Westport Q1 2014 results: Methane diesel for medium-duty trucks and buses in India

Westport Innovations Inc. (TSX:WPT / NASDAQ:WPRT), engineering the world’s most advanced natural gas engines and systems, today reported financial results for the first quarter ended March 31, 2014 and provided an update on operations. All figures are in U.S. dollars unless otherwise stated.

WesportRevenue & Net Results

  • Westport¬†revenue, excluding joint ventures’ revenues, for the quarter ended¬†March 31, 2014¬†was$41.9 million¬†compared with¬†$30.1 million¬†for the same period last year, an increase of 39%.
  • Joint venture segment revenue for the quarter ended¬†March 31, 2014¬†was¬†$80.1 million¬†for Cummins Westport Inc. (CWI), an increase of 79% over the same period last year; and¬†$113.4 million¬†for Weichai Westport Inc. (WWI), an increase of 7% over the same period last year.
  • Westport¬†consolidated net loss and net loss per share for the quarter ended¬†March 31, 2014decreased to¬†$23.9 million¬†and¬†$0.38, respectively, from¬†$31.8 million, and¬†$0.57, respectively in 2013.

Adjusted EBITDA (The reconciliation of Adjusted EBITDA is described below)

  • For the quarter ended¬†March 31, 2014,¬†Westport¬†reported an Adjusted EBITDA loss from operations of¬†$1.6 million¬†compared with an Adjusted EBITDA loss from operations of¬†$8.7 million¬†for the quarter ended¬†March 31, 2013, an improvement of approximately 81% year-over-year.
  • For the quarter ended¬†March 31, 2014,¬†Westport¬†reported a consolidated Adjusted EBITDA loss of¬†$22.1 million¬†for the Company, compared with a loss of¬†$26.3 million¬†in the prior year period.

As previously announced,¬†Westport¬†re-organized its business in 2013 to take advantage of the shift by original equipment manufacturers (OEMs) to develop natural gas vehicle products in-house.¬†Westport’soperating business units have the goal of achieving positive Adjusted EBITDA from operations by the end of 2014. The¬†$1.6 million¬†loss is a step change in Adjusted EBITDA, which has averaged about a¬†$9.4 million¬†loss per quarter for the past eight quarters. This has been achieved through significant organizational efficiencies, product portfolio optimization and cost reductions.

Increased Product Volumes / Revenue:

  • For the quarter ended¬†March 31, 2014, On-Road Systems revenue increased by 277% to¬†$17.7 million¬†compared with¬†$4.7 million¬†in the same period last year due primarily to the addition to revenue from acquired organizations, BAF Technologies (BAF) and its subsidiary, ServoTech Engineering, Inc. (ServoTech), shipment of¬†Westport¬†iCE PACK‚ĄĘ liquefied natural gas (LNG) Tank Systems, and increased sales of Volvo cars with¬†Westport¬†bi-fuel systems.
  • For the quarter ended¬†March 31, 2014, CWI revenue increased by 79% to¬†$80.1 million¬†on 2,480 units, compared with¬†$44.7 million¬†on 1,313 units in the same period last year.
  • For the quarter ended¬†March 31, 2014, WWI revenue increased by 7% to¬†$113.4 million¬†on 9,172 units, compared with¬†$105.9 million¬†on 8,529 units in the same period last year.

Reducing Costs and Prioritizing Investments

  • Cash used in the quarter ended¬†March 31, 2014¬†was¬†$26.7 million, including a one-time payment to Clean Energy Fuels Corp. of¬†$5.0 million¬†for a previously announced joint marketing and sales program related to the acquisition of BAF and its subsidiary, ServoTech, in¬†June 2013. This is compared with¬†$26.9 million¬†for the quarter ended¬†December 31, 2013.¬†Westportis continuing to focus on cost reduction initiatives and management of¬†Westport’s¬†investment programs.
  • Westport¬†is co-investing with OEMs to develop a portfolio of new natural gas vehicle technologies and related systems and components. Since 2012,¬†Westport¬†has invested¬†$214.9 million¬†into various programs, including trucking, automotive, and off-road applications, as well as advanced engineering and capital expenditures.¬† These are investments with 3 to 5 year development cycles from the start of development to product sales.¬†Westport¬†is carefully managing the programs and allocating capital to products and technologies designed to deliver high margin returns in the future.

