Q4 2024 Westport Fuel Systems Inc Earnings Call
Good day and thank you for standing by welcome to West Sports Q4 Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you wanted.
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Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today.
Speaker Change: Actually no well Vice President of Investor Relations. Please go ahead.
Speaker Change: Good morning, everyone welcome to Westport fuel Systems' conference call regarding results for the fourth quarter and 2020 for fiscal year.
Speaker Change: This call is being held to coincide with the press release containing Westport financial results that were issued earlier today.
Speaker Change: Today's call speaking on behalf of Westport, as Chief Executive Officer, and director gets Eli and Chief Financial Officer Bill Larkin.
Speaker Change: Attendance on this call is open to the public but questions will be restricted to the investment community.
Speaker Change: You are reminded that certain statements made on this call and our responses to certain questions may constitute forward looking statements within the meaning of the U S and applicable Canadian securities laws and as such forward looking statements are made based on our current expectations and involve certain risks and uncertainties.
Jeff: With that I will turn the call over to you Jeff.
Jeff: Thanks Ashley.
Jeff: Good morning, everyone.
Jeff: Earlier this morning, not only did we announced our 2020 for fourth quarter and full year results, but we also announced an exciting transaction that would lead to the divestment of our light duty business. This proposed transaction is expected to enable westport to become significantly stronger from a financial perspective and allow us to taper off.
Jeff: Our focus on creating solutions for hard to Decarbonize segments of the long haul heavy duty transport and industrial space.
Given the excitement around this trek transaction, we have adjusted the flow of this call. So we can focus our time on outlining the proposed transaction the potential it offers westport and its shareholders. So today. Following a few opening remarks from me, we'll keep call off with Bill walking through the fourth quarter and year end results.
Jeff: Then I will dive into the details of the transaction before we go to our question and answer period.
Jeff: Despite revenues for the year being down by 9% as compared to the previous year, primarily as a result of the HPV assay revenue now sitting in spirit, our dedication to our three key pillars positioned us to deliver improvements across the board, including in our gross profit and gross profit margins, our adjusted EBITDA and <unk>.
Jeff: We're one of the first time ever we delivered positive net cash from operations I'm very proud of how our Westport performed in the 2020 period and recognize we still have a lot of work in front of us as we continue to evolve the company in 2025.
I'll now hand, the call over to Bill. So he can provide some more information on the financial results Bill.
Bill Larkin: Thank you Dan moving onto our fourth quarter and year end results.
Bill Larkin: Expected transitioned the heavy duty OEM business and it's a spear impacted revenues for both the fourth quarter and full year 2024.
Bill Larkin: This was partially offset by an increase in sales or light duty segment.
Bill Larkin: In the fourth quarter of 2024, we generated $35 1 million in revenue.
Bill Larkin: Now this is a 14% decrease compared to the prior year period.
Bill Larkin: The full year of 2024 revenue was $302 3, million% to 9% decrease compared to the previous year.
Bill Larkin: In line with our key priority of improving operational excellence reducing costs.
Bill Larkin: We delivered improved margins in both the fourth quarter and full year ended December 31 2024.
Bill Larkin: Gross margin increased to $14 3 million or 19% of revenue in Q4 of 2024.
Bill Larkin: This is up from $8 million or 9% of revenue in Q4 of 2023.
Bill Larkin: For the full year of 2020 for gross margin increased to $57 6 million or 19% of revenue.
Bill Larkin: This is up from $48 9 million or 15% of revenue for the full year of 2023 and.
Bill Larkin: The increase in sales to establish European customers, rather than emerging markets also helped.
Bill Larkin: Our margins.
Bill Larkin: We demonstrated continued improvement in our adjusted EBITDA metric for both the fourth quarter and year ended December 31 2024.
Bill Larkin: For the quarter, we reported adjusted EBITDA loss of $1 8 million.
Bill Larkin: This is significantly less than the adjusted EBITDA loss of $10 million in fourth quarter of 2023.
Bill Larkin: For the full year, we reported adjusted EBITDA loss of $11 2 million.
Bill Larkin: This is a considerable improvement compared to an adjusted EBITDA loss of $21 5 million for the full year of 2023.
