Q1 2024 Westport Fuel Systems Inc Earnings Call

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Anas: Good morning, my name is Anas, and I will be your conference operator today. At this time, I would like to welcome everyone to the Westport Fuel Systems Q1 2024 conference call.

Good morning, My name is Dennis and I will be your graphics operator today at this time I would like to welcome everyone to the Westport fuel systems Q1, 2024 conference call.

Anas: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. Thank you. Ms. Ashley Nuell, you may begin your conference.

Anas: All lines have been placed on mute to prevent any background noise.

Ashley Nuell: After the Speakers' remarks, there will be a question and answer session if you'd like to ask a question. During this time.

Anas: Sure.

Ashley Nuell: One on your telephone keypad.

Speaker Change: Likes you withdraw your question. Please press star two.

Ashley Nuell: Mr. <unk> you may be.

Ashley Nuell: Again your conference.

Ashley Nuell: Thank you. Good morning, everyone. Welcome to Westport Fuel System's first quarter conference call for 2024. 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 Seline, and Chief Financial Officer, Bill Larkin. Attendance on this call is open to the public, but questions will be restricted to the investment community

Ashley Nuell: Thank you good morning, everyone welcome to Westport fuel Systems' first quarter conference call for 2020 for this call is being held to coincide with the press release containing Westport financial results was issued yesterday.

Ashley Nuell: On today's call speaking on behalf of Westport, as Chief Executive Officer, and Director Debbie line, and Chief Financial Officer Bill back in it.

Ashley Nuell: Attendance on this call is open to the public that questions will be restricted to the investment community.

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 U.S. and applicable Canadian securities law, and 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, Derek.

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 U S. As applicable Canadian securities laws and as such forward looking statements are made based on our current expectations and involve certain risks and uncertainties.

Derek: With that I'll turn the call over to you Sir.

Derek: Thanks Ashley. Good day, everyone.

Derek: Thanks, Ashley and good day everyone.

Derek: Today, I will be recapping, our Q1 results and providing color on our 2024 strategic priorities I will also be sharing an update on the JV with Volvo and touching on the recently announced zero emission vehicle or reserves legislation.

Derek: Today I will be recapping our Q1 results and providing color on our 2024 strategic priorities. I will also be sharing an update on the JV with Volvo and touching on the recently announced zero emission vehicle, or ZEV, legislation. Then I'll turn the call over to Bill to walk us through our Q1 results in more detail.

Derek: I'll turn the call over to Bill to walk us through our Q1 results in more detail.

Derek: So touching first on our financial results, Q1 2024 revenues were down 6% year-over-year, primarily due to decreased volumes in our delayed OEM business as a key customer works through their existing inventory, although we are seeing volumes begin to tick back up here in May. On the cost side of the equation, we have been aggressive in cost-cutting and have begun to make changes. As you well know, some of these adjustments will take time before we see the benefits. As I mentioned at year end, nothing is off limits with respect to reducing expenditures. We have been reducing costs everywhere, from the board level to the shop floor. I will dig into some examples of where we are seeing success and where we'll be putting more pressure on in just a moment.

Bill: Touching first on our financial results results Q1, 2024 revenues were down 6% year over year, primarily due to decreased volumes in our delayed OEM business.

Derek: Key customer works through their existing inventory.

Derek: Although we are seeing volumes begin to tick back up here in may on the cost side of the equation, we have been aggressive in cost cutting and have begun to make changes as you well know some of these adjustments will take time before we see the benefits in our financial statements as I mentioned at year end nothing is off limits with respect to reducing expenditures.

Derek: We have been reducing costs everywhere from the board level to the shop floor, and we'll dig into some examples of where we're seeing success and where we'll be putting more pressure in just a moment.

Derek: In my first three months in the role, I established three main priorities for 2024 and beyond, including number one, driving success via our HPDI joint venture with Volvo, number two, improving operational excellence, and number three, reimagining our hydrogen-powered future. To ensure that Westport creates value for our shareholders, 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 value of our business long into the future.

Derek: In my first three months in the role I established three main priorities for 2024 and beyond including number one driving success via our <unk> joint venture with Volvo.

Derek: Two improving operational excellence.

Derek: And three re imagining our hydrogen powered future.

Derek: To ensure that Westport creates value for our shareholders, we need disciplined operations that slow from a strong strategic plan. These priorities are consistent with that need and are expected to elevate the performance and value of our business long into the future.

Derek: As you know, we signed the investment agreement for our HPDI joint venture in Q1 and are in the final stage of formalizing the joint venture. We received approval of our competition filing earlier this week, great news, and continue to work towards an expected closing in the second quarter. The investment agreement was a critical step, and it solidifies Volvo and Westport's commitment to accelerating the commercialization and global adoption of Westport's HPDI fuel system for long-haul and off-road applications.

Derek: As you know we signed the investment agreement for our <unk> joint venture in Q1 entering the final stage of formalizing the joint venture.

Derek: We received approval of our competition filing earlier this week, great news and continue to work towards an expected expected closing in the second quarter.

Derek: The investment agreement was a critical step and it solidifies Volvo and Westport commitment to accelerating the commercialization and global adoption of Westport <unk> fuel system for long haul and off road applications.

Derek: We continue to work towards an expected closing in the second quarter, with some administrative items still outstanding. Once the JV is closed, this is when the real work begins. In our pursuit of profitability, cost cutting is not merely a priority. It's an imperative.

Derek: We continue to work towards an expected closing in the second quarter with some administrative items still being still outstanding once the JV is closed this is when the real work begins.

Derek: In our pursuit of profitability cost cutting is not merely a priority. It's an imperative we recognize that sustainable growth relies on our ability to manage expenses. Therefore, while we are committed to driving topline growth and operational efficiencies are foremost focus remains on reducing costs at every <unk>.

Derek: We recognize that sustainable growth relies on our ability to manage expenses. Therefore, while we are committed to driving top-line growth and operational efficiencies, our foremost focus remains on reducing costs at every opportunity. We have begun to act in a more disciplined way by identifying cost-saving opportunities and making changes. In Q1, we incurred $1.5 million in one-time expenses related to severance and costs associated with setting up the JV.

Derek: Opportunity.

Derek: We have begun to act in a more disciplined way by identifying cost saving opportunities and making changes in Q1, we incurred $1 5 million in one time expenses related to severance and costs associated with setting up the JV. These costs will taper off following the closing of the JV.

Derek: These costs will taper off following the closing of the JV. We have reduced senior management by six individuals and announced in our information circular that we plan to reduce the board size by one. We also plan to reduce board costs in general. Also, we closed the amended Westport Minda JV in 2024 in the second quarter and are progressing with a restructuring of our presence in India, which is expected to improve our position in that business to generate positive cash flows for the first time in years.

Derek: We have reduced senior management by six individuals and announced in our information circular we plan to reduce the board size by one.

Derek: We also plan to reduce board cost in General also we closed the amended Westport JV in 2024 in the second quarter and are progressing with the restructuring our presence in India, which is expected to improve our position in that business to generating positive cash flows for the first time in years.

Derek: Through strategic headcount reductions across the organization, we are streamlining our workforce to increase operational agility. In addition, we are decreasing our reliance on external consultants, signaling a shift towards internal expertise and resource optimization, and initiating changes in our production lines to optimize manufacturing cost reduction. For example, in Italy, we have brought in an experienced individual dedicated to operations who, with the team there, is identifying areas of excess and planning and when and how to reduce the cost without impacting our ability to deliver.

