher engineering services revenue from our heavy duty business.

Bill Larkin: This was partially offset by lower sales volumes in our heavy duty OEM volumes.

Bill Larkin: And delayed OEM business.

Bill Larkin: Gross margin in our OEM business expanded in the quarter increasing to 800000.

Bill Larkin: Or 1% of revenue an increase from negative 800000 or negative 2% of revenue in Q4 of 2022.

Bill Larkin: Gross margin in our OEM business for the full year of 2023 increased to $25 3 million or 11% of revenue.

Bill Larkin: Compared to $13 6 million or so percent of revenue in 2022.

Bill Larkin: The increase in gross margin for the fourth quarter was driven by an increase in revenue, partially offset by the 45 million inventory write down in the heavy duty business.

Bill Larkin: The increase in revenue for the fourth quarter is primarily driven by increased sales volumes in light-duty OEM and electronics businesses, as well as higher engineering services revenue from our heavy duty business. This is partially offset by lower sales volumes in our heavy duty OEM volumes in the late OEM business. Gross margin in our OEM business expanded in the quarter, increasing to $800,000, or 1% of revenue, an increase from negative $800,000, or negative 2% of revenue in Q4 of 2022. Gross margin in our OEM business for the full year of 2023 is expected to increase to $25.3 million, or 11% of revenue.

Bill Larkin: Typically this write down relates to a shift in a customer's priority regarding the interim platform on which our development work is ongoing.

Bill Larkin: So on the LPG side of our business. We're excited to start shipping our <unk> fuel systems to our global OEM customer earlier this year.

As a reminder, this program includes both euro six and euro seven deliveries and expected to generate approximately 255 million in revenue through 2028.

Bill Larkin: Affordability drive.

Bill Larkin: The LPG market.

Currently on average the cost of LPG in Europe is less than half the cost of petrol or diesel and our products enable customers to take advantage of these fuel price differentials.

Bill Larkin: This is compared to $13.6 million, or 7% of revenue in 2022. The increase in gross margin for the fourth quarter was driven by an increase in revenue partially offset by a four and a half million inventory write-down in the heavy duty business. Specifically, this write-down relates to a shift in a customer's priority regarding the interim platform on which our development work is on. On the LPG side of our business, we're excited to start shipping our Euro 6 fuel systems to our global OEM customer earlier this year. As a reminder, this program includes both Euro 6 and Euro 7 deliveries and is expected to generate approximately 255 million euros in revenue through 2028. Affordability drives the buying decision in the LPG market.

Independent aftermarket revenue for the fourth quarter of 2023 was $26 million compared with $32 million in the prior year period.

Bill Larkin: $109 million for the full year of 2023 compared to $107 7 million for 2022.

Bill Larkin: Lower sales volumes in Africa, and South America markets drove down the quarterly decline.

Bill Larkin: Firstly offset by higher sales volumes in Europe.

Bill Larkin: Despite the decrease in our Q4 2023 independent aftermarket revenue, our gross margin increased to $7 2 million or 28% of revenue compared to $5 4 million or 18% of revenue in the prior year period.

Bill Larkin: Margins for the quarter were primarily impacted by the positive sales mix lower electronic component costs.

Bill Larkin: Currently, on average, the cost of LPG in Europe is less than half the cost of petrol or diesel, and our products enable customers to take advantage of these fuel price differentials. Independent aftermarket revenue for the fourth quarter of 2023 was $26 million, compared with $30.2 million in the prior year period. $109 million for the full year of 2023 compared to $107.7 million for 2022. Lower sales volumes in Africa and South America, the market strove down; the quarterly declined, partially offset by higher sales volumes in Europe.

And increased sales volumes in Europe for.

For the full year.

The independent aftermarket gross margin increased to $23 6 million or 22% of revenue compared to $22 6 million or 21% of revenue for 2022.

Bill Larkin: Looking ahead supported LPG pricing continues to boost demand in Europe, which is an important area of growth for our company in the years ahead.

Bill Larkin: Yeah.

Bill Larkin: For the last 10 years net cash used in operations has steadily and significantly improved we.

Bill Larkin: We've seen a substantial improvement and a reduction in our cash used in operations to $13 2 million in 2023.

Bill Larkin: Cash used in operations of $34 6 million and 22 and $43 8 million in 2021.

Bill Larkin: We are encouraged by this trend as it shows the sustainable and meaningful <unk>, we've been making across the entire business over the long term.

Bill Larkin: Despite the decrease in our Q4 2023 independent aftermarket revenue, our gross margin increased to $7.2 million or 28% of revenue compared to $5.4 million or 18% of revenue in the prior year period. Margins for the quarter were primarily impacted by the positive sales mix, lower electronic components cost, and increased sales volumes in Europe. For the full year, the independent aftermarket gross margin increased to $23.6 million, or 22% of revenue, compared to $22.6 million, or 21% of revenue for 2022. Looking ahead, supportive LPG pricing continues to boost demand in Europe, which is an important area of growth for our company in the years ahead. For the last 10 years, NETCache use and operations have steadily and significantly improved. We've seen a substantial improvement in the reduction in our cash used in operations to $13.2 million in 2023, compared to cash used in operations of $34.6 million in 2022 and $43.8 million in 2021.

Bill Larkin: Our liquidity, our cash and cash equivalents at December 31, 2023 was $54 9 million.

