Westport Fuel Systems, Inc. Q1 FY2025 earnings call

• Strategic focus on Cespira joint venture with Volvo, operational excellence, and positioning for alternative fuels.
• Q1 2025 results: Reported revenue $71M, adjusted revenue over $80M; net loss improved to $2.5M from $13.6M; gross profit up $3.5M; operating expenditures down $8M.
• Proposed sale of light duty business to align with hard-to-decarbonize applications, expected to strengthen balance sheet.
• Cespira progress: Carlos Gonzalez as President, Volvo's gas powered solution using HPDI tech saw 25% sales increase in 2024, growing into Q1 2025; interest from Indian market.
• Cost reduction: Q1 gross margin improved; operating costs down $8M; transition of heavy duty OEM to Cespira contributed to cost reduction.
• Innovation: CNG HPDI solution running on 700 bar storage, 5-10% hydrogen blend; new hydro innovation center in China for high pressure controls.

Reported revenue for Q1 2025 was $71 million. Cespira generated $16.7 million in revenue (not reflected in top line due to equity method). Light duty segment revenue in Q1 '25 was $64.2 million (vs $63.3 million in Q1 '24), with gross margin at 22% of revenue ($14 million) vs 20% ($12.4 million) in Q1 '24. High Pressure Controls and Systems revenue in Q1 '25 was $1.4 million (vs $2.4 million in Q1 '24), with gross margin at 14% of revenue ($200,000) vs 17% ($400,000) in Q1 '24. Heavy duty OEM revenue in Q1 '25 was $5.4 million, with gross margin at 19% of revenue ($1 million) vs negative 9% in Q1 '24. Cespira generated $16.7 million in Q1 '25, with gross profit of $500,000 compared to prior year heavy duty OEM negative $1.1 million gross profit.

• Sale of light duty business expected to provide immediate cash proceeds to strengthen balance sheet and fuel growth in Cespira and high pressure controls.
• Anticipate continued growth for Cespira, with 25% sales increase in 2024 continuing into Q1 2025 and interest from Indian market.
• China is a key market, 50% of high pressure components business, with natural gas accelerating there.

• Slowing hydrogen infrastructure development leading to slower adoption of hydrogen-powered applications.
• Uncertainties around timing of OEM adoption of new technologies like CNG HPDI in North America, including certification cycles for heavy duty engines.

Q: Just to clarify on the divestiture. Is this closing in 2Q or has it already been closed?

A: Closing in Q2; expect the cash to show up in our June 30 balance sheet when we present that.

Q: And then sort of with respect to Cespira margins going forward, any color on what the path to higher margins looks like?

A: Getting Cespira profitable is a combination of things. Volume is the number one key to that business, and we're on a projected growth path. Also, the efforts of the team to reduce their costs to become more efficient and manage the supply base better.

Q: You just kind of touched on it, everything going on out in California a couple of weeks ago, and I did talk to Volvo and it sounds to me like they do not have a natural gas product in North America, which would sure seem to be an opportunity for Westport down the road, but that begs the question. You mentioned the development of a CNG HPDI solution that you have done. But how long if Volvo work to take that decision to bring it to North America because their customers clearly wanted, how long would that take from a development perspective?

A: Engine development and whether you're talking or like it, heavy duty engine development is a fairly long cycle. And the biggest part of that cycle always ends up being the certification process where you have to accumulate so many milder kilometers in testing and that's a big time lag. The typical engine development for heavy duty truck is about four years.

Q: Just want to get a sense on the high pressure controls business. What you sort of think that runs at this year and kind of where you see some of the growth opportunities in that segment?

A: It's a growth business. We were winning new contracts on components for the hydrogen sector, though delayed. These components can be adapted for CNG with slight modifications. The new plant in China is to serve local supply demand.

Q: And then on the Cespira business, you talked about nice growth 25% or better. Where does that coming from now in Europe in general, but specifically, where do you see the activity there and sort of the dynamics and pickup?

A: It is primarily in Europe and in those countries mentioned. Volvo is starting to market heavier, and they're also looking at India as a beachhead. The 25% growth was built into the business plan and we anticipate continued growth.