Westport Innovations Inc., engineering the world's most advanced natural gas engines and systems, has reported financial results for the second quarter ended June 30, 2015 and provided an update on operations. All figures are in U.S. dollars unless otherwise stated.
Westport continues to deliver on key corporate development milestones, launching industry-leading products while cash and investment discipline demonstrates steady progress toward the goal of consolidated positive adjusted EBITDA by mid-2016. In the second quarter of 2015, Westport announced the introduction of the new Volvo Car Drive-E powertrain bi-fuel engine, EPA certification of 2015 Ford Transit Van, the new Ford F-150 bi-fuel product, and the completion of a major engine program with its fifth HPDI engine customer. There are several key activities that continuously expand the markets for Natural Gas Vehicles (NGV) while the backdrop of foreign economies and petroleum-based fuel pricing provides a challenge for some of Westport's business lines.
Westport achieved a significant improvement in Westport Consolidated adjusted EBITDA for the second quarter of 2015 compared to the same period last year. These results are primarily due to strong performance at Cummins Westport Inc. (CWI) and strong cash preservation, demonstrating management's commitment to implementing a flexible cost structure during oil price and economic headwinds.
"Global energy price volatility and the economic turbulence in many markets continues to put pressure on our global business units, but since natural gas prices generally have fallen in line with petroleum product prices, we continue to see good opportunities for natural gas vehicles in many markets. Since the acquisition of Prins in late 2014 we have also been expanding our offerings in the LPG market which continues to show promise in some regional markets," says David Demers, Westport's CEO. "We also made steady progress on our HPDI product programs, including the completion of a major initiative with a new OEM partner, our fifth, to validate the unique performance and emissions characteristics of HPDI 2.0 on their own engine platforms.
"Cash used and adjusted EBITDA results in the quarter were the strongest since our transition plan was announced in 2013. At -$7.7 million Adjusted EBITDA for the quarter and a $60.6 million cash balance, and with our current plans for non-core asset divestments, strategic initiatives, expected sales of new products and continued cash discipline, we believe we have resources needed to complete our transition to positive adjusted EBITDA by mid-2016."
FINANCIAL OUTLOOK FOR 2015
Revenue for Westport Operations and Corporate & Technology Investments (Westport Operations) was $27.8 million for the quarter ended June 30, 2015 in line with 2015 expectations. 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. As in the past, it did not provide financial forecasts for individual joint ventures.
CASH AND PRIORITIZATION OF INVESTMENTS
- As of June 30, 2015, Westport's cash, cash equivalents and short-term investments balance was $60.6 million. Cash used in operations, excluding changes in working capital, plus dividends received from joint ventures for the second quarter of 2015 was $8.1 million compared with $9.5 million for the first quarter of 2015 and $19.2 million for the second quarter of 2014, an improvement of 14.7% or $1.4 million and 57.8% or $11.1 million, respectively. Working capital changes consumed $3.9 million in cash in the quarter and $9.9 million in the six months ended June 30, 2015.
- Westport reduced its combined operating expenses by $9.0 million for the quarter ended June 30, 2015 and by $22.0 million for the first six months in 2015, compared to the same periods last year, primarily due to prioritization of investment programs, cost discipline, as well as favorable impacts of foreign currency translation from the Canadian dollar and Euro to the U.S. dollar equivalent.
- Management believes the cash balance, in combination with actions around operational expenses and strategic initiatives, will be sufficient to carry the company to positive consolidated adjusted EBITDA in mid-2016.
- HPDI OEM development programs will be shifting from the design and development phase into the testing and validation phase by early 2016. Investments in Westport HPDI development programs are on track to deliver on product revenue expectations.
Q2 2015 FINANCIAL HIGHLIGHTS
- Revenue for the quarter ended June 30, 2015 was $27.8 million compared with $37.9 million for the same period last year. The 26.6% decrease is due to the timing of service revenue, a $4.1 million unfavorable impact of foreign currency translation from the Euro to the U.S. dollar, and economic weakness in certain European and Asian markets.
- Gross margin for six months ended June 30, 2015 was 27.2% including obsolescence charges of $2.3 million and would have been 31.3% without the charges. A change in product mix and weaknesses in some markets as a result of the continued low price of petroleum-based fuels impacted the gross margin.
- Research and development expenses were $12.8 million for the quarter ended June 30, 2015, a decrease of $5.9 million from $18.7 million in the same period last year, primarily driven by a reduction in program expenses and prioritizing of investment programs, decreased headcount, 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 $13.0 million for the quarter ended June 30, 2015, a decrease of $3.1 million from $16.1 million in the same period last year primarily driven by a reduction in program expenses and prioritizing of investment programs, decreased headcount, as well as favorable impacts of foreign currency translation from the Canadian dollar and Euro to the U.S. dollar equivalent.
- Consolidated adjusted EBITDA for the quarter ended June 30, 2015, improved 54.4% compared to the same period last year, due to overall improvement in cost structure, prioritization of investment programs, higher CWI net income to Westport, and the recognition of income from the completion of a major HPDI engine program. Adjusted EBITDA performance over the last two quarters is validation of Management's ability to adjust its cost structure during challenging industry conditions, positioning the company to capitalize on future opportunities.
CUMMINS WESTPORT INC. HIGHLIGHTS
- Revenue was $93.1 million on 2,947 units for the quarter ended June 30, 2015, an increase of 17.0% in revenue over the same period last year. Revenues increased on a year-over-year basis due to strong performance in North American core segments of transit and refuse.
- Gross margin increased $14.3 million to $24.7 million, or 26.5% of revenue, compared to the same period last year. Gross margin for the six months ended June 30, 2105 increased $33.3 million to $51.3 million, or 30.9% of revenue, compared to the same period. The increase in CWI gross margin percentage during the quarter and first half of 2015 is primarily due to a reduction in the level unfavorable warranty adjustments as a result of identifying and resolving warranty issues associated with the CWI 8.9L ISL G in 2014. Unfavorable warranty adjustments and net extended coverage claims totaling $1.0 million were recorded in the quarter ended June 30, 2015, compared with unfavorable warranty adjustments and net extended coverage claims totaling $13.2 million in the prior year period.
- The increase in operating expenses from $10.3 million to $13.2 million is primarily driven by product development for the ISB6.7 G natural gas engine and improving reliability of the existing products.
- CWI operating income to Westport for the quarter ended June 30, 2015 was $3.4 million compared with $0.4 million for the same period last year. The 750.0% increase was primarily due to the reduction in unfavorable warranty expenses and the strength in sales of transit and refuse segments.
WEICHAI WESTPORT INC. (WWI) HIGHLIGHTS
- WWI revenue was $41.9 million on 3,491 units for the quarter ended June 30, 2015, a decrease of 68.5% in revenue compared to the prior year. Westport's WWI results are in line with general market conditions in China and in line with diesel truck sales. Truck demand remains subdued, as demonstrated by the decrease of recent monthly commercial vehicle sales in China year-over-year, according to China Association of Automotive Manufacturers (CAAM).
- For the quarter ended June 30, 2015, gross margin percentage increased to 13.6% compared with 6.6% in the prior year due primarily to improved supply chain management.
- WWI reported operating income of $0.5 million for the quarter ended June 30, 2015, a decrease of 78.3% over the same period last year primarily due to lower units sold.
- WWI's operating income attributable to Westport for the quarter ended June 30, 2015 was $0.1 million compared with $0.7 million in the prior year period.