Bill Larkin: Which was a net decrease of $31 3 million in 2023.

Bill Larkin: This compared to $86 2 million of cash at the end of 2022.

Cash used in operating activities was $13 2 million in the year over year reduction in cash used in operating activities was facilitated by improvements in working capital.

Bill Larkin: We purchased $15 6 million of fixed assets during 2023 and had $2 2 million of net debt payments.

Bill Larkin: In Q4, 2023, we secured an additional $11 5 million in new term loans.

Bill Larkin: And we secured an additional $3 9 million in the first quarter of 2024.

As I mentioned corporate costs were higher due to increased costs related to ongoing act.

Activities to final finalized the joint venture along with increased legal fees related to our restructuring in India.

Bill Larkin: <unk> 5 million in severance cost.

Bill Larkin: As Dan mentioned cutting costs through 2024, as the main priority and we've already began taking the necessary steps in areas like head count to make impactful reduction.

Bill Larkin: Regarding our cash burn trends were making progress, but we still have a lot of work to do here.

Looking forward, we have multiple projects and initiatives either announced or underway that will have a positive impact on our liquidity.

Bill Larkin: We are encouraged by this trend as it shows the sustainable and meaningful improvements we've been making across the entire business over the long term. During liquidity, our cash and cash equivalents at December 31, 2023 were $54.9 million, which was a net decrease of $31.3 million in 2023. This is compared to $86.2 million in cash at the end of 2022. Cash use in operating activities was $13.2 million. The year-over-year reduction in cash use in operating activities was facilitated by improvements in working capital.

Bill Larkin: We continue to prioritize.

Bill Larkin: Redefining our balance sheet.

Bill Larkin: First the formation of our <unk> is almost complete.

Bill Larkin: The substantial for Westport financially and H PDI commercially.

Bill Larkin: To recap the arrangement volost payments for their 45, 45% share of the joint venture.

Bill Larkin: Including the initial $28 million.

And earn out amount of up to $45 million, which is a clear signal of their commitment to the future growth of <unk>.

Bill Larkin: That also help shore up our balance sheet.

Bill Larkin: With the investment agreement time closing the JV will be our next step in establishing our commitment to mobile and our <unk> technology.

Bill Larkin: We purchased $15.6 million of fixed assets during 2023 and had $2.2 million in net debt payment. In Q4 2023, we secured an additional $11.5 million in new term loans, and we secured an additional $3.9 million in the first quarter of 2024. As I mentioned, corporate costs were higher due to increased costs related to ongoing activities to finalize the joint venture, along with increased legal fees related to our restructuring in India and $4.5 million in severance costs.

Bill Larkin: Moving forward, we will continue to be prudent in our liquidity management and multiple steps are being taken to do so.

Bill Larkin: We will continue to do what is necessary to ensure we are adequately and fully capitalized.

Thank you and with that I will turn the call back to Dan.

Dan: Thanks Bill.

Dan: Finally, I wanted to close on a few key points Westport as part of a compelling industry with a bright future and we are driven to make a material impact on the de carbonization of the transport industry. The magnitude of this impact will only grow as we deliver our products to more customers. Although we made considerable progress in the second half of 2020.

Bill Larkin: As Dan mentioned, cutting costs through 2024 is the main priority, and we've already begun taking the necessary steps in areas like headcount to make impactful reductions. Regarding our cash burn trend, we are making progress, but we still have a lot of work to do here. Looking forward, we have multiple projects and initiatives either announced or underway that will have a positive impact on liquidity as we continue to prioritize solidifying our balance sheet. First, the formation of our HPDI-JV is almost complete, and it is substantial for Westport financially and HPDI commercially. To recap, the arrangement of all those payments for their 45% share of the joint venture includes an initial $28 million and an earn-out amount of up to $45 million, which is a clear signal of their commitment to the future growth of HPDI. That also helps shore up our balance.

Dan: Three regarding our strategic priorities and implementing operational efficiencies achieving cost reductions and strengthening our balance sheet. We recognize that our work is not done.

Dan: We remain committed to enhancing our core capabilities learning and evolving as a company and seizing new opportunities for continued growth and value creation.

Dan: In the near term, we are focusing on cutting costs and optimizing operations. Nothing is off limits, we have already begun to identify and eliminate redundancies and we were looking at spending throughout the organization. Additionally, better inventory management as key these are only a few examples of the areas we are targeting to improve Westport overall.

Dan: Profitability.

Speaker Change: So I'm going to take a moment to thank everyone for being here today I'm excited to be on this call and an energized bar and committed to Westport bright future with that I'll turn it over to the operator to open the call for your questions. Thank you.

Bill Larkin: With the investment agreement signed, closing the GEV will be our next step in establishing our commitment to Volvo and our HPDI technology. Moving forward, we'll continue to be prudent in our liquidity management, and multiple steps are being taken to do so. However, we will continue to do what is necessary to ensure we are adequately and fully capitalized. Thank you. And with that, I will turn the call back to Dan.

Speaker Change: Thank you, Sir ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone you will hear a suite on prompt acknowledging your request and if he would like to withdraw from the question queue. Please press star followed by two.

Speaker Change: And your first question will be from Amit Dayal at H C.

Speaker Change: Wainwright. Please go ahead.

Amit Dayal: Thank you good morning, everyone.

Amit Dayal: Is that on all the cost cutting initiatives.