Derek: Through strategic headcount reductions across the organization, we are streamlining our workforce to increase operational agility. In addition, we are decreasing our reliance on external consultancy, Sydney signaling a shift towards internal expertise and resource optimization and initiating changes in our production lines to <unk>.

Derek: Optimize manufacturing cost reductions for example in Italy, we have brought in an experienced individuals dedicated to operations.

Derek: The team there is identifying areas of access and plans and when and how to reduce the cost without impacting our ability to deliver.

Derek: Currently, we are evaluating all discretionary costs, and so far, I have updated our hiring policy to focus on limiting any new hiring to key positions only, focused on ensuring operational continuity, and I have implemented travel restrictions to reduce expenses. The goal is to simplify the business and go back to the basics.

Derek: Currently we are evaluating all discretionary costs and so far I have updated our hiring policy to focus on limiting any new hiring key positions only focused on ensuring operational continuity and have implemented travel restrictions to reduce expenses. The goal is to simplify the business and go back to the basics.

Derek: Westport is fortunate to be part of a compelling industry in which alternative fuels are seeing increased support and investment. We are also fortunate that government policy in key jurisdictions like Europe and North America is heading in the right direction for hydrogen as a fuel source. Recently here in Canada, we saw the province of Alberta commit $57 million to the development of hydrogen power along with an agreement from Air Products to build hydrogen refueling stations along a key transportation network in the province, demonstrating that hydrogen is essential to decarbonizing heavy-duty transport.

Derek: Westport is fortunate to be part of a compelling industry and which alternative fuels are seeing increased support and investments.

Derek: We are also fortunate the government policy in key jurisdictions like Europe, and North America is heading in the right direction for hydrogen as a fuel source.

Derek: Recently here in Canada, we saw the province of Alberta commit $57 million to the development of hydrogen power along with a commitment from air products to build a hydrogen refueling stations along our key transportation network in the province, demonstrating that hydrogen is essential to decarbonising heavy duty transport.

Derek: We are very well positioned from a strategic standpoint to be part of the hydrogen play as it evolves. In our hydrogen business, we are seeing this support take shape, where over the past two years, we have won seven development contracts or production programs for new 700-bar hydrogen products, complementing our current 350-bar and low-pressure offerings, where we have also added new programs. Although in the early stages, these programs will translate into $70 million in revenue by the end of the decade.

Derek: We are very well positioned from a strategic standpoint to be part of the hydro can play as it evolves.

Derek: In our hydrogen business, we are seeing the support take shape, where over the past two years, we have 107 development contracts or production programs for new 700 bar hydrogen products.

Derek: Complementing our current 350 bar and low pressure offerings, where we have also added new programs.

Derek: Although I'm wondering stages. These programs will translate into $70 million in revenue by the end of the decade with a focus on innovation and staying ahead of the market, we continue to add to and improve our product offering and are in production now for generation. The next generation 700 bar hydrogen regulators and are beginning on it.

Derek: With a focus on innovation and staying ahead of the market, we continue to add to and improve our product offering and are in production now for the next generation 700-bar hydrogen regulators and are beginning on a new line of 700-bar hydrogen manifolds. Recently, we saw new zero emission vehicle regulations out of the EU, positive news for us and the industry. Our hydrogen HPDI fuel system is compatible with the new ZEV threshold of three grams of CO2 per ton km.

Derek: New line of 700 bar hydrogen manifolds.

Derek: Recently, we saw new zero emission vehicle regulations out of the EU part, it's positive news for us and the industry are hydrogen H PDI fuel system is compatible with the news that threshold of three grams of Cotwo ton kilometer.

Derek: In addition, our engine management systems for spark-ignited engines and our hydrogen components for fuel pressure management and regulation are clean mobility solutions designed and manufactured for a diverse set of zero emission vehicles with hydrogen fuel systems and components for both internal combustion engines and fuel cell applications. The ZEV label conveys valuable benefits to qualified vehicles and fleet operators. It is incentivizing the adoption of the cleanest, highest performing vehicles across the heavy duty transport sector, aligning with Westport's initiatives.

Derek: In addition, our engine management systems for spark ignited engines, and our hydrogen components for fuel pressure management and regulation are clean mobility solutions designed and manufactured for a diverse set of zero emission vehicles with hydrogen fuel systems and components for both internal combustion engines and fuel cell.

Derek: Patients.

Derek: Does that label conveys valuable benefits to qualified vehicles and fleet operators. It is incentivising adoption of the cleanest highest performing vehicles across the heavy duty transport sector aligning with Westport initiatives.

Derek: This opens the door for our customers and OEMs to receive incentives, as well as funding and other regulatory benefits for incorporating our solution. While this is a strong step forward supporting a hydrogen future, the continued competitiveness, affordability, and growing availability of biomethane ensures that biomethane fueled heavy duty vehicles will continue to make valuable contributions to decarbonization of transport well into the future.

Derek: This opens the door for our customers and Oems to receive incentives as well as funding and other regulatory benefits, we're incorporating our solutions.

Derek: While this is a strong step forward supporting our hydrogen future continued competitiveness affordability and growing availability of biomethane ensures that biomethane fueled heavy duty vehicles will continue to make valuable contributions to decarbonization of the transport well into the future.

Derek: Finally.

Derek: I wanted to touch on our current development projects featuring our HPDI fuel systems across multiple modes of transport. These initiatives represent more than just technological advancements. They embody our unwavering commitment to a brighter, greener future for generations to come. These projects are long-term and ongoing, so I intend to provide updates or answer any questions about each project throughout their duration, although I may not discuss them in depth as frequently as we have to respect our customers' confidentiality. Before digging into some of our key programs, I wanted to touch on our outlook in China.

Derek: I wanted to touch on our current development projects, featuring our <unk> fuel systems across multiple modes of transport.

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

Derek: These projects are long term and ongoing therefore, I intend to provide provide updates or answer any questions about each projects throughout their duration, although I may not discussed them in depth as frequently as we have to respect our customers' confidentiality before.

Derek: We remain optimistic about the Chinese natural gas vehicle market, which is expected to expand to well over 100,000 commercial vehicles in 2023. And we continue to collaborate with our OEM partner in the Chinese market to provide an affordable low-carbon solution in the future. The parties are currently discussing this work and the obligations of each party going forward.

Derek: Before digging into some of our key programs I wanted to touch on our outlook in China, we remain optimistic on the Chinese natural gas vehicle market, which expanded to well over 100000 commercial vehicles in 2023, and we continue to collaborate with our OEM partner in the Chinese market to provide an affordable low carbon solution in the future.

Derek: The parties are currently discussing this work and the obligations of each party going forward. The engine development program continues to evolve and move forward.

Derek: The engine development program continues to evolve and move forward. Moving on to our development programs, in November of 2023, 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 sectors. Given the size of these engines, the initial design phase is a large body of work and is currently underway. We anticipate engine testing to occur later in 2025. In December, Westport announced a massive development program with a global heavy truck manufacturer.

Derek: Moving to our development programs in November of 2023, we announced a collaboration with a leading global OEM in the rail industry. 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 given.

Derek: Given the size of these engines the initial design phase.

Derek: Large body of work is currently underway, we anticipate the engine testing to occur later in 2025 and December Westport announced a monumental development program with a global heavy truck manufacturer at this.