Bill Larkin: Regarding liquidity, our cash and cash equivalents at the end of 2024 were $37 6 billion as compared to $54 9 million at the end of 2023.
Bill Larkin: The decrease was primarily driven by debt payments, partially offset by cash provided by our operating and investing activities.
Bill Larkin: 2024 March one of the first times Westport generated positive cash flow from operations.
Bill Larkin: With net cash provided by operating activities of $77 2 million.
Bill Larkin: The reduction in operating losses, along with an increase in cash collected from accounts receivable, including the sale of Italian value added tax receivables of $5 9 million.
Bill Larkin: The improvement in cash provided by operating activities.
Bill Larkin: Which were partially offset by inventory related to our heavy duty OEM light duty businesses.
Bill Larkin: Net cash provided by investing activities was $4 5 million for the year.
Bill Larkin: Driven by proceeds from the sale of investments of $30 million primarily related to the spare.
Bill Larkin: Partially offset by purchases of property plant and equipment of $16 9 million and our capital contributions to spirit of $9 9 million.
Bill Larkin: Net cash used in financing activities was $25 2 million in 2024.
Bill Larkin: In January 2024, we obtained a new term loan of $3 8 billion, earning credits that has principal repayments starting in 2025.
Bill Larkin: During 2024 in addition to our scheduled principal payments on our term debt you're paying for the revolving credit facility with RBC with $15 2 million was outstanding on this credit facility at the end of 2023.
Bill Larkin: This revolving financing facility with RBC in November of 2024.
Bill Larkin: As you read in our press release and the financial results released this morning based on our projected capital expenditures debt servicing obligations and operating cash requirements under our current business plan, we are projecting that our cash and cash equivalents will be sufficient to fund our operations through the next 12 months.
Bill Larkin: This morning, we also analysis sale of our light duty business, which will strengthen our balance sheet.
Bill Larkin: We plan to continue driving our cost reduction initiatives.
Bill Larkin: We have made many positive changes throughout 2024, including improvements in margin and adjusted EBITDA.
Bill Larkin: As I reviewed earlier, we believe this transaction leaves the business in the right direction, while allowing us to focus through with our commitment to strengthening the balance sheet and developing the HDI.
Bill Larkin: Sure controls and systems segments.
Bill Larkin: With that I will pass the call back to Dan is going to walk through our divestiture announcements there.
Dan: Thank you Bill. So this morning, Westport announced that it has entered into an agreement to divest its light duty business, which includes the light duty OEM business delayed OEM and independent aftermarket businesses. In addition to significantly strengthening our balance sheet as Bill mentioned the proposed transaction simplifies our competitive strategy.
Dan: Streamlines, our operations, allowing Westport to focus on <unk> technology, and our spirit joint venture and on our high pressure controls and systems business, where we see the strongest opportunities for growth.
Dan: The transaction is valued at $75 1 million or <unk>, $69 5 million euros with the potential for an incremental $6 5 million or 6 million euros to be paid and earn outs. If certain conditions are met we anticipate closing the transaction by the end of Q2 2025 subject to the receipt of shareholder approval and other.
Dan: Customary closing conditions.
Dan: The transaction significantly improves our financial position and moving forward, we are committed to maintaining a stronger balance sheet. The proposed transaction would bring forward more cash today than we anticipated under the light duty business is five year cash flow projections and allows us to fund near term organic growth opportunities for both the spirit.
Dan: And the high pressure controls and systems segment.
Dan: It also enables us to consider bolt on acquisitions.
Dan: Finally post transaction, our organization will be much smaller and more focused we will intend to align the cost structure with that of a smaller more efficient organization.
Dan: The resurgence of natural gas and renewable natural gas globally provides a market opportunity for Westport, particularly in North America, where natural gas infrastructure is abundant and R&D production has grown in.
Dan: In addition, we believe that hydrogen will play a role and heard to Decarbonize mobile applications long term, both the spira and or high pressure controls and systems segment have products and technologies, enabling the use of lower carbon fuels to date to address de carbonization with net zero and low carbon fuels.
Dan: While also having an affordable solution with zero carbon hydrogen becomes more available.