Daniel Sceli: Thanks, Bill. Finally, I wanted to close on a few key points. Westport is part of a compelling industry with a bright future. We are driven to make a material impact on the decarbonization of the transport industry.

Amit Dayal: And gross margin improvement initiatives could you give us any sense of you know where you might already ramped you know in the next 12 to 18 months in terms of operating costs and gross margin levels.

Speaker Change: So I'm not going to get into any specific numbers. As you know you know I've been on the job here for a couple of months and I'm digging in hard and getting the team circled around the wagon so to speak to identify and focus on areas of redundancy of open.

Daniel Sceli: The magnitude of this impact will only grow as we deliver our products to more customers. Although we made considerable progress in the second half of 2023 regarding our strategic priorities in implementing operational efficiencies, achieving cost reductions, and strengthening our balance sheet, we recognize that our work is not done. We remain committed to enhancing our core capabilities, learning and evolving as a company, and seizing new opportunities for continued growth and value creation. In the near term, we are focusing on cutting costs and optimizing operations. Nothing is off limits.

Speaker Change: Pasadena.

Speaker Change: Cost cutting where.

Speaker Change: Going through that process very aggressively and we will be executing many of those initiatives are thrilled to next.

Speaker Change: Six 912 months.

Speaker Change: But I can tell you that my approach.

Daniel Sceli: We have already begun to identify and eliminate redundancies, and we are looking at spending throughout the organization. Additionally, better inventory management is key. These are only a few examples of the areas we are targeting to improve Westport's overall profitability.

Speaker Change: Is one of of operational excellence.

Speaker Change: And we will be driving that through the organization to ensure that everything we do we do.

Professionally very well and efficiently and the benefits will come out of that.

Speaker Change: Understood.

Operator: So I want to take a moment to thank everyone for being here today. I'm excited to be on this call and energized by and committed to Westport's bright future. And with that, I'll turn it over to the operator to open the call for your questions. Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your touchtone phone.

Speaker Change: With respect to inventory write downs, though.

Speaker Change: Some additional color.

Speaker Change: So, let's say that could be coming down the line or are we done.

Speaker Change: Whatever needed to be addressed.

Bill Larkin: Bill you want to.

Bill Larkin: Yes, I'll take that one we continue.

Bill Larkin: Our inventory across all the businesses and as of right now.

All of that.

Based on the assessment that we did.

Amit Dayal: You will hear a three-tone prompt acknowledging your request. And if you would like to withdraw from the question queue, please press star followed by 2. And your first question will be from Amit Dayal at HC Wainwright. Please go ahead. Thank you. Good morning, everyone.

Bill Larkin: Yeah.

Bill Larkin: Resulted in the write down.

Bill Larkin: During the quarter, we will continue to assess.

Bill Larkin: Our inventory levels, our customer commitments going forward.

Bill Larkin: And you know, we'll continue to monitor it at this point.

Daniel Sceli: Is Dan on all the cost-cutting initiatives and Gross Margin Improvement Initiatives? Could you give us any sense of where you might arrive in the next 12 to 18 months in terms of operating costs and gross margin levels? I'm not going to get into specific numbers.

Speaker Change: I'd like to say I don't expect any future write downs, but we are a manufacturer we do supply components and we typically do have some level of write downs each quarter.

Okay, Thank you, but but but not just the last one from me.

Speaker Change: In the quarter.

Speaker Change: Alright understood.

Speaker Change: Just last one for me for <unk> 24 should we expect a bounce back in the gross margins.

Daniel Sceli: As you know, I've been on the job here for a couple of months, and I'm digging in hard and getting the team circled around the wagon, so to speak, to identify and focus on areas of redundancy, of open capacity, of cost cutting. We're going through that process very aggressively, and we will be executing many of those initiatives throughout the next, you know, 6, 9, 12 months. But I can tell you that my approach is one of operational excellence, and we will be driving that through the organization to ensure that everything we do, we do professionally very well and efficiently, and the benefits will come out of that. With respect to inventory write-downs, are there some additional costs on that side that could be coming down the line, or are we done with, You know, whatever needed to be addressed? Bill, do you want to take that one?

Speaker Change: Well I mean, if you see something completely booked.

Speaker Change: Well I mean, if you exclude the write downs that right. There is going to have an improvement in our gross margins.

Speaker Change: As Dan said, we were looking at.

Speaker Change: Reducing our cost structure across the entire company.

Speaker Change: And overtime, we would expect to see improvements in our gross margin, but as of right now you know why.

Speaker Change: These improvements will be dictated by the timing of executing and implementing those initiatives.

Speaker Change: <unk> across the company.

Speaker Change: Okay understood.

Speaker Change: Thanks.

Speaker Change: Each of them.

Speaker Change: Okay.

Speaker Change: Thank you next question will be from Rob Brown Lake Street Capital markets. Please go ahead.

Robert Brown: Good morning.

Robert Brown: Good morning.

Robert Brown: And welcome to him.

Robert Brown: As you kind of move into the into the vocal JV process could you give us a sense of sort of how the first year or so of that JV should should look and ramp in.

Bill Larkin: Yeah, yeah, I'll take that one. You know, we continue to evaluate our inventory across all the businesses and, as of right now, you know, that, based on the assessment that we did, resulted in a write-down during the quarter. We'll continue to assess our inventory levels, our customer commitments going forward, and we'll continue to monitor it at this point. I'd like to say I don't expect any future write-downs, but we are a manufacturer, we do supply components, and we typically do have some level of write-downs each quarter.