Derek: This program focuses on adapting our next generation LNG HPDI fuel system to meet the stringent Euro 7 emissions requirements for heavy duty vehicles. This $33 million project is funded by the OAM, and as we work together to diligently integrate cleaner energy solutions into the transport sector. Lastly, we are engaged in a proof-of-concept project with a global supplier of power solutions for marine applications to explore alternative sustainable energy sources for maritime transportation.

Derek: This program focuses on adapting our next generation LNG <unk> fuel system to meet the stringent euro seven emissions requirements for heavy duty vehicles.

Derek: This $33 million project is funded by the OEM and as we work together to diligently integrate cleaner energy solutions into the transport sector.

Derek: Lastly, we are engaged in a proof of concept project with a global supplier of power solutions.

Derek: For marine applications to explore alternative sustainable energy sources for maritime transportation.

Derek: This project commenced in Q1 and explores the use of our HPDI fuel system, fueled with methanol, for marine propulsion. The testing of HPDI technology for use with methanol in marine applications is a natural extension of our HPDI technology. 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. Currently, the engine conversion is being planned with our OEM customer with the intention to run engine tests later this year.

Derek: This project commenced in Q1 and explores the use of our <unk> system fueled with methanol for marine propulsion. The testing of <unk> technology for use with methanol and marine applications is a natural extension of our <unk> technology, we expect that our <unk> system with methanol will be able to provide similar toward.

Derek: Power and efficiency to diesel while also potentially reducing nox emissions.

Derek: Currently the engine conversion is being planned with our OEM customers with the intention to run the engine test later this year as we see at <unk> is well suited for high horsepower off road applications as the other low carbon zero carbon competing technologies in on highway markets, including spark ignited fuel cell and battery electric.

Derek: As we see it, HPDI is well suited for high horsepower off-road applications, as the other low-carbon, zero-carbon competing technologies in on-highway markets, including spark-ignited fuel cells and battery electric, all have major drawbacks when used in demanding high-horsepower applications. Spark injection systems have inherently lower fuel efficiency, which can be an acceptable trade-off in certain on-highway markets, but not in high Battery electric requires charging time that doesn't work with the daily runtime requirements in the high-horsepower space.

Derek: All have major drawbacks when used in demanding high horsepower applications.

Derek: <unk> injection systems have inherently lower fuel efficiency, which can be an acceptable trade off in certain on highway markets, but not in high horsepower applications, where the annual fuel use is substantial.

Derek: Battery electric requires charging time that doesn't work with the daily run time requirements in the high horsepower space finally fuel cells could be a consideration, but high horsepower applications tend to operate at very high load factors, which is where fuel cell efficiency decreases.

Derek: Finally, fuel cells could be a consideration, but high horsepower applications tend to operate at very high load factors, which is where fuel cell efficiency decreases. We believe that high horsepower applications will be most effective when used with diesel cycle combustion, the option with the highest efficiency and durability. Therefore, changing the fuel instead of changing the fundamental technologies for these applications is the best option for decarbonization and functionality, and HPDI is the solution. With that, I'll hand the call over to Bill, who will walk you through our financial results.

Bill: We believe that high horsepower applications will be most effective when used with diesel cycle combustion the option with the highest efficiency and durability.

Derek: Therefore, changing the fuel instead of changing the fundamental technologies for these applications is the best option for de Carbonization and functionality and <unk> is the solution with that I'll hand, the call over to Bill who will walk you through our financial results Phil.

Bill Larkin: Great. Thank you. Good morning. And thank you, Dan.

Bill: Great. Thank you good morning, and thank you Dan.

Bill Larkin: In the first quarter of 24, we generated $77.6 million in revenue. This is a 6% decrease compared to the prior year period. This decrease is primarily driven by a decline in sales volumes in our delayed OEM and, to a lesser extent, in our fuel storage and our light and heavy-duty OEM businesses. Partially offsetting these declines are increased sales of our electronics products and an increase in our independent aftermarket business, where we saw our sales increase in North American, Western European, and South American markets. Gross margin decreased to $11.79, or over 15% of revenue in the quarter.

Bill Larkin: In the first quarter of 2004, we generate $77 6 million in revenue.

Bill Larkin: A 6% decrease compared to the prior year period.

Bill Larkin: Decrease was primary driven by a decline in sales volumes that are delayed OEM and to a lesser extent, yes fuel storage light and heavy duty OEM businesses.

Bill Larkin: Partially offsetting these declines were increased sales of our electronics products and an increase of our independent aftermarket business.

Bill Larkin: Where we saw our sales increase in North American Western European and South American markets.

Bill Larkin: Gross margin decreased $11 7 million or 15% of revenue in the quarter.

Bill Larkin: This is down from $13.3 million or 16% of revenue in Q1 of last year. This decline is primarily driven by the reductions in Q1-24 revenues, which were partially offset by an improvement in sales mix to higher profit markets in our independent aftermarket business. Adjusted EBITDA loss increased by $2.19 to $6.69. In the quarter, we had about $1.5 million of costs related to severance and outside services associated with closing the joint venture. Going forward, we expect to see a reduction in outside services once the joint venture is closed.

Bill Larkin: This is down from $13 3 million or 16% of revenue in Q1 of last year.

Bill Larkin: This decline is primarily driven by the reductions in Q1, 'twenty four revenues, which were partially offset by an improvement in sales mix to higher profit markets and our independent aftermarket business.

Bill Larkin: Our adjusted EBITDA loss increased by $2 1 million to $6 6 million.

Bill Larkin: In the quarter, we had about $1 $5 million of costs related to severance and outside services associated with closing the joint venture.

Bill Larkin: Going forward, we expect to see a reduction in outside services, what's the joint venture disclosed.

Bill Larkin: OEM revenue for the first quarter of 24 was $49.3 million, down $7 million compared to the prior year period. In the quarter, sales volumes decreased in our late OEM fuel storage and late duty OEM business. Our heavy-duty business sales volumes decreased, which were partially offset by higher engineering services revenue. Sales volumes in the electronics business increased room by hire sales to one of our key customers. Gross margin in our OEM business decreased in the quarter to $4.5 million, or 9% of revenue.

Bill Larkin: OEM revenue for the first quarter of 'twenty four was $49 3 million.

Bill Larkin: <unk> 7 million compared to prior year period and.

Bill Larkin: In the quarter Sailplanes decrease our glade, OEM youll storage and light duty OEM businesses.

Bill Larkin: Our heavy duty business sales volumes decrease which were partially offset by higher engineering services revenue.

Bill Larkin: Sales volumes of our electronics business increased driven by higher sales to one of our key customers.

Bill Larkin: Gross margin in our OEM business decreased in the quarter to $4 5 million or 9% of revenue.

Bill Larkin: This is compared to $8.1 million or 14% of revenue in Q1 of 2023. This decline is largely driven by lower volumes in our delayed OEM business, which traditionally has strong... As Dan mentioned, our key customer here, Enter24, had XS Kit Inventory, and they were working through their inventory in the first quarter. As we mentioned on our year-end call, LPG fuel system deliveries to our global OEM customers began in the first quarter.

Bill Larkin: Compared to $8 1 million or 14% of revenue in Q1 at 23.

Bill Larkin: Clearly, it's largely driven by lower volumes at our delayed OEM business, which traditionally have strong margins.

Bill Larkin: Dan mentioned that our key customer here 24, with excess inventory and they are working through their inventory in the first quarter.