Dan: With this announcement our goal is to revert back to our roots and become a more focused organization.
Dan: Westport has 30 years of experience delivering components solutions and developing H PDI technologies.
Dan: At its core Westport has a clean tech innovation company that provides Oems with simplified solutions to decarbonize challenging segments of the heavy duty transport and industrial markets.
Dan: Utilizing a variety of alternative fuels through spirit, the each PDI fuel system does the on engine work well or high pressure controls and systems segment.
Dan: Products due to the off engine work.
Dan: As our global population continues to grow transportation of goods remains critically important the global heavy duty truck market is expected to reach almost 2 million new trucks on the road in 2025.
Dan: As this segment grows providing solutions to enable emission reductions is critical.
Dan: Despite technological advancements decarbonising long haul heavy duty transport remains a challenge with substantial reductions in <unk> emissions still to be realized in fact in.
Dan: In Europe, the technology currently making the largest impact on heavy duty long haul trucking GHT emissions are natural gas and biogas fueled internal combustion engines with <unk>, leading the way.
Dan: While Oems have explored multiple alternatives widespread adoption has been limited while natural gas and biogas fueled internal combustion engines have seen modest adoption such adoption. Nevertheless, eclipses the adoption of any other carbon mitigating solutions.
Dan: In addition fleet operators or prayer prioritizing cost effectiveness and total cost of ownership with emissions often taking a secondary role therefore for solutions to gain traction they must maintain performance and be cost effective.
Dan: Hydrogen is recognized as a solution for the long haul applications long term. Meanwhile, demand continues to grow for low and zero carbon alternatives and heard to decarbonize applications, such as heavy duty trucking.
Dan: To address these challenges Westport through severe is advancing fuel agnostic heavy duty transport related technologies.
Dan: Growing its natural gas and biogas solutions today, while laying the groundwork for hydrogen adoption in the future.
Dan: The HPV high fuel system is the most affordable commercially viable option that does not compromise on performance and that can deliver net zero carbon emissions and heavy duty transport.
Dan: As additional hard to Decarbonize applications emerge in the transport sector high pressure systems and controls will be needed regardless of the powertrain and complement the transition from natural gas to renewables to hydrogen.
Dan: Our high pressure controls and system business designs develops and produces and sells components for transportation and industrial applications.
Dan: <unk> over the last five years is focused on the hydrogen market, but with recent growth in CMG, we intend to leverage our high pressure expertise and grow the <unk> product portfolio.
Dan: Providing effective solutions for de carbonization by utilizing alternative fuels today, while advancing zero emissions hybrid solutions for the future.
Dan: With preference to those serving heavy duty off road and industrial applications.
Dan: We plan to combine our controls capability direct with their tank valves regulators and pressure relief devices moving us toward a system based solution. This transition is planned to include the advancement of our product portfolio. In addition.
Dan: And additional <unk> applications, leveraging the capabilities in our high pressure controls and systems business to shorten the timeline to enter the north American market with a product offering that can run on RMG today and hydrogen in the future.
Dan: As we look to the future Westport looks to expand its addressable market playing a larger part of the ecosystem and mobility and industrial space that isn't easily electrified.
Dan: In closing first thank you to everyone who joined our earnings call. Today. Your continued support is invaluable to us.
Dan: We're excited about Westport future and we want to move through 2025 with purpose, creating value for our shareholders and cultivating opportunities to grow as a company. We believe that shifting our focus to our <unk> and our high pressure controls and systems segments will provide us with the best possible future. We understand that a lot is proposed to be.
Dan: Changing and with change comes hard work, but we're keen to embrace thank you again for joining us today.
Dan: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star.
Dan: One one again please.
Dan: Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from Eric Stine from Craig Hallum Capital Group.
Eric Stine: Hi, everyone. Thanks for taking the questions.
Speaker Change: Good morning, Eric Good morning.
Speaker Change: Hello, So maybe just starting with <unk> I know you don't break out units, but clearly a step up in revenues in Q4. So maybe if you could just from a high level talk about kind of unit trends that you saw in the quarter reasons for that and then any any detail you can give on <unk>.
Speaker Change: Spectation.