Robert Brown: What's sort of your expectations coming out of that over the first 12 or 18 months.

Robert Brown: In the first 12 months, it's really getting the organization up and running as a standalone entity.

Robert Brown: You know ensuring that all the business processes, the policies procedures, and we need to run a standalone.

Robert Brown: Standalone business are in place.

Robert Brown: The product is that we're shipping today its the product will be shipping next quarter.

Bill Larkin: Okay, thank you, Bill. Right, right. Understandable. Just last one for me, for 1Q24.

Robert Brown: It's the.

Robert Brown: Building the business around it with our partner and.

Robert Brown: Making sure Thats all.

Bill Larkin: Should we expect a bounce back in gross margins? Well, I mean, a few more pages. Some pages for you. Well, I mean, if you exclude the write-downs, you know, that right there is going to be an improvement in our gross margins. Dan said, you know, we're looking at, you know, reducing our cost structure across the entire company. And, you know, over time, we would expect to see, you know, improvements in our gross margin, but as of right now, a lot of those improvements will, you know, be dictate Okay, I understand that. Thank you all, thank you. Cube.

Robert Brown: Organized woman running.

Robert Brown: And then of course, we're going to continue on developing that technology and building the future for the for the joint venture.

Speaker Change: Okay, Good and then.

Speaker Change: On China I wanted to clarify your comments.

Speaker Change: China sort of activity. There you said was running a little behind schedule.

Speaker Change: How do you see that playing out and is there you know.

Speaker Change: Enough visibility to sort of say 25 or is it still unclear on that ramp.

Speaker Change: No the.

Speaker Change: Changes in the Chinese regulations are having us.

Speaker Change: On the product that we've been developing having us go through some some new regulatory testing and certification.

Speaker Change: It Hasnt changed the timeline of our development of these new hydrogen components.

Robert Brown: The next question will be from Rob Brown at Lake Street Capital Markets. Please go ahead. All right. Good morning.

Speaker Change: It just delays how fast we can put them into the market and.

Speaker Change: As you know no sense, having a plant sitting there empty, while we're going through a certification were just timing the.

Daniel Sceli: And welcome, Dan. As you kind of move into the Volvo JV process, could you give us a sense of sort of how the first year or so of that JV should look and ramp up, and what's sort of your expectations coming out of that over the first 12 hours? Sure. In the first 12 months, it's really getting the organization up and running as a stand-alone entity, ensuring that all the business processes, the policies, and procedures we need to run a stand-alone business are in place.

Speaker Change: Moving to the plant with the certification and the production just to ensure that we're efficient in managing our costs.

Speaker Change: Timeline of our development has not changed we're developing products and those will be.

Speaker Change: Going to the market in China.

Daniel Sceli: The product that we're shipping today is the product we'll be shipping next quarter. It's building the business around it with our partner and making sure that it's all organized, well, and running. And then, of course, we're going to continue developing technology and building the future for the joint venture. Okay, good. And then on China, I wanted to clarify your comments that the Chinese sort of activity there, you said, was running a little behind schedule. How do you see that playing out, and is there? Fibers

Speaker Change: Okay.

Okay, great. Thank you I'll turn it over.

Speaker Change: Thank you next question will be from Eric Stine at Craig Hallum. Please go ahead.

Eric Stine: Good morning, everyone.

Eric Stine: Good morning, good morning.

Good morning, So just wanted to clarify so would the JV and I know when that first 12 months. It really is focused on how do you get it set up how is everything working together.

Eric Stine: But just to be clear I mean that really shouldn't impact the volumes that you would be shipping to Volvo today right. As you said Q1 will be the same model.

Daniel Sceli: No, the, the, the. Changes in Chinese regulations are having us go through some new regulatory testing and certification on the product that we've been developing. It hasn't changed the timeline for our development of these new hydrogen components. It just delays how fast we can put them into the market, and there's no sense having a plant sitting there empty while we're going through certification. We're just timing the move into the plant with the certification and the production just to ensure that we're efficient in managing our costs. The timeline for our development has not changed.

Eric Stine: That you have been shipping.

Eric Stine: The on and off engine components is that how we should think about that and with that in mind. What is your expectation for those volumes in 'twenty four.

Speaker Change: So we're getting obviously, we're getting a regularly.

Informed by global of the volumes they need of those components.

Speaker Change: We don't see any changes from what we're building today and we're in fact.

Eric Stine: We're developing the hydrogen products, and those will be going to the market in... Okay, great. Thank you. Thank you. Next question will be from Eric Stine at Craig Hallam. Please go ahead. Good morning, everyone. Good morning. Good morning. Hey, good morning.

Speaker Change:

Speaker Change: Hoping to help them move even more product I think that's that's.

Speaker Change: One of the goals of this joint venture but.

Speaker Change: The the volumes will not change from what we're shipping today.

Speaker Change: Okay.

Eric Stine: So just wanted to clarify. So with the JV, and I know in that first 12 months, it really is focused on, you know, how do you get it set up? How is everything working together?

Speaker Change: Of course, I mean over time that that's going to be true.

Speaker Change: But immediately it's you know, it's a pretty steady state.

Speaker Change: Sure Yeah, I'm, just trying to kind of get a sense here of the of the near term as you kind of get into that that changeover and maybe I know you called out or bill called out lower H PDI volumes in.