Bill Larkin: As you mentioned on our year end call LPG fuel system deliveries to a global OEM customer began in the first quarter. However, we saw a limited impact on revenue as it is only a partial quarter of deliveries, which included a ramp up in production that is expected to continue throughout the year.

Bill Larkin: However, we saw a limited impact on revenue as it was only a partial quarter of delivery, which included a ramp-up in production that is expected to continue throughout the year. Independent aftermarket revenue for the first quarter of 2024 was $28.3 million. This is up $2.4 million compared to the prior year period. Increased sales in North America and Western Europe, as well as expansion of markets in South America, primarily in Mexico and Peru, drove this performance, with sales declining in Africa and Eastern Europe.

Bill Larkin: Independent aftermarket revenue for the first quarter of $24 $28 3 billion.

Bill Larkin: $2 $4 million compared to prior year period.

Bill Larkin: Increased sales in North American Western European as well as expansion to markets in South America, primarily in Mexico, Peru drove this performance with sales declining in Africa and Eastern Europe.

Bill Larkin: Our gross margin increased to $7.2 million, or 25% of revenue, compared to $5.2 million, or 20% of revenue in a prior year period. This increase is driven by higher sales volumes and an improvement in sales mix to higher-margin. Starting liquidity, our cash and cash equivalents at March 31, 2024 was $43.9 million, and cash provided by Operating Activities was $142,000. This is a significant improvement over the same period last year, built by Continued Reductions in Networking, CAP. Investing activities included purchases of capital assets of $4.9 million, and financing activities were attributed net debt payments of $5.8 million during the period.

Bill Larkin: Gross margin increased to $7 2 million or 25% of revenue compared to $5 2 million or 20% of revenue in the prior year period. This increase was driven by higher sales volumes and an improvement in sales mix to higher margin markets.

Bill Larkin: Sorry liquidity, our cash and cash equivalents at March 31, 2024 was $43 9 million cash provided by operating activities was 142000.

Bill Larkin: This is a significant improvement over the same period last year helped by continued reductions in net working capital.

Bill Larkin: Investing activities included purchases of capital assets of $4 9 million and financing activities were truly net debt payments of $5 8 million in the period.

Bill Larkin: 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. To reiterate Dan's statement about costs, in our pursuit of profitability, cost-cutting is not merely a priority; it is imperative. We've been identifying cost-saving opportunities and making changes, and we're already seeing a positive impact of these cost reduction initiatives, with the full effects of these initiatives being more obvious in our financials after we close the joint venture on those one-time costs.

Bill Larkin: Looking forward, we have multiple projects and initiatives either announced or underway that'll have a positive impact on liquidity as we continue to prioritize solidifying our balance sheet.

Bill Larkin: To reiterate Dan's statement about cost and our pursuit of profitability cost cutting is not merely a priority it is imperative.

Bill Larkin: We've been identifying cost saving opportunities and making changes and we're already seeing a positive impact of these cost reduction initiatives.

Bill Larkin: With the full effects of these initiatives to be more obvious on our financials. After we closed the joint venture and those onetime costs taper off.

Bill Larkin: All that said, we have a lot more to do. Moving forward, we will continue to be prudent in our liquidity management, and multiple steps are being taken to do so. And we will continue to do so as is necessary to ensure that we are adequately and fully kept. Thank you. And with that, I will turn it back to Dan.

Speaker Change: Well that said, we have a lot more to go.

Bill Larkin: Moving forward, we will continue to be prudent liquidity management multiple steps are being taken to do so and we will continue to do so what is necessary to ensure that we are adequately fully capitalized.

Bill Larkin: Thank you and with that I will turn it back to Dan Dan.

Derek: Thanks Bill. Finally, I wanted to close on a few key points. Westport is part of a compelling industry with a bright future, and we are driven to make a material impact on the decarbonization of the transport industry. Although revenue was a miss this quarter, it wasn't permanent, and we're making the necessary changes to optimize operations, cut costs, and ultimately close on the HPDI joint venture. Our short-term goal is to stabilize the business.

Dan: Thanks, Bill finally, I wanted to close on a few key points.

Derek: Westport 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. Although revenue was a miss this quarter it wasn't permanent and we're making the necessary changes to optimize operations cut costs and ultimately close on the <unk> joint venture our <unk>.

Derek: Long-term, we will be focused on building a sustainable and profitable future, driving our three key pillars with a culture of discipline and excellence. We will deliver the objectives we established. I want to take a moment to thank everyone for being here today, and with that, I'll turn it over to the operator to open the call for questions.

Derek: Term goal is to stabilize the business long term, we will be focused on building, a sustainable and profitable future driving our three key pillars with a culture of disciplined and excellence will deliver the objectives we established.

Derek: I wanted to take a moment to thank everyone for being here today and with that I'll turn it over to the operator to open the call for questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by 1 on your touchtone phone. You'll hear updates from Brown, the Coalition requests, and your questions will be polled in the other directory. Should you wish to decline from the polling process, please press star followed by 2. If you are using a speakerphone, please lift the handset before pressing any key.

Operator: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on aegis Jonestown.

Operator: Detailed brand the Colombian requests in your questions Paul.

Operator: Do we see the collapsing the polling process with breast stifle a bite you.

Operator: Using a speaker phone, please flip to Hudson for pricing.

Operator: One moment, please, for your first question. Your first question comes from Colin Rusch with OpenNymer. Please go ahead.

Operator: One moment. Please for your first question. Your first question comes from Colin Rusch with Oppenheimer. Please go ahead.

Colin William Rusch: Thanks so much, guys. Appreciate the comments around customer inventories. Can you talk a little bit about what you're seeing in terms of sell-through on that inventory and when you think it will be fully paid?

Colin William Rusch: Thanks, so much guys.

Colin William Rusch: The comments around customer customer inventories can you talk a little bit about what youre seeing in terms of sell through on that inventory and when you think it will be fully cleared.

Bill Larkin: Bill, you want to jump in on that one? Oh, sure. Yeah, no problem.

Colin William Rusch: Bill you want to jump in on that sure yes.

Bill Larkin: Tom.

Bill Larkin: So, you know, we're already starting to see those sales starting to pick up for demand. This is a customer that has just grown significantly in Italy, in Italian markets. And, you know, they're going through some growing pains. And so, you know, we're there to help them. And, you know, through their process, they're, you know, just procuring too much inventory. And they're working through that, and we're starting to see that come back online, where we're starting to see orders for those kid inventories be delivered. And that will continue to ramp up in the back half of the year.

Bill Larkin: So we are already starting to see.

Bill Larkin: The sales starting to pick up for demand.

Bill Larkin: As a customer that has just grown significantly.

Bill Larkin: And in Italy.

Bill Larkin: Market.

Bill Larkin: Sure.

Bill Larkin: Going through some growing pains and so we're there to help them and to their process there.

Bill Larkin: Procured too much inventory and they're working through that and we're starting to see that come back online, where we're starting to see.

Bill Larkin: Orders for the kit inventories would be delivered.

Bill Larkin: That will continue to ramp up.

Bill Larkin: Half of the quarter.

Bill Larkin: And that's some very specific stuff, but yeah, in general, one of the things that we've done is implemented an inventory committee because, us, inventory is one of our top priorities. Working capital, obviously, overall, is a top priority for us, and we are digging in and setting new targets to manage inventory better, having a better connection between a customer order and a supplier order to be more disciplined in how we manage inventory. That actually is a good dovetail into my second question, which is really around working capital. So as you guys look forward, how big of an opportunity is there over the next couple of quarters to generate cash from the balance sheet and the existing working capital? But I think we should. Yeah,

Bill Larkin: Okay.

