Mr. Dan Sceli reports

WESTPORT REPORTS FOURTH QUARTER AND FULL YEAR 2023 RESULTS

Westport Fuel Systems Inc. has released its financial results for the fourth quarter and year ended Dec. 31, 2023, and provided an update on operations. All figures are in U.S. dollars unless otherwise stated.

"I am privileged to report that despite challenges last year, we achieved new milestones, evolved strategically, and prioritized operational efficiency and financial strength, and, in doing so, we generated record revenues. Consistent with our priority to drive sustainable growth, our team increased sales volumes in our delayed OEM and electronics, and fuel storage businesses, while also increasing the engineering services we delivered in our heavy-duty OEM business.

"As we progress, Westport is dedicated to growth and adaptability, continuing to innovate and evolve with the ever-changing regulatory and macroeconomic landscapes. Anticipating the road ahead, I am resolved to steer Westport through strategic and decisive actions. Our success hinges on seamlessly integrating disciplined operations with a robust strategic framework. To this end, I will guide our efforts towards three essential pillars: harnessing the potential of our HPDI joint venture to drive success; enhancing operational excellence; and continuous innovation to shape the world's hydrogen-powered future. We have a lot of work ahead of us. With a dedicated team and the unwavering pursuit of excellence, I have full confidence in our capacity to not only meet but exceed our objectives," said Dan Sceli, chief executive officer.

Financial highlights:

• Revenue of $331.8-million for 2023 and $87.2-million for the fourth quarter. Full-year results were primarily driven by increased sales volumes in the delayed OEM (original equipment manufacturer), electronics and fuel storage businesses, as well as additional engineering service revenues from the heavy-duty OEM businesses. This growth is partially offset by the negative impact of the lower CNG (compressed natural gas) sales volumes to customers in the India market, lower independent after-market sales (IAM) volumes in Africa and lower sales volumes in the hydrogen business;
• Net loss for the year ended Dec. 31, 2023, was $49.7-million, or $2.90 loss per share, compared with a net loss of $32.7-million for the prior year. Net loss for the fourth quarter in 2023 was $13.9-million, or 81 cents per share, compared with a net loss of $16.9-million, or $1 per share, for the same period in 2022. For the year, the increase in net loss was primarily attributed to the absence of equity income from the prior-year sale of the company's interest in the Cummins Westport Inc. (CWI) joint venture, the loss on extinguishment of debt due to the settlement of the Cartesian royalty payable and increases in expenses, which was partially offset by an increase in gross margin and includes the negative impact of inventory writedowns related to the heavy-duty, light-duty and IAM businesses;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $21.5-million, compared with a loss of $27.8-million in the prior year. Adjusted EBITDA for the fourth quarter was a loss of $10.0-million;
• Cash and cash equivalents were $54.9-million for the year ended Dec. 31, 2023. Cash used in operating activities during the year was $13.2-million;
• Added $11.5-million of new term loans to improve financial flexibility in 2023, with an additional $3.9-million added after year-end.

Operational highlights

Westport closed 2023 focused on driving sustainable growth in the company's existing markets, unlocking new and emerging markets, driving operational excellence, and extracting efficiencies through prudent capital management. Based on these priorities, Westport can report several achievements that occurred during and subsequent to the fourth quarter of 2023:

• Entering new markets with a two-year H2 HPDI proof-of-concept project with a leading global provider of locomotives and related equipment for the freight and transit rail industries. The project will adapt Westport's H2 HPDI fuel system for use with the locomotive OEM engine design;
• Awarded a development contract with an estimated value of $33-million with a global heavy truck manufacturer to adapt and commercialize the next-generation LNG (liquefied natural gas) HPDI fuel system for the Euro 7 vehicle platform;
• Westport, together with Volvo Group, completed the signing of the investment agreement to form a joint venture to accelerate the commercialization and global adoption of Westport's HPDI fuel system technology for long-haul and off-road applications. The closing of the joint venture is subject to certain closing conditions, including regulatory and government approvals. It is anticipated that the joint venture will become operational following the formal closing, which is expected in the second quarter of 2024;
• Early in the first quarter of 2024, the initial Euro 6 LPG fuel systems were delivered to the company's global OEM customer related to its expanded LPG supply agreement for Euro 6 and Euro 7 vehicle platforms.

Segment information

Original equipment manufacturer

OEM revenue for the three months and year ended Dec. 31, 2023, was $61.2-million and $222.8-million, respectively, compared with $47.8-million and $198.0-million for the three months and year ended Dec. 31, 2022. The increase of $13.4-million as compared with the fourth quarter 2022 was primarily driven by higher sales volumes in the light-duty OEM and electronics businesses and higher engineering service revenue from the heavy-duty OEM business. This was partially offset by lower sales volumes in heavy-duty OEM, delayed OEM and fuel storage businesses compared with the prior year.

Revenue for the year ended Dec. 31, 2023, increased by $24.8-million compared with the prior year, primarily driven by increased sales volumes in the delayed OEM, electronics and fuel storage businesses, and higher engineering service revenue from the heavy-duty OEM business, as well as increased sales volumes in Eastern Europe for the company's light-duty business. This was partially offset by lower sales volumes in the company's hydrogen business and lower sales in the light-duty OEM business in India.