Speaker Change: Whether it's units or or growth $4 25.
Speaker Change: Sure well certainly we did see Q4 volumes go up.
Speaker Change: With our OEM customer increasing production builds.
Speaker Change: And we're going to see those carrying on through into 2025. So.
Speaker Change: What we're seeing is the the marketplace adopting this technology.
Speaker Change: It's starting to get its legs underneath it of course.
Speaker Change: With a global <unk>.
Speaker Change: Markets and.
Speaker Change: The plan all along has been that this business would grow over the first two to three or four years and it's in fact doing that so.
Speaker Change: We're hitting hitting the plan versus.
Speaker Change: Production volumes and we feel very good about where it's headed.
Speaker Change: Got it and then maybe just an update sticking with <unk> I know that you've.
Speaker Change: <unk>, certainly express confidence in past calls and investor outreach.
Speaker Change: An additional Oems I know that that is.
Speaker Change: Mandate of the joint venture and its partners.
Speaker Change: Things stand there.
Speaker Change: While the efforts to bring in other oem's continuous hard.
Speaker Change: Actually sitting in a.
Foreign country right now I'm walking just coming out of meetings with the.
Speaker Change: Additional Oems working at it and as you know we're not allowed to.
Speaker Change: Use their names because they don't.
Speaker Change: It very much but.
Speaker Change: That's in fact, where I am right now so those efforts are picking up steam.
Speaker Change: I think the biggest thing that we should be watching as this this pendulum shift in the.
Speaker Change: The natural gas world right I think that.
Speaker Change: We're seeing a world that's.
Speaker Change: Swinging back from electrify everything our fuel cells for everything.
Speaker Change: We're feeling we're feeling the weight of that coming and so the the.
Speaker Change: Commercial discussions with other Oems are are happening in continuing to pick up pace.
Speaker Change: Got it got it and then.
Speaker Change: Maybe just I'll sneak in one more and then turn it over just trying to better can you just remind me.
Speaker Change: How much debt is tied to that light duty business I sense that it's a decent amount, but if you could just kind of dialed that piece in for US did you heard bill have you that would be helpful. Yes, essentially yes.
Speaker Change: The debt except for approximately $7 million.
Speaker Change: Is it related to the light duty business.
Speaker Change: So youre looking at Thats gone right and then it'll be on yes.
Speaker Change: Yes, yes.
So it will just be the EDC debt that remains.
Speaker Change: With the business with us.
Speaker Change: Okay. That's great. Thank you.
Speaker Change: Alright.
Speaker Change: Thank you Eric.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Rob Brown from Lake Street capital markets.
Rob Brown: Hi, good morning.
Speaker Change: Good morning, Rob.
Rob Brown: Last point.
Rob Brown: Your sale price of $73 million.
Rob Brown: <unk> sort of net of everything and then that will a portion of that will be gone, so youre sort of enterprise value of the home.
Rob Brown: It was over I guess over 800.
Rob Brown: Is that right.
Speaker Change: Well, you're going to offset that against the cash.
Rob Brown: The other side.
Rob Brown: Okay. Okay.
Rob Brown: Yes.
Rob Brown: After the burst got it.
Rob Brown: And then yes, and then maybe on the strategy.
Rob Brown: Kind of a strategy of the business going forward, what's sort of the revenue rate of the business that you retain and I know you've laid out.
Rob Brown: A number of the components that you'll look to grow but.
Rob Brown: Maybe maybe a sense of how you approach that market how long it takes to get those products more in the natural gas swap hydrogen and just maybe sort of a sense of the strategy of the NGO business.
Rob Brown: Yes, the answer is really to two different buckets, obviously, the <unk> spirit bucket.
Rob Brown: We're on a glide path of increasing volumes.
Rob Brown: Per plan.
Rob Brown: We're built into this this business to start it up.
Rob Brown: And those are going to continue to grow at that pace.
Rob Brown: Obviously landing another OEM doesn't.
Rob Brown: It doesn't give us immediate revenue bump because any OEM, we land will go through the development cycle, but what it does.
Rob Brown: It gives a commitment to the technology the other piece of our business remaining as the high pressure controls.