Bill Larkin: Very specific stuff, but yes in general.

Bill Larkin: One of the things that we've done is implemented a inventory committee because we inventory is one of our top priorities working capital. Obviously overall is top priority for us.

Bill Larkin: We are digging in and.

Bill Larkin: Setting new targets to manage inventory better having a better connection between a customer order and a supplier order to be more disciplined in how we manage inventory overall.

Bill Larkin: That actually is a good dovetail into my second question, which is really around working capital so as.

Bill Larkin: As you guys look forward, how big an opportunity is there over the next couple of quarters to generate cash from our balance sheet and the existing working capital exposure.

Bill Larkin: I think we have made a lot of progress, Colin, over the last 12-plus months in improving our working capital and continuing to generate that and turn that into cash. But we still have a lot more work to do.

Speaker Change: I think we do yeah, we've made a lot of progress Cogs over the last call it 12 plus months and.

Bill Larkin: Proving our working capital.

Bill Larkin: Turning to generate that and turn that into cash.

Bill Larkin: As you saw, we had a fairly significant reduction in our receivables during the quarter, which definitely helped from a cash flow perspective. I think inventory is an opportunity for us to continue to reduce our networking capital and enhance our liquidity. As Dan mentioned, that's a high priority for us to go tackle that and try to reduce inventory, improve turns, but it's going to be a team effort to drive down the inventory to levels that we can efficiently manage while we can still deliver on our customer demands. Okay, thanks so much, guys.

Speaker Change: We still have a lot more work to deal.

Bill Larkin: As you saw we had a fairly significant reduction in our receivables.

Bill Larkin: During the quarter.

Bill Larkin: Which definitely helps from a cash flow perspective.

Bill Larkin: But I think the inventory is an opportunity for us to continue to.

Bill Larkin: Reduce our net working capital.

Bill Larkin: Enhance our liquidity as Dan mentioned that that's a high priority for us to go tackle that and try that.

Bill Larkin: Reduce inventory improved turns but it's going to be a team effort to drive down inventory.

Bill Larkin: Level set we can efficiently manage while we can still deliver on our customer demands.

Bill Larkin: Okay. Thanks, so much guys.

Derek: Let me comment just a little bit more on that because one of the things when I talk about driving discipline in our business is making a lot of these processes the routine and not the exception. You know, not seeing something and going, oh boy, we got too much inventory on this, what are we going to do about it? We need a process that ensures that buildup doesn't happen in the first place, that we manage that balance between orders from customer to orders to supplier and make it a routine.

Speaker Change: Yes, let me comment just a little bit more on that because one of the things and when I talk about driving discipline in our business is making a lot of these processes the routine and not the exception.

Derek: Seeing something and going Oh boy, we got too much inventory in this what are we going to do about it we need to process that ensures that buildup doesn't happen in the first place that we manage that that balance between.

Derek: Order from customer to order to supplier and.

Derek: Make it the routine not the exception.

Speaker Change: Thank you.

Derek: Your next question comes from Chris <unk> with RBC capital markets. Please go ahead.

Operator: Yeah, good morning. Thank you. Good morning. I guess I wanted to begin here with some commentary and prepared remarks around your China partner, and so I guess I wanted to go back to that and specifically.

Speaker Change: Yes. Good morning, Thank you.

Derek: Yeah.

Speaker Change: Good morning, I wanted to begin here you had a.

Speaker Change: Some commentary in the prepared remarks around China partner, So I guess I wanted to go back to that and specifically I think you mentioned you were discussing the work and some obligations that you all have.

Speaker Change: Moving forward. So could you maybe discuss that in a bit more detail what are the kind of commitments or obligations here for the party.

Speaker Change: Maybe how should we think about things progressing.

Derek: Well, let me start with, in terms of production orders, we currently have no production orders from them in the system. We have had more development orders for, you know, development on their engines, and that's going to continue. We're trying to work with them on planning and crafting where that development is going to go down the road.

Speaker Change: Sure sure well, let me, let me start with in terms of production or as we have no production orders from them.

Derek: <unk> in the system.

Derek: We have had more development orders before.

Derek: <unk> on their engines.

Derek: And Thats going to continue we're trying to work with them on.

Derek: Planning and crafting where that development is going to go down the road.

Derek: And then maybe, shifting gears a little bit to the H2 opportunity, and you highlighted maybe 70 million revs by the end of the decade, I guess maybe, what's sort of underpinning that assumption set, and then what's the cadence, or how are you guys thinking about the cadence of that opportunity? What are the kind of levers that would, I guess, accelerate that opportunity going forward? Thanks.

Speaker Change: Got it okay. Thanks.

Derek: And then maybe shifting gears, a little bit to the <unk> opportunity and you highlighted maybe $70 million.

Derek: By the end of the decade.

Derek: Yes, I guess, maybe what sort of underpinning that.

Derek: Functions that and then whats the cadence or how are you guys thinking about the cadence of that opportunity what are the kind of leverage that way.

Derek: To accelerate that opportunity.

Speaker Change: Going forward thanks sure.

Derek: Yeah, the H2 numbers we're talking about, these are the components that go into the hydrogen systems, and we're selling to the big tier ones globally, and we have been, obviously, working on development projects with them, and now we're getting production purchase orders and prototype purchase orders to take those forward into production on a number of OEM platforms. What we're finding is that the hydrogen components under GFI are qualified as the best globally. We're getting a lot more opportunities than we can actually handle. As the hydrogen ecosystem evolves, these components are going to play a key role in ramping up production in the next few years.

Derek: The <unk> numbers, which are these are the components that.

Derek: Go into the hydrogen systems, and we were selling to the big tier ones globally.

Derek: And they have we are obviously working on development projects with them and now we're getting production purchase orders and prototype purchase orders to take those forward into production.

Derek: On a number of OEM platforms.

Derek: And what we're finding is that debt.

Derek: The hydrogen components under GSI are.

Derek: Qualified as the best globally, and so we're getting a lot more opportunities than we can actually handle.

Derek: And.

Derek: So as the hydrogen.

Derek: Ecosystem evolves. These components are going to play a key role in ramping up production in the next few years.

Derek: Yes.

Operator: Got it. Thank you. That's everything for me. OK.

Speaker Change: Got it. Thank you that's everything for me.

Operator: Okay.

Operator: Thank you. Your next question comes from Rara Brown with Lakes Recap Markets. Please go ahead.

Operator: Thank you. Your next question comes from Rob Brown with Lake Street Capital markets. Please go ahead.

Bill Larkin: Good morning.

Operator: Good morning. Good morning. I just want to follow up on kind of the cost cuts. I think last time you talked, you were still getting into it, but do you have a sense of maybe the goals for the cost cuts ultimately or a sense of when you can get to profitability?

Bill Larkin: Good morning.

Rara Brown: Just wanted to follow up on kind of the cost cuts I think last time, you talked to you were still getting into it but do you have a sense on that.

Operator: The goals on the cost cuts ultimately or a sense of when you can get the profitability.

Operator: Okay.

Derek: Yeah, so I mean, our goal is, first, I'll talk very generally about what I call flexing our costs. Yes, as you know, when you're in the automotive and mobility markets, volumes can go up and down.

Speaker Change: Yeah. So I mean, our goal is.