Daniel Sceli: But just to be clear, I mean, that really shouldn't impact the volumes that you would be shipping to Volvo today, right? As you said, Q1 will be the same model as you have been shipping the on and off engine components. Is that how we should think about that? And with that in mind, you know, what is your expectation for those volumes in 24? Yeah, we're getting, you know, obviously, we're getting regularly informed by Volvo of the volumes they need of those components. We don't see, you know, any changes from what we're building today.

Speaker Change: In Q4, I mean, just curious does that have anything to do with the joint venture timing is that more of the the model change.

Speaker Change: Or how should we think about that.

Speaker Change: Yeah no.

Speaker Change: The volumes don't arent driven.

Speaker Change: By the JV activities. Our goal is to have a seamless transition. So there is no disruption in delivering components and systems to our JV partner.

Speaker Change: You know to our customer.

Speaker Change: So that's.

Bill Larkin: And, you know, we're, in fact, hoping to help them move even more product, right? That's one of the goals of this joint venture, but the volumes will not change from what we're shipping today. Okay, and of course, I mean, over time, that's going to show, but, immediately, it's, you know, it's a pretty steady state. Sure, yeah, I'm just trying to kind of get a sense here of the near term as you kind of get into that changeover, and maybe I know you called out, or Bill called out, lower HPDI volumes in Q4. I mean, just curious, does that have anything to do with the joint venture timing? Is that more the model change?

Speaker Change: That's what we're focusing on.

We will go through a transition period, but ultimately we expect one of the outcomes of the entering into the JV is to drive higher volumes, which.

Speaker Change: Our business volumes solves a lot of issues.

Speaker Change: Terms of driving top line growth.

Speaker Change: So the overall pretty good.

Yes understood.

Speaker Change: Okay, and then lastly, just on the LPG programs. Good that you started started those in Q1 here can you just remind us I know that it's the euro six and the euro seven it's over the next four to five years, you called out to I believe 255 million euros could.

Speaker Change: Can you just give a brief reminder, on how that kind of should break down at least as your expectations are today.

Bill Larkin: Or how should we think about that? Yeah, no, that the volumes aren't driven, you know, by the JV activities. You know, our goal is to have a seamless transition. So there will be no disruption in delivering components and systems to, you know, our JV partner, you know, our customer. And so, you know, that's what we're focusing on. You know, we will go through a transition period, but, you know, ultimately, we expect, you know, one of the outcomes of entering into the JV is to drive higher volumes, which, you know, for our business volumes, solves a lot of issues in terms of driving the top line growth of the overall business. Yep, understood. Okay, and then lastly, just on the LPG programs. Good that you started those in Q1. Can you just remind us? I know that it's Euro 6 and Euro 7.

Speaker Change: When you say breakdown do you mean by period Bye bye.

Speaker Change: I mean, obviously starts in 'twenty four probably heavier than 25, just just some high level thoughts on that.

Yes, I think we're gonna see clearly a ramp up this year.

Speaker Change: Delivering components.

Speaker Change: <unk>.

Speaker Change: Two two our OUI customer and we expect.

Speaker Change: That increase to continue into 2025.

Speaker Change: And then we get the you know.

Speaker Change: And then we start seeing just slight increases from there, but we will see a big jump this year, a big jump next year and then some.

Speaker Change: Stabilizing beyond 'twenty five.

Speaker Change: Okay, that's a pretty quick ramp up in <unk>.

Speaker Change: Enter into their capacity numbers and then it'll run.

Speaker Change: Okay. Thank you.

Speaker Change: Thanks, Eric.

Speaker Change: Next question will be from Chris <unk>.

Chris: At RBC capital markets. Please go ahead.

Chris: Hey, good morning, Thank you good morning.

Daniel Sceli: It's over the next four to five years, you called out to, I believe, 255 million euros. Can you just give a brief reminder on how that kind of should break down, at least as your expectations are today? When you say breakdown, do you mean by period? Yeah, by period. I mean, obviously, starts in twenty four, probably heavier in twenty five.

Chris: I wanted to go back to Tom's question here just on the <unk>.

Chris: Priorities and then the.

<unk> to kind of improve that operational excellence and I guess, maybe just a bigger picture question, but.

Maybe looking out 12 to 18 months, how do you envision this how does this company look.

Chris: Or is that versus today are there sort of big changes that we see or is it more of like this kind of gradual progression.

Daniel Sceli: You know, just some high-level discussion of that. Yeah, I think we're going to see a clear ramp-up this year in delivering components to our OE customer. And we expect that increase to continue into 2025. And then we get to, you know, and then we start seeing just slight increases from there, but we will see a big jump this year, a big jump next year, and then, you know, somewhat stabilizing beyond 2025. That's a pretty quick ramp up into their capacity numbers, and then it'll run.

Chris: Just kind of wanted to get your perspective on.

Speaker Change: What you foresee with less part in the future. Thanks sure sure over the next 12 18 months I mean, we're gonna be instituting.

Speaker Change: Things like harmonized metrics across the operations to drive performance, we're going to be.

Speaker Change: You know trying to optimize our capital our story or our capacity utilization.

Speaker Change: We're going to be looking at balancing our overhead costs to the businesses.

Eric Stine: Okay, thank you. Thanks, Eric. The next question will be from Chris Dendrinos at RBC Capital Marks. Good morning. Thank you. Good morning.

