Westport reports 2% revenue increase for first quarter 2015

Westport Innovations Inc., engineering the world's most advanced natural gas engines and systems, has reported financial results for the first quarter ended March 31, 2015 and provided an update on operations. All figures are in U.S. dollars unless otherwise stated.

The global market for natural gas vehicles demonstrated resilience with continued expansion in several markets in the first quarter of 2015 despite headwinds from volatile oil prices and economic turbulence in many of Westport's key markets.

"The swift change in global energy pricing caused some short-term disruption to our business plan at the end of 2014, but this quarter demonstrates that we have successfully reset our plans and we are back on track," says David Demers, Westport's CEO. "Our strong and diversified product portfolio and position in key global markets has meant we can deliver improvements to the bottom line at the same time as we improve our market position and advance our technology leadership with aggressive product development initiatives.

"Our consolidated business demonstrated a dramatic improvement in cash used in operations compared to the average in 2014. We achieved this result through our focus on key products and key markets, and improved operational efficiencies across the business, while continuing investment in key strategic programs including HPDI 2.0 products. We believe this steady focus is extending our competitive lead while building long term value for our customers and investors. We will continue to focus on profitable growth in our current markets, launching new products that establish new benchmarks for price and performance, and continuing to build towards positive consolidated adjusted EBITDA targeted by mid-2016."

FINANCIAL OUTLOOK FOR 2015

Revenue for Westport Operations and Corporate & Technology Investments (Westport Operations) was $28.0 million for the first quarter ended March 31, 2015 in line with 2015 expectations and up 2% sequentially from Q4 2014. Westport is reiterating its revenue outlook and expects consolidated revenue from these two segments to be between $110 million and $125 million for the year ended December 31, 2015. 

CASH AND PRIORITIZATION OF INVESTMENTS

• As of March 31, 2015, Westport's cash, cash equivalents and short-term investments balance was $71.3 million. Cash used in operations, excluding changes in working capital, plus dividends received from joint ventures was $9.5 million compared with $33.4 million, a sequential improvement of 71% or $23.9 million. Working capital changes consumed $6 million in cash. Westport expects to improve working capital performance over the next two quarters and continue to move toward cashflow breakeven with a number of strategic initiatives throughout 2015. Westport has a number of options in regards to the pace of product and market investments in addition to possible divestiture of non-core assets to improve the company's cash position.
• Westport reduced its combined operating expenses by $13.0 million for the quarter ended March 31, 2015 compared to the same period last year primarily due to prioritization of investment programs and reduced expenses, as well as favourable impacts of foreign currency translation from the Canadian dollar and Euro to the U.S. dollar equivalent.
• Westport management believes the above actions and strategic initiative plans will be sufficient to carry the company to reach positive consolidated adjusted EBITDA in mid-2016 while maintaining momentum to launch major product initiatives such as HPDI 2.0 in new and existing OEM customer applications.

Q1 2015 FINANCIAL HIGHLIGHTS

• Westport Operations revenue for the quarter ended March 31, 2015 was $28.0 million compared with $39.9 million for the same period last year. The 30% decrease is primarily due to a $4.6 million unfavourable impact of foreign currency translation from the Euro to the U.S. dollar equivalent. Revenue from European operations, which accounted for 63% of Westport Operations revenue, in fact increased to €15.7 million for the quarter ended March 31, 2015 from €14.9 million in the same period last year; and this excludes the recent acquisition of Prins. Competition from gasoline-fueled vehicles due to the decrease in petroleum-based fuel pricing, timing of service revenue, and continued weakness in certain European markets also impacted the revenue during the quarter.
• Gross margin was 19.3% including obsolescence charges of $2.0 million and would have been 26.5% without the charges. A change in product mix and weaknesses in some markets as a result of the continued low price of oil also impacted the gross margin.
• Research and development expenses were $13.5 million for the quarter ended March 31, 2015, a decrease of $7.5 million from $21.0 million in the same period last year and a decrease of $5.9 million or 30% sequentially primarily driven by a reduction in program expenses and prioritizing of investment programs, as well as favorable impacts of foreign currency translation from the Canadian dollar and Euro to the U.S. dollar equivalent.
• Selling, general and administrative expenses were $12.8 million for the quarter ended March 31, 2015, a decrease of $5.5 million from $18.3 million in the same period last year primarily due to staff reductions and favorable impacts of foreign currency translation from the Canadian dollar and Euro to the U.S. dollar equivalent.

Cummins Westport (CWI)

• CWI revenue was $73.0 million on 2,278 units for the quarter ended March 31, 2015, a decrease of 9% in revenue over the same period last year. Revenues would have been similar on a year-over-year basis, however, a delay for a shipment to an Asian customer into the second quarter of 2015 affected the first quarter of 2015.
• In North America, CWI unit volume increased by 3% year-over-year driven by strong growth in refuse applications, which is up 51% over the same period in 2014.
• Recently UPS announced its plans to build 15 compressed natural gas (CNG) fuelling stations to support the purchase and planned deployment of 1,400 new CNG vehicles over the next year, which represents a nearly 30% increase to UPS' current alternative fuel and advanced technology fleet. According to a Transport Topics article published on April 1, 2015, the vehicles include approximately 800 tractors of Kenworth T680s equipped with Cummins Westport ISX12 G engines.
• The increase in CWI gross margin percentage during the quarter ended March 31, 2015 is primarily due to a favorable warranty adjustment as a result of identifying and resolving warranty issues associated with the CWI 8.9L ISL G. Favorable warranty adjustments and net extended coverage claims totalling $5.2 million were recorded in the quarter ended March 31, 2015, compared with unfavourable warranty adjustments and net extended coverage claims totalling $15.0 million in the prior year period.
• The increase in operating expenses from $9.7 million to $11.7 million is primarily driven by product development for the ISB6.7 G natural gas engine and improving reliability of the existing products.
• CWI's net income attributable to Westport for the quarter ended March 31, 2015 was $5.9 million compared with a loss of $0.8 million in the prior year period, an increase of 838%.

Weichai Westport (WWI)

• WWI revenue was $55.9 million on 4,385 units for the quarter ended March 31, 2015, a decrease of 51% in revenue compared to the prior year. This is primarily due to the sudden reduction in energy prices and a pull forward of emission compliant systems into Q4 of 2014.
• For the quarter ended March 31, 2015, gross margin percentage increased to 10.2% compared with 5.6% in the prior year due primarily to product mix to higher margin engine sales and improvement in production efficiencies and product reliability.
• WWI reported net income of $0.9 million for the quarter ended March 31, 2015, a decrease of 40% over the same period last year primarily due to lower units sold.
• WWI's net income attributable to Westport for the quarter ended March 31, 2015 was $0.3 million compared with $0.5 million in the prior year period.