Derek: First of all I'll talk very generally about.

Derek: What I call flexing our costs, yes.

Derek: When youre in the automotive and mobility markets volumes can go up and down.

Derek: And we need to have an underlying system, a disciplined system that flexes our costs with those volume changes up and down. What we're doing right now, though, is stabilizing the business by reducing our costs to the level of the business we're in right now, followed by a process or a system that will flex those costs on an ongoing basis, sort of like the, you know, I mentioned inventory; we need this flex management to become the routine and not the exception.

Derek: And we need to have the underlying system disciplined system that flexes or cost with those volume changes up and down.

Derek: What we're doing right now though is.

Derek: Stabilizing the business by reducing our cost to the level of the business. We're in right now followed by a process or a system that will flex those costs on an ongoing basis sort of like that.

Derek: Mentioned on the inventory, we need we need this flex management to become their routine and not the exception we can't wait till we ended the quarter and see the numbers and go okay, we need to do something and it needs.

Derek: We can't, you know, wait till the end of the quarter and see the numbers and go, okay, we need to do something. It needs to be a day-to-day effort. But in the meantime, our first short-term goal is to get the overall costs aligned with the size of the business we have. Clearly, our costs and our overhead were far too high for the business we had, and we're making those adjustments.

Derek: It needs to be a day to day effort, but in the meantime. This first this first a short short term goal is to get the the overall costs aligned with the size of the business we have clearly R. R.

Derek: Cost and our overhead were far too high for the business, we had and we're making those adjustments.

Bill Larkin: You know, Robin, I think your question is, you know, it's We're not going to be able to cut our way out of this. We need to grow the top line as well. So it's got to be a balanced approach between, you know, cutting costs, and the right size in the business. But we also have to focus on growing the top line and Get2Get Profitability.

Derek: Robin I think too.

Bill Larkin: Your question is yes.

Bill Larkin: We're not going be able to cut our way out of this we need to grow the top line as well. So it is going to be a balanced approach between cutting costs right sizing the business, but we also have to focus on growing the topline.

Bill Larkin: Get to profitability.

Operator: Okay, thank you. And then on the European heavy duty market, I guess it was down in the quarter you mentioned, but I think there's some signs of life in that market. How do you see that market recovering? Yeah, we're, we mean, we're all watching every day.

Speaker Change: Got it okay. Thank you.

Operator: And then on the I guess the European heavy duty market I think was down in the quarter you mentioned, but I think there are some signs of life in that market.

Operator: How do you see that market recovering.

Operator: Growing into this year.

Operator: Yeah.

Derek: Yeah, we're all watching every day what's happening both in the heavy duty and the light vehicle markets in terms of volumes. It's pretty volatile.

Operator: Yes.

Operator: I mean, we're all watching everyday what's happening both in the heavy duty and the late light vehicle markets on volumes.

Derek: Our goal is to be prepared if the volumes do come, so we're prepared to supply it at whatever the customer needs. Do I think the market is going to rebound in heavy trucks? I'm hoping so. But I don't have that crystal ball. We rely completely on our OEM customers to let us know exactly where they're going and what they plan on for volumes.

Derek: Pretty volatile.

Derek: Our goal is to be prepared if the volumes do come that we're prepared to supply it.

Derek: Whatever the customer needs.

Derek: Do I think the market is going to rebound and heavy trucks.

Derek: I'm, hoping so.

Derek: Don't have that Crystal ball, we rely completely on our OEM customers too.

Derek: Let us know exactly where where theyre going and.

Derek: And.

Derek: And what they plan on for volumes.

Speaker Change: Okay. Thank you I'll turn it over.

Operator: Thank you. Your next question comes from Amit Dayal, with H.C. Wainwright. Please go ahead.

Speaker Change: Thank you.

Derek: Your next question comes from Amit Dayal with H C. Wainwright. Please go ahead.

Operator: Thank you. Good morning, Dan and Bill. Good morning. With regard to the Euro 6 and 7 deliveries, have they commenced? You had highlighted that these deliveries potentially would be beginning in 2024. So just wondering, you know, where that is.

Amit Dayal: Thank you good morning, Dan and Bill.

Speaker Change: Good morning, Bob.

Operator: The euro six and seven deliveries have they commenced.

Amit Dayal: Had highlighted that these deliveries potentially would be beginning in 2020 floors I'm, just wondering where that is.

Derek: Sure, Euro 6 has begun, and Euro 7 is going to be ramping up. We did see a bit of a delay in the launch of some of the new programs with our OEM customer, our biggest OEM customer over there, but we do expect those to ramp up faster now that the delay has put some pressure on them in the marketplace.

Operator: Sure Euro six is has begun euro seven is.

Derek: Going to be wrapping up.

Derek: We did see a bit of a delay in <unk>.

Derek: The launch of some of the new programs with our OEM customer.

Derek: Biggest OEM customer over there but.

Derek: We do expect those to ramp up faster now that the delay has put some pressure on them in the marketplace. So euro six has started in euro seven is coming.

Bill Larkin: The first quarter was a little bit weaker year-over-year, but for 2024, should we continue to anticipate year-over-year growth, you know, as some of your customers who may have delayed orders, etc. come back, and other initiatives sort of start ramping up.

Derek: Understood.

Derek: The first quarter was a little bit.

Bill Larkin: Weaker year over year.

Bill Larkin: But Phil Koning score should we continue to anticipate a year over year group.

Bill Larkin: As some of your.

Bill Larkin: The customers, who may have delayed orders et cetera come back and other initiatives sort of start ramping for you guys.

Bill Larkin: Yes.

Speaker Change: Yes, I'll start.

Bill Larkin: Yeah, yeah, I'll start taking that. So, you know, on a yearly basis, you know, it's. It's going to be a little bit of a challenge in Q2 from a reporting standpoint, and you know, to provide transparency on you know, the business as it is today and what the future business looks like and what is the future. You know, as we as we sit here, you know, we're, We're expecting to, you know, clearly Q1 was a weak quarter, and we do expect, you know, Q2 to, you know, to pick up, which is, you know, with the seasonality, that's typically what we see, you know, in our business where it ramps up in Q2, and we'll see that drop in Q3, just because of the seasonality and, you know, most of Europe's on holiday, and then we'll see

Bill Larkin: So on.

Bill Larkin: On a yearly basis.

Bill Larkin: It's going to be a little bit of a challenging.

Bill Larkin: In Q2 from a reporting standpoint.

Bill Larkin: And to provide transparency on the <unk>.

Bill Larkin: Business as it is today and what the future business looks like and what is the future.

Bill Larkin: Yes.

Bill Larkin: Yes.

Bill Larkin: Sit here.

Bill Larkin: Yeah.

Bill Larkin: We're expecting clearly Q1 was a weak quarter, we do expect.

Bill Larkin: Q2 pick up which is with the seasonality that's typically what we see.

Bill Larkin: Our business, where it ramps up in Q2, and we will see that drop in Q3, just because of the seasonality in most of Europe's on holiday they will see.

Bill Larkin: Business ramp back up in Q4.

Speaker Change: Okay. Thank you for that just one last one from me on the China side. This was a big part of the narrative a few years ago and then.

Operator: Okay, thank you for that. Just one last one from me on the China side.

Operator: You know, this was a big part of the narrative a few years ago, and then, um, you know, there wasn't much progress this time around. Is there potentially a way to sort of accelerate this relationship and opportunity from development type work into production orders? Just trying to get a sense of whether, you know, this is coming back to potentially really contribute in terms of revenues and margins, you know, not in 2024, but maybe 2025 and beyond. Yeah, you know, what are the catalysts that are driving this?

