Mr. David Johnson reports

WESTPORT FUEL SYSTEMS REPORTS SECOND QUARTER 2023 FINANCIAL RESULTS

Westport Fuel Systems Inc. has released its financial results for the second quarter ended June 30, 2023, and provided an update on operations. All figures are in U.S. dollars unless otherwise stated.

Second quarter 2023 highlights:

• Record quarterly revenue of $85.0-million, up 6 per cent compared with the same period in 2022, primarily driven by increased sales volumes in delayed OEM (original equipment manufacturer), electronics and fuel storage businesses, and additional sales from the independent after-market business generated from the Eastern European and South American markets, partially offset by lower sales to customers in India in the light-duty OEM business, and lower sales volumes in the hydrogen and heavy-duty OEM businesses;
• Demonstrated improvement in gross margin, increasing $3.9-million to $14.4-million or 16.9 per cent of revenue for the quarter, as compared with $10.5-million or 13.1 per cent of revenue for the three months ended June 30, 2022. The increase was driven by the above-mentioned increase in revenue in addition to increased gross margin in the heavy-duty OEM business and in the IAM business specifically in South America, partially offset by higher production input costs, utilities, labour and other costs, which Westport has only partially been able to pass on to its OEM customers;
• Net loss of $13.2-million for the quarter ended June 30, 2023, compared with net loss of $11.6-million for the same quarter last year. Increased gross margins were more than offset by increased general and administrative, and sales and marketing expenditures, along with a $2.9-million loss on extinguishment due to the settlement of the Cartesian royalty payable;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (1) of negative $4.0-million;
• Cash and cash equivalents were $52.3-million at the end of second quarter 2023;
• In April, Westport entered into a settlement agreement with the Cartesian Capital Group to terminate the tranche 1 financing agreement in exchange for mutual releases and cash consideration, which included the release of the security interest in Westport's HPDI 2.0 fuel system intellectual property. Westport paid Cartesian Capital Group $8.7-million, which extinguished the long-term royalty payable;
• In June, Westport finalized a share consolidation of the company's issued and outstanding common shares on a 1:10 basis;
• In July, Westport signed a non-binding letter of intent with Volvo to establish a joint venture to accelerate the commercialization and global adoption of Westport's HPDI fuel system technology for long-haul and off-road applications;
• Expanded previously awarded Euro 7 program to develop and supply LPG fuel systems for several vehicle applications for a global OEM. This expanded program is forecasted to generate 63 million euros in total revenue from 2025 to 2028 and increases the revenue generated from LPG fuel system supply agreements for Euro 6 and 7 programs with this OEM to approximately 255 million euros.

(1) EBITDA is a non-GAAP measure. Please refer to GAAP and non-GAAP financial measures in Westport's management discussion and analysis for the reconciliation.

"The first half of our 2023 fiscal year has produced solid results relative to the operating and economic environments around the world and within our industry. Despite expected lower HPDI sales volumes, a significant decrease as the result of a model changeover and new product launch expected in the third quarter, we recorded record revenues and improving gross margins in the second quarter. Revenue of $85-million, a 6-per-cent improvement over last year, was supported by growth in our core businesses, particularly in delayed OEM, electronics and fuel storage, in addition to increased sales from our independent aftermarket business.

"Most recently, our joint venture announcement with Volvo marks a true inflection point for Westport and a validation of our proprietary technology. This joint venture brings a global audience to our HPDI fuel system and recognition as a key ingredient in the road map to reducing carbon emissions for long-haul and off-road applications. Feedback to date from global OEMs has been overwhelmingly positive, as the industry is recognizing that partnerships will be key to the successful decarbonization of the long-haul and off-road transport sectors.

"Regarding the second half of fiscal 2023, Westport continues to focus on top- and bottom-line improvements. As a reminder, late 2023 will mark the beginning of our LPG fuel system production and sales to our global OEM customer, a relationship that continues to grow with the recent announcement of our expanded Euro 7 scope. The price advantage of LPG versus petrol and the shrinking cost to access lower-carbon transportation is driving demand. Growth in key markets to meet the increasing demand for both affordable and low-emission transportation solutions is a key focus for Westport.

"Our company's diversified business model is positioned to continue performing well in the second half of 2023 through the combination of our sustainable core businesses with our higher-growth opportunities as we pursue the goal of creating solutions for us all to live in a lower carbon-emitting world," said David M. Johnson, chief executive officer.

Revenues for the three months ended June 30, 2023 increased 6 per cent to $85.0-million, compared with $80.0-million in the same quarter last year, primarily driven by increased sales volumes in delayed OEM, electronics, fuel storage businesses, and additional revenues from the IAM business generated from Eastern Europe and South America markets. These were offset by lower sales to customers in India in the light-duty OEM business and lower sales volumes in the hydrogen and heavy-duty OEM businesses.

