Westport Fuel Systems, Inc. Q4 FY2024 earnings call

• Announced divestment of light-duty business, expected to strengthen balance sheet and allow focus on HPDI and high-pressure controls systems.
• Improved margins in Q4 2024 and full year 2024, with gross margin and adjusted EBITDA showing positive trends.
• Achieved positive net cash from operations in 2024.
• Focus on hard-to-decarbonize segments of long-haul heavy-duty transport and industrial space, leveraging natural gas and hydrogen opportunities.

In the fourth quarter of 2024, Westport generated $75.1 million in revenue, a 14% decrease compared to the prior year period. For the full year of 2024, revenue was $302.3 million, a 9% decrease compared to the previous year. Gross margin in Q4 2024 increased to $14.3 million or 19% of revenue, up from $8 million or 9% in Q4 2023. Full year 2024 gross margin was $57.6 million or 19% of revenue, up from $48.9 million or 15% in 2023. Adjusted EBITDA loss in Q4 2024 was $1.8 million, significantly less than the $10.9 million loss in Q4 2023. Full year 2024 adjusted EBITDA loss was $11.2 million, an improvement from the $21.5 million loss in 2023. The light-duty segment saw an increase in sales, while the heavy-duty OEM business transitioned, impacting revenue.

• Proposed divestment of light-duty business expected to close by end of Q2 2025, improving financial position.
• Expect continued growth in HPDI volumes in 2025 as OEM customer production builds continue.
• Pivoting high-pressure controls and systems business to focus on natural gas market in North America, leveraging existing technology for CNG applications.

Q: Hello and thanks for taking the questions. So maybe just starting with HPDI. 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 detail you can give on expectations, whether it's units or growth for '25.

A: Sure, sure. Well, certainly, we did see Q4 volumes go up with our OEM customer increasing production builds. And we're going to see those carrying on through into 2025. So what we're seeing is the marketplace adopting this technology. It's starting to get its legs underneath it. Of course, we're dealing with a global market and the plan all along has been that this business would grow over the first two, three, four years, and it's in fact doing that. So we're hitting the plan versus production volumes, and we feel very good about where it's headed.

Q: Thanks. And then maybe just an update, sticking with HPDI. I know that you've certainly expressed confidence in past calls and investor outreach on additional OEMs. I know that, that is a mandate of the joint venture and its partners. Where do things stand there?

A: Well, the efforts to bring in other OEMs continues hard. I'm actually sitting in a foreign country right now, walking -- just coming out of meetings with additional OEMs working at it. And as you know, we're not allowed to use their names they don't like that very much. But that's, in fact, where I am right now. So those efforts are picking up steam. I think the biggest thing that we should be watching is this pendulum shift in the natural gas world, right? I think that we're seeing a world that's swinging back from electrify everything or fuel cells for everything we're feeling the weight of that coming. And so the commercial discussions with other OEMs are happening and continuing to pick up pace.

Q: Hi, good morning. Just couple on your last point. Your sale price of $73 million is sort of net of everything, and then the debt will -- a portion of that will be done. So your sort of enterprise value of the whole was over, I guess, over $100 million, is that right?

A: Well, you're going to offset that against the cash on the other side.

Q: Yeah, good morning. And congratulations on the transaction. I guess maybe to start, just going back to the strategy, and I think you all had mentioned that M&A could be a component of this. And so could you maybe just talk about what types of things you would be considering? And is there -- is it the U.S. or North America that you're looking to build a bigger presence in? Or could this be something that's global in scale, just help us flush that thought process out a little bit.

A: 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 capability. So we'll be looking at potential opportunities to, in fact, do that. We think that the larger immediate opportunity is definitely in North America for that, but it is a global business. There's compressed natural gas is used all over the world. But we're going to be looking to build out that business to be shifted from being a component play to a systems play. We do have our technology capabilities for the full engine control system. So combine that with the pressure controls and there's going to be some opportunities in the market to build that out.