Operator: There wasn't much progress.

Operator: At this time around.

Operator: No.

Operator: Is there potentially a way to sort of accelerate.

Operator: This relationship and opportunity from development type work into production orders.

Operator: Trying to get a sense of whether.

Operator: This is coming back.

Operator: Two potentially gaining contribute in terms of our revenues and margins.

Operator: It's a little bit maybe dirty dirty side would be on.

Operator: Yes.

Operator: You know what what are the catalysts that are driving some of this some of the revival in this relationship and the opportunity.

Derek: When you said 2025, you hit it right on. We're still working on engine development activities, and we don't know or can't speak to the specific timing of when that customer will kick off production of that model, but we still have a good relationship. We're still doing development work, and they're still looking to use our technology for the new platform. And, as I said earlier, we have no orders today for production within 2024, but the development will continue in a positive way with whom we're still working very well.

Speaker Change: Yeah. So I think when you said 2025, I think you hit it right on I think that's when you know.

Derek: We're still working engine development activities.

Derek: And we don't know or can't speak to specific.

Derek: Timing of when that customer will.

Derek: I'll kick off production of that model.

Derek: But we still have a good relationship we're still doing development work.

Derek: They are still looking to use our technology.

Derek: For the for the new platform.

Derek: And.

Derek: But as I said earlier, we have no orders today on production for within 2024.

Derek: The development will continue.

Derek: A positive way.

Derek: We're still working very well with them.

Derek: Okay.

Operator: Yeah, that's all I have for now. I will follow up, you know, offline. Thank you so much.

Speaker Change: Yes, that's all I have for now I will follow up.

Operator: Offline. Thank you so much.

Speaker Change: Yep Yep good.

Operator: Thank you. Your next question comes from Jeff Osborne with TD Cowell. Please go ahead.

Operator: Thank you. Your next question comes from Jeff Osborne with Cowen. Please go ahead.

Operator: Good morning. Just two quick ones on my side. I was wondering, Bill, if you could frame the OPEX run rate, you know, post the announcements that you detailed on the call. Is there a way to think about the dollar value of costs that have been taken out of the business?

Jeffrey David Osborne: Hey, Good morning, just two quick ones on my side I was wondering bill if you could frame the.

Operator: The Opex run rate post the announcements that you've detailed on the call is there a way to think about the dollar value of cost that's been taken out of the business.

Bill Larkin: Right now, we're not in a position to quantify what that is. We expect to see, as we progress on these cost reductions, and we do expect our [inaudible]

Operator: Yes.

Bill Larkin: Right now we're not in position to quantify when you look at it.

Bill Larkin: We expect to see as we progress on these cost reductions we do expect our.

Bill Larkin: G&A sales and marketing run rate to decline.

Bill Larkin: On a comparative basis.

Bill Larkin: And I suspect Youll huddle up internally.

Bill Larkin: On future calls I'm sure will continue to provide update on how we're progressing on our cost reduction initiatives.

Derek: The scope of our cost reduction activities, as I said in the opening, is from the board right down to the shop floor. There's nothing off limits, and we're very aggressive in cutting costs. And as you know, many times when you go about this, you're taking on a bunch of one-time costs to get there. We're still mapping out the run rate, but we're in the middle of this cost cutting. It's an aggressive effort across the company.

Speaker Change: Got it.

Speaker Change: There is scope sorry, let me, let me add to that the scope of our cost reduction activities.

Derek: As I said in the opening its from the board right down to the shop floor. There is nothing off limits in we're very aggressive in.

Derek: And cutting their costs and as you know many times when you go about this you are taking on a bunch of onetime costs.

Derek: To get there we are still mapping out the run rate.

Derek: And but we're in the middle of this cost cutting rates.

Derek: It's an aggressive effort across the company.

Derek: As we get through it we'll get a better feel for what it is going to look like longer term.

Derek: And as we get through it, we'll get a better feel for what it's going to look like longer term. Got it. I assume you couldn't touch on, is there any cash severance that we should be modeling in or one-time charges for the upcoming quarter?

Speaker Change: Got it I assume you Couldnt touch on is there any cash severance.

Speaker Change: We should be modeling in or one time charges.

Speaker Change: The upcoming quarter.

Bill Larkin: I think, you know, from one time to another, you know, severance, you know, I don't expect it to be significant. You know, I, you know, we did have some severance, as we mentioned in the first quarter. You know, in terms of one-time costs, you know, we're still, you know, as I mentioned, incurring outside services related to get a joint venture to the finish line and getting that kicked off. And, you know, that should start tapering off in the third quarter.

Speaker Change: I think Neil from one time deal.

Bill Larkin: Sovereign C I don't expect it to be significant.

Bill Larkin: We did have some severance.

Bill Larkin: And in the first quarter.

Bill Larkin: In terms of one time costs were still as we mentioned, we're still incurring outside services related to the joint venture to the finish line and getting that.

Bill Larkin: Kicked off.

Bill Larkin: And.

Bill Larkin: We should start seeing that taper off in the.

Bill Larkin: Third quarter.

Operator: Thanks, Simpson. My last one is just, is there any notable technical progress that you could update us on on the hydrogen ice engine platform more broadly?

Speaker Change: Makes sense and my last one is just is there any notable technical progress that you could update us on the hydrogen ice engine platform more broadly.

Derek: I don't know if you saw the latest market news. Our OEM customer has announced the continued development of hydrogen and how the hydrogen ice engine plays a key part in their strategy going forward. We're hearing that from a number of OEMs, so we're getting an awful lot of interest in the hydrogen HPDI as a solution for the next 5-10 years. The development is continuing, and it makes us very optimistic about the longer term.

Speaker Change: Yes, I mean, I think I don't know if you saw the.

Derek: The latest market news are.

Derek: OEM customer has announced.

Derek: Continuing development of hydrogen and how it plays the hydrogen ice engine plays a key part in their strategy going forward. We're hearing that from a number of Oems. So we're getting an awful lot of interest in the hydrogen H PDI.

Derek: As a solution for.

Derek: The next.

Derek: Five to 10 years so.

Derek: Yes, it's the development's continuing.

Derek: And.

Derek: It makes us very.

Derek: Optimistic about the longer term.

Operator: Great to hear. That's all I have. Thank you.

Speaker Change: Great to hear that's all I had thank you.

Operator: Thank you. Your next question comes from Mac Whale of Cormac Securities. Please go ahead.

Speaker Change: Thank you.

Operator: Next question comes from Mac whale with <unk> Securities. Please go ahead.

Operator: Hi, good morning. Just one quick one for me.

MacMurray Davidson Whale: Hi, Good morning, just one quick one for me Dan I'm, just wondering as you right size the organization, where do you think the biggest risk why for the business is it potentially a negative impact on sales or is it that you make these changes and don't get any impact on margin, but just wanted to understand the risk versus the kohl's thereafter.

Operator: Dan, I'm just wondering, as you right-size the organization, where do you think the biggest risk lies for the business? Is it potentially a negative impact on sales, or is it that you make these changes and don't get any impact on margin? I just want to understand the risk versus the goals you're after.

Derek: Yeah, sure. So, that's one of the reasons that, you know, it's not like hitting a light switch, Mac.