Speaker Change: It's a it's a just a what I call operational excellence drive to go into every corner of our operations and our you.

Christopher J. Dendrinos: I wanted to go back to Amit's question here just on the priorities and then the... executives, and I guess maybe just a bigger picture question, but, you know, maybe looking out 12 to 18 months, like how do you envision this, how does this company look then versus today? Are there, you know, sort of big changes that we see, or is it more of like this kind of gradual progression? And I just kind of want to get your perspective on that. See you with Westport.

Speaker Change: You know.

Speaker Change: Put in place a discipline that will drive performance and it takes time, it's not a you know next week next month thing and I mean, theres a lot of there's a lot of really good things that we want to optimize and continue and there's some things that we need to fix and and we will do.

Speaker Change: Drive those in a manner that that it can be executed without causing any issues to customers or supply.

Daniel Sceli: Sure, sure. Over the next 12 months, we're going to be instituting things like harmonized metrics across the operations to drive performance. We're going to be, you know, trying to optimize our capital, or sorry, our capacity utilization. We're going to be looking at balancing overhead costs with the businesses. It's just a what I call operational excellence drive to, you know, go into every corner of our operations and put in place a discipline that will drive performance. It takes time.

Speaker Change: And but that's kind of my approach.

Speaker Change: If my theory of operational excellence and driving it across the business.

Speaker Change: Got it Okay, and then I guess follow up on that is there an opportunity to consolidate some of the I guess the manufacturing footprint I think you've mentioned capacity utilization and then are there leases or anything like that that sort of I guess maybe.

Speaker Change: Maybe slow that that transition. Thanks, yeah as I said in my earlier talked nothing is off limits, we're gonna be looking you know across the.

Daniel Sceli: It's not a, you know, next week, next month thing. And there are a lot of really good things that we want to optimize and continue. And there are some things that we need to fix, and we will drive those in a manner that they can be executed without causing any issues to customers or supply. And that's kind of my approach. It's my theory of operational excellence and driving it across the business. I got it.

Speaker Change: Entire enterprise for areas to become more efficient and consolidation is always one.

Speaker Change: On that list that we look around and figure out what's the best setup and footprint for the long haul and we will be evaluating that.

Speaker Change: Got it Okay, and then maybe just separately as far as the marine opportunity goes can you just provide a bit more color.

Christopher J. Dendrinos: Okay. And then I guess a follow-up on that is, is there an opportunity to consolidate some of the, you know, I guess manufacturing footprints? I think you mentioned capacity utilization and then, you know, are there leases or anything like that, that sort of thing. Transcripts by Transcription Outsourcing, LLC. Yeah, as I said in my earlier talk, nothing is off limits; we're going to be looking across the entire enterprise for areas to become more efficient. And consolidation is always, you know, on that list that we look around and figure out what's the best setup and footprint for the long haul, and we'll be evaluating. Okay, and then maybe just separately, as far as the marine opportunity goes, can you just provide a bit more color on what is going to be tested and sort of where this opportunity falls within the marine segment? Is it, you know, commercial applications, is it more like that?

Speaker Change: On what is going to be I guess tested and sort of where this opportunity falls within the marine segment is it commercial applications is it more like a residential or retail I guess I don't know, it's it's it's it's commercial applications and it will follow.

Speaker Change:

Speaker Change: These are these are diesel engines and so it will follow a similar path to the engine development, we would do for any mobility customer and.

Speaker Change: You're taking our H PDI technology, which you know can can.

Speaker Change: Be developed for various.

Speaker Change: The types of diesel engines.

Speaker Change: These things take it takes some time, obviously working with the customer for design development and then trials.

Daniel Sceli: These are diesel engines, and this will follow a similar path to the engine development we would do for any mobility customer. You're taking our HPDI technology, which can be developed for various types of diesel engines. These things take some time, obviously, working with the customer for design, development, and then trials. It's going to be developed over the next couple of years. Thank you very much. The next question will be from Colin Rusch at... Reporting, this is Lydia.

Speaker Change: So it's going to.

Speaker Change: Develop over the next couple of years.

Speaker Change: Got it thank you very much.

Speaker Change: Thank you. Our next question will be from Colin Rusch of Oppenheimer. Please go ahead.

Colin William Rusch: Good morning.

Colin William Rusch: Alan could.

Colin William Rusch: Could you speak to the non H b.

Colin William Rusch: Revenue, you're currently seeing in the scope of the opportunity.

Colin William Rusch: The non <unk> show the light duty business is that what you're referring to or the aftermarket.

Alan: Duty business correct light duty business, yeah. So the light duty business is.

unknown: Have a new year, friendly; the non HSO the light duty business; is that what you're referring to, or the aftermarket? Light Duty Business. Yeah, so the light duty businesses are, you know, with the Euro 6 and Euro 7 and the launch of our new business with our OEM customer, we expect this year the ramp-up of that technology into the marketplace to happen fairly quickly. And I don't have the exact numbers in front of me here of what that'll do. Maybe Bill has some exact numbers, but the growth is pretty substantial.

Alan: With Euro six and euro seven and the launch of our new business with our OEM customer. We expect this year the the wrap up of that technology into the marketplace.

And it'll happen fairly quickly.

And.

I don't have the exact numbers in front of me here of what that'll do maybe bill Hudson exact numbers, but the growth is pretty substantial for us.