Reported a net loss of $13.2-million for the three months ended June 30, 2023, compared with a net loss of $11.6-million for the same quarter last year. The current-period net loss included a one-time expense of $2.9-million related to the extinguishment of the Cartesian royalty payable.

Westport generated negative $4.0-million in adjusted EBITDA during the second quarter of 2023, compared with negative $4.3-million adjusted EBITDA for the same period in 2022.

Original equipment manufacturer segment

Revenue for the three and six months ended June 30, 2023, was $52.4-million and $108.7-million, respectively, compared with $54.3-million and $106.1-million for the three and six months ended June 30, 2022. Revenue for the OEM business segment decreased by $1.9-million as compared with the second quarter of 2022 and increased by $2.6-million as compared with the six months ended June 30, 2022. The decrease in revenue for the three months ended June 30, 2023, was primarily driven by the lower sales volumes and sales mix for the heavy duty OEM business, lower sales to customers in India in the light-duty OEM business, and lower sales volumes to hydrogen customers. The decrease is partially offset by an increase in sales volumes from delayed OEM, fuel storage and electronic businesses compared with the same quarter last year.

For the second quarter, gross margin (2) increased by $3.7-million to $8.4-million or 16 per cent of revenue, compared with $4.7-million or 9 per cent of revenue for the three months ended June 30, 2022. The increase in gross margin is primarily due to increased sales volumes in Westport's delayed OEM and fuel storage businesses, as well as increased gross margin in the heavy-duty OEM business due to higher spare parts sales, higher unit pricing on HPDI system sales and higher engineering service revenue. This was partially offset by higher production input costs stemming from global supply chain challenges and inflation in logistics, utilities, labour, and other costs, which Westport has only partially been able to pass on to its OEM customers.

Year to date, gross margin decreased by $6.8-million to $16.5-million or 15 per cent of revenue, compared with $9.7-million or 9 per cent of revenue for the six months ended June 30, 2022.

Westport remains confident in the outlook for its OEM segment. Westport's light-duty OEM business continues to gain market share with the recently announced additional Euro 7 business, the company's delayed OEM business is delivering significantly higher volumes, Westport's hydrogen business has multiple growth projects under way and the announced HPDI joint venture with Volvo combined with Volvo's release of a new natural gas HPDI equipped engine all position Westport's HPDI fuel system for growth.

(2) Gross margin is a non-GAAP measure. Please refer to GAAP and non-GAAP financial measures in Westport's MD&A for the reconciliation.

Independent after-market segment

Revenue for the three and six months ended June 30, 2023, was $32.6-million and $58.6-million, respectively, compared with $25.7-million and $50.4-million for the three and six months ended June 30, 2022. Revenue for the IAM business segment increased by $6.9-million and $8.2-million, as compared with the three and six months ended June 30, 2022. The increase in revenue was primarily driven by increased sales volumes to Africa, Eastern Europe and South America.

For the second quarter, gross margin increased by $200,000 to $6.0-million or 18 per cent of revenue, compared with $5.8-million or 23 per cent of revenue for the three months ended June 30, 2022. The increase in gross margin is related to higher sales in South America. For the six months ended June 30, 2023, gross margin increased by $500,000 to $11.2-million, or 19 per cent of revenue, compared with $10.7-million or 21 per cent of revenue for the six months ended June 30, 2022.

Financial statements and MD&A

To view Westport financials for the second quarter ended June 30, 2023, please visit the company's website.

Live conference call and webcast

Westport has scheduled a conference call for Wednesday, Aug. 9, 2023, at 7 a.m. Pacific Time (10 a.m. Eastern Time), to discuss these results. To access the conference call by telephone, please dial 1-888-390-0546 (Canada and United States toll-free) or 416-764-8688. The live webcast of the conference call can be accessed through the Westport website.

Replay conference call and webcast

To access the conference call replay, please dial 1-888-390-0541 (Canada and U.S. toll-free) or 1-416-764-8677 using the passcode 290775 followed by the pound key. The telephone replay will be available until Aug. 23, 2023. Shortly after the conference call, a replay will be available in streaming audio and a downloadable MP3 file.

About Westport Fuel Systems Inc.

Westport Fuel Systems is driving innovation to power a cleaner tomorrow. The company is a leading supplier of advanced fuel delivery components and systems for clean, low-carbon fuels, such as natural gas, renewable natural gas, propane and hydrogen, to the global transportation industry. Its technology delivers the performance and fuel efficiency required by transportation applications and the environmental benefits that address climate change and urban air quality challenges. Headquartered in Vancouver, Canada, with operations in Europe, Asia, North America and South America, Westport serves its customers in more than 70 countries with leading global transportation brands. Westport thinks ahead.

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