Dan: Yeah sure. So that's one of the reasons that it's not like getting a light switch market.

Derek: You know, we're looking at each part of our business, each discipline, each region, figuring out where we can cut without affecting our ability to continue to grow the business. Bill said we can't cut our way to prosperity, but we have to right-size the business. So, each discipline is being looked at to get it right-sized to the business we are today with a view forward to where the growth opportunities are.

Derek: We're looking at each part of our business each discipline each region figuring out where we can cut without.

Derek: Affecting our ability to continue to grow the business as Bill said, we can't cut our way to prosperity.

Derek: But we have to we have to right size the business. So each each discipline is being looked at to.

Derek: Get it right sized the business we are today with a view forward to where the growth opportunities are so while we are we're trying to.

Derek: So, you know, while we're, you know, we're trying to... Corporate overhead, as an example, we're trying to get that right sized, and on the technical side, the engineering side, we're keeping our team focused on these big development projects. As we talked about, we have a bunch of big development projects that are really going to lead to our future. So we're not cutting those, but it's just right sizing every discipline to the business we have.

Derek: Corporate overhead as an example, we're trying to get that right sized.

Derek: And we're on the technical side, the engineering side, we're keeping our team focused on these big development projects as we talked about we have a bunch of big development projects that are that are really going to lead to our future. So we are not we're not cutting knows but it's just right sizing every discipline to the to the business we have.

Derek: Okay, and then just as a follow-up question, can you put a timeline on how long that takes? Like, is there sort of a couple quarters, and then you're in this new sort of organizational structure, and then you expect maybe a year or two to get a benefit from that? Like, what should we be thinking of that?

Speaker Change: Okay, and then just as a follow up then.

Derek: Can you put a timeline on on the on how long that takes I guess there is sort of a is it a couple of quarters and then you are in this new sort of organizational structure and then you expect maybe a year or two to get benefit from that like what how should we be yes.

Derek: Yeah, that's probably a good way to describe it. I think that the corporate-type cost cutting is happening faster than some of the operational cost cutting because while we look at our operations to get those fine-tuned, you can't cut them as fast because you're delivering product every day. So, to me, it's two different buckets.

Speaker Change: Yes, that's probably a good way to describe it I think that.

Derek: The corporate type cost cutting is.

Derek: Is happening faster than some of the operational cost cutting because.

Derek: While we are.

Derek: Look at our operations to get those fine tuned you can't cut them as fast because you're delivering product everyday so to me it's two different buckets.

Derek: The corporate overhead right size, we can do pretty aggressively the operational stuff takes longer putting in place some of the discipline manufacturing processes, we want to use as I mentioned like inventory management and getting that that.

Operator: Getting the corporate overhead right-sized is something we can do pretty aggressively. The operational stuff takes longer. Putting in place some of the disciplined manufacturing processes we want to use, as I mentioned, like inventory management and getting that process between when a customer orders and we order from a supplier, getting that efficiently balanced, those things take a longer time. So, it's going to be into next year before we see some of those benefits. We'll see the corporate cost-cutting benefits by the year end, and then we'll roll into next year with the continued focus on the operational side. Okay, great.

Operator: Process between when a customer orders and we ordered from our supplier.

Operator: Getting that.

Operator: Efficiently balanced.

Operator: Those things take longer time, so it's going to be into next year before we see some of those benefits, we'll see the the corporate cost cutting benefits by the year end and then we'll roll into next year.

Operator: The continued focus on the operational side.

Operator: Okay, great. That's all I have today. Thanks, guys. Thanks, Mac.

Speaker Change: Okay, great. Thanks, that's all I have today, thanks, guys.

Speaker Change: Thanks Mac.

Speaker Change: Thank you. Your next question comes from Eric Stine with Craig Hallum. Please go ahead.

Speaker Change: Good morning, everyone.

Operator: Morning. Good morning. How are you?

Speaker Change: Good morning, Good morning, how are you so hey.

Speaker Change: I know right here at the end of the call. Most most everything has been touched on but just curious.

Operator: The Chinese OEM.

Speaker Change: Certainly the most you've talked about it in a long long time, and I know that LNG sales in China are quite high and the outlook. There is very good I mean do you <unk>.

Operator: Hey, so I mean, hey, so I know right here at the end of the call, pretty much everything has been touched on, but just curious, you know, the Chinese OEM. I mean, this is certainly the most you've talked about it in a long, long time. And I know that LNG sales in China are quite high, and the outlet there is very good. I mean, do you think I'm off base in thinking that this kind of, I don't know if it's re-engagement, but pickup and engagement has to do with LNG?

Operator: Off base in thinking.

Speaker Change: Ken I don't know if its a re engagement, but pickup in engagement has to do with LNG.

Operator: And I ask because, you know, and this is before your time, Dan, but at one time, the view was Wainshine might, you know, just skip LNG altogether and just move to hydrogen. And it strikes me that, potentially, that's kind of being rethought, and LNG is, you know, a very viable and attractive opportunity.

Operator: And I ask because.

Operator: And this is before your time, Dan but at one time the view was wage I might just skip LNG altogether and just move to hydro <unk>.

Operator: And it strikes me that potentially.

Operator: Kind of being rethought that LNG.

Operator: A very viable and attractive.

Operator: Opportunity.

Derek: Yeah, I think LNG and the Chinese market as a whole is going to continue to grow, and the transition to hydrogen, just like everywhere in the world, there's a balance between when infrastructure gets in, when the price of hydrogen comes down, all those things have to align for hydrogen to take off, and it will. In the meantime, LNG is going to be the growth piece for China. The great thing is that our technology can run both. We call it bridge technology. It can run on all of the different alternative fuels.

Speaker Change: Yeah, I think I mean.

Derek: I think LNG in the Chinese market as a whole is going to be continuing to grow it and the transition to hydrogen.

Derek: Just like everywhere in the world.

Derek: There's a balance between when infrastructure gets in when the price of hydrogen comes down all those things have to align for hydrogen to take off and it will in the meantime, LNG is going to be.

Derek: The growth piece for for China.

Derek: And so the great thing is that our technology.

Derek: Can run both right it's a.

Derek: We call it the bridge technology it can run all of the different alternative fuels.

Derek: So we.

Derek: That's why I keep stressing that we don't have any orders right now from Weichai for production. We've been shipping them development parts for trials. We're continuing the development work, and we're optimistic that we will get through the development programs and into production at some point, but we don't have orders today.

Derek: Why I keep stressing that we don't have any orders right now from wage hike for production, we've been shipping them development parts for.

Derek: Four trials, we're continuing to development work.

Derek: And.

Derek: We're optimistic that.

Derek: We will get to the get through the development programs into production at some point, but we don't have orders today.

Operator: Yep, understood. But a good sign. Nonetheless, I guess that's it for me. Thanks.

Speaker Change: Yes, understood, but good sign Nonetheless, I guess, that's it for me. Thanks.

Operator: Thanks. Take care.

Speaker Change: Thanks take care.

Derek: Thank you, Eric. There are no further questions on the line. Please proceed.

Speaker Change: Thanks, Dan.

Speaker Change: There are no further questions on the line. Please proceed.

Operator: Alright, well, thank you very much, everyone, for your questions. I know I'll be talking to a bunch of you throughout the day. I look forward to it.

Speaker Change: Alright, well. Thank you very much everyone for your questions and I'll be talking to.

Operator: Bunch of you throughout the day and look forward to it. Thank you.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Speaker Change: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.