Daniel Sceli: And then as a follow up, as you're looking at optimizing, and then me. Yeah, so on our supply chain, and I'm not, I'm not going to get into any specific numbers that we're expecting to get from managing our supply chains, but it's a continual part of part of my overall operational excellence initiative includes the supply side of optimizing, you know, the logistics, the cost of the product, cost reduction efforts, those types of things. And, you know, we take the same approach to our suppliers as we do to our own operations. The next question will be from Jeff Osborne at P.D. Cowan

Speaker Change: Great. Thank you and then as a follow up as you're looking at optimizing your supply chains on the natural gas vehicles could you give us a sense of the scope of the opportunities to drive cost reduction.

Speaker Change: Then maybe the operating leverage potential for the platform as revenue growth.

Speaker Change: Yeah, so on our supply chain I mean, we're not I'm not going to get into any specific numbers that we're expecting to get from managing our supply chains, but it's a continual part of part of my overall operational excellence.

Speaker Change: Initiatives includes the supply side of optimizing.

Speaker Change: The logistics the cost of the product cost reduction efforts.

Speaker Change: Those types of things and.

Speaker Change: You know we take the same approach to our suppliers.

Speaker Change: As we do to our own operations.

Speaker Change: Great. Thank you.

Speaker Change: Thank you next question will be from Jeff Osborne at TD Cowen. Please go ahead.

Jeffrey David Osborne: Hey, good morning. I had a couple questions on my side. I was just curious if there's any update after you've had, you know, two months on the job, and I imagine you're connected with some of your leading partners on the ICE engine side. Any updates around the commercialization timeline, especially just given some of the hydrogen infrastructure projects globally have been a bit delayed relative to expectations? Do you mean beyond the Volvo joint venture? Correct. Yeah,

Hey, good morning, I had a couple of questions on my side I was just curious if there's any update after you've had two months on the job.

Jeffrey David Osborne: Ah connected with some of your leading partners on the ice engine side any updates around the commercialization timeline, especially just given some of the hydrogen infrastructure projects globally had been a bit delayed relative to expectations.

Jeffrey David Osborne: You mean beyond the Volvo joint venture.

Correct. Yeah. So we are continuing to to do development to cross.

Daniel Sceli: So we are continuing to do development, as we talked about in the thing in rail and marine and, of course, in the heavy truck markets, and we're going to continue to do that. We're in discussions with other OEMs, and we're going to continue to market and push the potential gains of that technology to those OEMs. I was just trying to get at, you had some exciting announcements in sort of the October through December period. Do you anticipate those to be two to three year development contracts? And so are we really looking at 2027 and beyond for those to come to fruition? Or what's your expectation of development cycles for some of the more recent announcements? Yeah, there might be I'd have to get the specific timing for you, which we can follow up on, you know, because marine rail and the trucking industry all have somewhat different development cycles. And, of course, from that comes different development times.

Jeffrey David Osborne: You talked about in the thing in rail and Marine and of course in the heavy truck markets and we're going to continue to do that we're in discussions with other Oems and to them.

Jeffrey David Osborne: I'm going to continue to market.

Jeffrey David Osborne: Market and push the.

Jeffrey David Osborne: Potential gains of that technology to those Oems.

Jeffrey David Osborne: I was just trying to get at it you had some exciting announcements in sort of the October through December period, do you anticipate those to be two to three year development contracts and so we're really looking out to 2027 and beyond for those to come to fruition or what's your expectation of development cycles for some of the more recent announcements.

Speaker Change: Yeah, there might be I'd have to get the specific timing for you, which we can follow up with you know because.

Speaker Change: Marine rail and the.

Speaker Change: The trucking industry, all have somewhat different development cycles and of course from that comes different development times and.

Daniel Sceli: And, you know, as you said, I've been here for two months. So I haven't got that at the top of my head of where we are and the timing of those and what the end point is. But I can certainly follow up with that. No worries, maybe two for Bill. You know, there are six days left in the quarter.

Speaker Change: Hum.

Speaker Change: You said I'm here two months, so I haven't got that at the top of my head of what are the where we are and the timing of those and what the endpoint.

Speaker Change: Endpoint is but I can certainly follow up with that.

Speaker Change: Maybe two for Bill.

Speaker Change: There is.

Six days left in the quarter can you give us any directional comments about how Q1 is shaking out relative to Q4, both from a top line and maybe the margin perspective.

Bill Larkin: Can you give us any directional comments about how Q1 is shaking out relative to Q4, both from a top line and maybe a margin perspective? Yeah, no, we typically don't, you know, provide any guidance, you know, as you're aware, so. You know, we will go through our normal reporting cycle on that. Got it. And then I assume the same is true for 24.

Speaker Change: Yes no.

Bill Larkin: We typically don't provide any guidance as you're aware so.

Bill Larkin: We will go through our normal reporting cycle on that.

Speaker Change: Got it and then I assume the same true for 'twenty four but is there any comments you can make some things that you can control I understand there's a lot of knife you can't it.

Bill Larkin: But are there any comments you can make on things that you can control? I understand there's a lot in life you can't. It doesn't sound like you're willing to give OPEX because everything's under review, but you also have a moving part with the joint venture. So can you just give us a sense of like how much headcount expenses would move to the JV and how we should think about, you know, minority interest losses on that?

Speaker Change: It doesn't sound like you're willing to give opex because everything is under review, but you also have a moving part with the joint venture. So can you just give us a sense of like how much head count.