Rob Brown: Controls and systems.
Rob Brown: And the growth that we had been seeing over the last year.
Rob Brown: Has all been hydrogen based components.
We won a significant amount of new business.
Rob Brown: And but the production launches for most of that business is two to three years down the road.
Rob Brown: What we're doing now recognizing what's happened in the marketplace.
Rob Brown: We're going to be pivoting hard we are pivoting hard to go and create opportunities for those same types of pressure control components and systems.
Rob Brown: In the natural gas market.
Rob Brown: So we see a huge.
Rob Brown: Swing towards the compressed natural gas in North America and.
Rob Brown: It's basically the same technology that we use for the hydrogen controls right. So.
Rob Brown: What our plan is as well.
Rob Brown: The.
Rob Brown: <unk> will come down the road for hydrogen we need to be selling into the CMG systems now and that's what we're pivoting to do.
Rob Brown: I don't have any specific timeline to talk to you on when that business is going to start rolling in it's an initiative that we've pivoted too because we.
Rob Brown: Listening to the market.
And of course, some investors have brought it up.
Rob Brown: For sure.
Rob Brown: And a huge opportunity we believe in North America that we're going to take advantage of.
Rob Brown: Great. Thank you I'll turn it over.
Rob Brown: Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced towards draw. Your question. Please press star one one again.
Speaker Change: Our next question comes from the line of Chris <unk> from RBC capital markets.
Chris: Yes, good morning.
Rob Brown: On the transaction.
Chris: Thank you I guess, maybe maybe to start just.
Chris: Going back to the strategy and I think you all had mentioned that M&A could be a component of this and so.
Chris: Could you maybe just talk about.
Chris: What types of things.
Chris: You would be considering and is there.
Chris: Is it the U S or North America that you are looking to build a bigger presence center could this be something that's global in scale.
Chris: Help us flesh flesh that thought process out a little bit. Thanks sure sure. Our strategy really is looking to take the controls that we have the high pressure controls and building it out into a full system capabilities. So we'll be looking at.
Chris: Potential opportunities to in fact do that we think that the.
Chris: The larger immediate opportunity is definitely in North America for that but it is a global business.
Chris: Compressed natural gas is used all over the world. So.
Chris: But we're going to be looking to build out that business to be shipped.
Chris: Shifted from being a components play to a systems play.
Chris: We do have our.
Chris: Technology capabilities for the the full engine control systems. So.
Chris: Find that with the pressure controls and.
Chris: Theres going to be some opportunities in the market to build that out.
Chris: Got it and then I guess maybe from an.
Speaker Change: On the operational standpoint, do you have.
Speaker Change: R&D capabilities in house to pursue that.
Speaker Change: De or is this going to be a piece of the story where you.
Speaker Change: You're shrinking some of the I guess call employee footprint with the sale, but then looking to add new employees and these kind of growth areas. Thanks sure sure. The high pressure controls is R&D and engineering group completely separate from the light duty business in Europe. It is located in Cambridge, Ontario.
Speaker Change: In North America, and just outside of Toronto and.
Speaker Change: They are fully equipped to operate independently and.
Speaker Change: And build out this from a technical perspective build out this business.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Speaker Change: At this time I would now like to turn the conference back over to Dan Seelye CEO for closing remarks.
Speaker Change: Great. Thank you very much well again, thank you to everyone.
Speaker Change: Everyone joining the call today.
Speaker Change: And.
Speaker Change: Appreciate the good questions and I know, we'll have further discussions and.
Speaker Change: We are very excited about our future.
Speaker Change: We're going to continue to stay very focused.
Speaker Change: Managing this business with discipline and excellence.
Speaker Change: One of the big one of the biggest things that I think we can look back on is shifting the culture too.
Speaker Change: A very disciplined organization, so that as we make strategic decisions as we execute operationally we're doing it in a very professional way and.
Speaker Change: We're going to manage our costs very very very tightly and not get out of control and spending.
Speaker Change: So I'm proud to say that.
Speaker Change: <unk>.
Speaker Change: Well run business with a team that's completely motivated to run out this strategy and provide a great future for the shareholders. So thank you very much.
Speaker Change: Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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