Gross margin increased by $1.6-million to $800,000, or 1 per cent of revenue, for the three months ended Dec. 31, 2023, compared with negative $800,000, or negative 2 per cent of revenue, for the same prior-year period. The increase in gross margin for the three months ended Dec. 31, 2023, is driven primarily by increased sales volumes in the light-duty OEM and electronics businesses, as well as increased gross margin in the heavy-duty OEM business due to higher engineering service revenue. The heavy-duty OEM business was negatively impacted by a $4.5-million inventory writedown. In addition, the increased gross margin is partially offset by lower sales volumes in the fuel storage business, a negative sales mix in the hydrogen business, and the higher production input costs stemming from global supply chain challenges and inflation in logistics, utilities, labour and other costs, which the company has only partially been able to pass on to the company's OEM customers.

Gross margin for the year ended Dec. 31, 2023, increased by $11.7-million to $25.3-million, or 11 per cent of revenue, compared with $13.6-million, or 7 per cent of revenue, for the prior year. The increase in gross margin and gross margin percentage for the year ended Dec. 31, 2023, is primarily driven by higher contribution margins from engineering services and higher volumes sales in the delayed OEM and fuel storage businesses. This was offset by lower margins in the hydrogen business due to lower sales volumes and a negative impact on the heavy-duty OEM business due to a $4.5-million inventory writedown.

Independent after market

Revenue for the three months and year ended Dec. 31, 2023, was $26.0-million and $109.0-million, respectively, compared with $30.2-million and $107.7-million for the three months and year ended Dec. 31, 2022. The decrease in revenue for the three months ended Dec. 31, 2023, was $4.2-million compared with the prior-year period, primarily driven by lower sales volumes in the Africa and South America markets, offset by increased sales volumes in Europe. The increase in IAM revenue for the year ended Dec. 31, 2023, was $1.3-million compared with the prior year, primarily driven by higher sales volumes to South America offset by lower sales to Europe and Africa.

Gross margin for the three months ended Dec. 31, 2023, increased by $1.8-million to $7.2-million, or 28 per cent of revenue, compared with $5.4-million, or 18 per cent of revenue, for the same prior-year period, primarily driven by the positive sales mix, lower electronic component costs and increased volumes sales in Europe.

Gross margin for the year ended Dec. 31, 2023, increased by $1.0-million to $23.6-million, or 22 per cent of revenue, compared with $22.6-million, or 21 per cent of revenue, for the prior year, primarily driven by higher margins and a positive sales mix in South America. This was partially offset by a negative sales mix in Africa.

2024 outlook

The alternative fuels industry is becoming more dynamic, driven by increased investment, industrial applications and policy support. Specifically, the hydrogen project pipeline has approximately 1,400 projects announced globally, with investments totalling $570-billion (U.S.) and 45 million tons per annum of clean hydrogen supply announced through 2030. Over the same period, hydrogen is expected to not only become more available but also more affordable.

As government policies and regulatory changes worldwide accelerate the shift toward zero emissions, Westport's alternative fuel-based solutions enable its customers to deliver cleaner performance with practical and affordable applications today. The company expects demand for its products and services to continue increasing and the widespread transition to hydrogen-based transport to be competitive with traditional fuels by the 2030s.

As it progresses, Westport is dedicated to growth and adaptability, continuing to innovate and evolve with the ever-changing regulatory and macroeconomic landscape. The company's efforts in 2024 will be guided toward three essential pillars: harnessing the potential of the company's HPDI joint venture to drive success; enhancing operational excellence; and continuous innovation to shape the world's hydrogen-powered future. The company's success relies on these three essential pillars over the near, medium and long term, respectively.

Driving success via the HPDI joint venture

The company's HPDI joint venture marks a new era for Westport, culminating over two decades of dedication and innovation. The joint venture is a cornerstone of Westport's business strategy moving forward and it is time to innovate and drive growth together.

Looking to the future, the joint venture will leverage the collective expertise of the partners, capitalize on growth opportunities and solidify the company's position as a leader in alternative fuels.

Improving operational excellence

The company is relentless in its pursuit of operational excellence, embarking on bold initiatives to streamline processes, enhance efficiency and reduce costs. Notably, the company's restructuring endeavours in India exemplify its commitment to optimizing capital efficiency and maximizing throughput across all operational fronts.

The company is starting to deploy a combination of levers to grow earnings and improve profitability, including implementing significant cost-cutting measures expected to encompass both operating and general and administrative expenses.

Reimagining a hydrogen-powered future

Embracing the potential for alternative fuels, particularly hydrogen, is exciting as the company positions itself at the forefront of this transformative shift. Armed with advanced technological capabilities, leveraging its existing hydrogen components business, and a deep understanding of the market dynamics and customer needs, the company is primed to capitalize on emerging growth opportunities while maintaining its commitment to sustainability and relevance in an ever-evolving landscape.

Conference call

Westport has scheduled a conference call for Tuesday, March 26, 2024, 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 (toll-free in Canada and the United States) or 416-764-8688. The live webcast of the conference call can be accessed through the Westport website.

To access the conference call replay, please dial 1-888-390-0541 (toll-free in Canada and the U.S.) or 1-416-764-8677 using the passcode 618393. The telephone replay will be available until April 9, 2024. Shortly after the conference call, the webcast will be archived on the Westport Fuel Systems website and replay will be available in streaming audio and a downloadable MP3 file.

Financial statements and management's discussion and analysis

To view Westport full financials for the fourth quarter and year ended Dec. 31, 2023, please visit the company's website.

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, the company serves its customers in more than 70 countries with leading global transportation brands. Westport Fuel Systems thinks ahead.

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