Speaker Change: Expenses would move to the JV and how we should think about minority interest losses for that.

Bill Larkin: And then maybe any comments you can make on anticipated CAPEX relative to the $15 million you spent last year and the $2 million in debt repayment. No, and I think we've talked about this before, you know, the state closing of the GEV, we do not expect to be able to consolidate the financial results of the GEV. However, we're going to, You know, this this process is going to change how we're going to report our segments going forward, I would expect. We expect we're going to provide you with a more transparent view of each of these businesses. So even though we're not going to be able to consult, we don't expect to be able to consolidate the joint venture, we'll provide a full disclosure, very similar to what we did with our CWI joint venture. So we'll be able, you'll be able to see, we expect to start disclosing volumes, revenues, and you'll be able to see the margins. Also, you know, we are evaluating our other businesses and how we break that out, and, you know, considering, you know, looking at the hydrogen business and breaking that out.

Speaker Change: And then maybe any comments you can on the anticipated capex relative to the $15 million you spent last year in the $2 million.

Speaker Change: No.

I think we I think we've talked about this before.

Speaker Change: With the closing of the JV.

Speaker Change: We do not expect to be able to consolidate.

Speaker Change: The financial results of the GDP.

Speaker Change: However, we're going to.

Speaker Change: Yeah.

Speaker Change: This process is going to change how we're going to report our segments going forward I would expect.

Speaker Change: We expect to provide more transparency.

Speaker Change: Each of these businesses, so even though we're not going to be able to consult we don't expect to be able to consolidate the joint venture will provide a fulsome disclosure very similar to what we did with our CW life joint venture will be you'll be able to see we expect to start disclosing volumes revenues.

Speaker Change: It can be able to see the margins.

Speaker Change: Also.

Speaker Change: We are evaluating our other businesses and how do we break that out.

Speaker Change: <unk> looking at the hydrogen business with breaking that out so.

Bill Larkin: So we're working through that process right now. And I would expect, you know, after the GV closes, probably the subsequent quarter, we'll start seeing that information broken out differently as we go forward. Got it. Thank you. Go ahead. Thanks. Ladies and gentlemen, as a reminder, Star One, if you haven't already. Next will be a follow-up from Eric Stine. Please go ahead. Hey, everyone.

Speaker Change: So we're working through that process right now and I would expect <unk>.

Speaker Change: After the JV closes probably that subsequent quarter.

Speaker Change: We will start you'll start seeing that information and broken out differently as we go forward.

Speaker Change: Got it thank you.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, as a reminder, please press star one if you have any questions next will be a follow up from Eric Stine. Please go ahead.

Eric Stine: Hey, Ron Yeah, just a quick follow up here so more of a high level question I know for Volvo and this is joint venture. It's obviously are the internal combustion engine keep part of their their strategy going forward differentiated products in the market but.

Eric Stine: Yeah, just a quick follow-up here, so more of a high-level question. I know for Volvo, and this is a joint venture, you know, it's obviously the internal combustion engine, a key part of their strategy going forward with differentiated products in the market. But, you know, whether it's Volvo's view or your combined view as a joint venture partner, you know, what do you anticipate this being as a – potentially as a percentage of the overall market as you see it developing going forward, and you've got a number of technologies that are kind of in the mix for those future volumes? Yeah, good question. And I think we'd have to defer to Volvo on that. They have the eyes and view of market growth, you know. They've been announcing their priorities and their focus, the exact or specific breakout of the HPDI technology versus the alternatives. I think you'd have to ask them and, you know, we're relying on them as the experts to know that market and, hopefully, optimize it in regards to the joint venture.

Eric Stine: Whether it's volvo's view or your combined view as a joint venture partner, what do you envision this being as a potentially as a as a percentage of the overall market.

Eric Stine: As you see it developing going forward and you've got a number of technologies that are kind of in the mix for those future volumes.

Speaker Change: Yes, good question and I think we'd have to defer to vocal on that they have the.

They have the eyes in view of the market growth.

Speaker Change: And announcing their priorities and their focus.

Speaker Change: The exact or specific.

Speaker Change: Breakout of.

Speaker Change: The <unk> technology versus the alternatives.

Speaker Change: I think you'd have to ask them in.

Speaker Change: You know, we're relying on them as the experts to to know that that market and hopefully optimize it in regards to the joint venture.

Speaker Change: Alright, I guess it was worth a try but something we'll stay tuned on that.

Daniel Sceli: Alright, I guess it was worth a try, but something will stay tuned on. Thank you. Thank you. And at this time, we have no further questions. Please. Ashley.

Speaker Change: Thank you.

Speaker Change: Thank you and at this time, we have no further questions. Please proceed.

Speaker Change: Ashley.

Ashley: So I think that concludes the day for us.

Operator: So I think that concludes the day for us. I assume Ashley will jump on and do those things, but thank you very much for all of the questions and look forward to talking to you all again. Thank you. Ladies and gentlemen, this is the conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect. Thank you. Bye-bye.

Ashley: I assume Ashley I'll jump on and do that stuff, but thank you very much for all of the questions and.

Ashley: And look forward to talking to you all again and we will keep you informed.

Speaker Change: Thank you.

Ashley: Thank you ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.

Speaker Change: Thank you bye bye.

[music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Thank you.

Speaker Change: Okay.