Business Highlights

  • Westport¬†and Delphi Automotive are combining their intellectual property and engineering strengths to co-develop and manufacture high-pressure natural gas fuel injectors designed for multiple engine OEMs, establishing¬†Westport¬†high pressure direct injection (Westport‚ĄĘ HPDI) as the leading natural gas technology platform for heavy-duty engine applications. The family of injectors to be developed will be one of the core components of Westport‚ĄĘ HPDI 2.0 fuel system. Delphi and¬†Westport¬†plan to ramp production capacity to 100,000 HPDI injectors per year by 2018.
  • Westport¬†and Weichai launched final customer validation units of the next generation Westport‚ĄĘ¬†HPDI 2.0 on the Weichai Westport WP12 engine platform; and initiated development of the 10 litre Weichai Westport WD10 engine with¬†Westport¬†HPDI 2.0. The current generation Weichai Westport WD10 and WP12 natural gas engines, using lean burn spark ignited technology, account for about 75 percent of WWI’s engine unit sales. With the strong demand for natural gas engines in¬†China, WWI is expanding its manufacturing capacity to 100,000 engines per year by the end of 2014.
  • Westport¬†received California Air Resources Board (CARB) certification for its 2014 model year Westport WiNG‚ĄĘ Ford F-150 3.7L pickup truck with the dedicated compressed natural gas (CNG) system.
  • Westport¬†received Environmental Protection Agency (EPA) certification for its 2015 model year Ford F-250 and F-350 super duty trucks with the Westport WiNG‚ĄĘ bi-fuel CNG system.
  • Westport¬†and Tata Motors Limited launched a new spark-ignited (SI) natural gas 3.8L turbocharged engine featuring the¬†Westport¬†WP580 Engine Management System (EMS).Westport¬†also unveiled its newest proprietary technology,¬†Westport¬†gas enhanced methane diesel (Westport¬†GEMDi‚ĄĘ) targeted for medium-duty trucks and buses in¬†India.
  • Westport¬†and Universal LNG has signed an agreement to develop a range of LNG portable power units for a diverse range of applications.¬†Westport¬†will initially develop two water pump units powered by the Westport‚ĄĘ¬†2.4L industrial power unit or a low cost natural gas 7L engine platform, fitted with the¬†Westport¬†WP580 EMS for larger applications, and integrated with theWestport¬†iCE PACK LNG Tank System to supply the fuel. The power unit is design protected to meet future requirements of Universal LNG’s customers in marine transit, utility, power generation and tractor applications. Upon successful completion of the development phase,Westport¬†expects to build and supply units for a large scale trial in the U.S. and¬†Asia Pacificmarkets.
  • Westport¬†is developing an advanced, durable, and fuel efficient 3.8L industrial engine, designed to operate on either natural gas or liquefied petroleum gas (LPG). This new industrial product is based on Hyundai Motor Company’s 3.8L automotive engine and is targeted for use in industrial applications such as forklift, oil & gas, power generation, and construction equipment. The engine will feature a multi-point fuel injection system designed and manufactured by¬†Westport, and the¬†Westport¬†WP580 EMS. With the new 3.8L engine,¬†Westport¬†expects to broaden its market opportunity and engage new OEMs in the mobile and stationary industrial markets. The engine is expected to meet EPA and CARB emissions standards.

“We have made a step change this quarter with¬†Westport¬†revenue growth of 39% year-over-year and significant improvement on Adjusted EBITDA from operations, from an average loss of approximately$9.4 million¬†to a¬†$1.6 million¬†loss,” said¬†David Demers, CEO of¬†Westport. “We are on track to achieve positive Adjusted EBITDA from operations by the end of 2014 by continuing to increase sales, shipping committed products, and applying cost and margin discipline. At the same time, we are confident that our investment projects will deliver shareholder value as these products come to market.”

“In¬†China, Weichai Westport sold more than 9,100 units in the quarter and recorded¬†$113 million¬†in revenue, 8% and 7% higher than the same period last year. As announced earlier this week, we are excited that Weichai will be the first OEM delivering HPDI 2.0 technology to the market. The WP12 engine is¬†China’s¬†first engine featuring Westport HPDI technology, delivering the power and performance of the base diesel engine, while replacing up to 95% of diesel fuel with cleaner burning, less expensive natural gas. Furthermore, we have agreed to develop the 10 litre Weichai Westport WD10 engine with Westport HPDI 2.0, with product availability planned for 2016. We are very pleased to continue to work with Weichai to lead this energy transition in¬†China.”¬† ¬†

“We have a comprehensive product investment program, collaborating with key global OEMs to launch major new products, resulting in increased sales while reducing investment expenses over the next several years. At the same time, we are continuing to reduce our operating costs and prudently manage our cash flow. The income from our joint ventures and service revenue are expected to cover our corporate costs and investment programs.”

“Energy transitions are difficult to accomplish, but with the technologies, resources, and capabilities we have, we are confident that we will benefit from this transition.”

Financial Outlook for 2014 and Path to Profitability
Westport expects revenue to be between $175 million and $185 million for the year ended December 31, 2014, which represents growth of 7 to 13% over 2013.

As¬†Westport¬†shifts from market creation work to a full commercial operation and profitability,¬†Westporthas announced two interim financial milestones.¬†Westport’s¬†first milestone is to have its three operating business units combined to achieve positive Adjusted EBITDA by the end of 2014.¬†Westport’s¬†second milestone is to have the Company report consolidated positive Adjusted EBITDA by the end of 2015, driven by contributions from¬†Westport’s¬†operating business units,¬†Westport’s¬†share of net income (loss) from the joint ventures, and service revenue earned from¬†Westport’s¬†development partners.

First Quarter 2014 Financial Highlights

Three Months EndedMarch 31, % Change 
Better/(Worse)
($ in millions, except per share amounts) 2014 2013
Consolidated revenues $     41.9 $    30.1 39%
Consolidated gross margin 12.3 8.1 52%
Consolidated gross margin percentage 29.4% 26.9% -
Operating expenses (Research and development, and selling, general
and administrative)
39.3 39.5 1%
(Loss) Income from unconsolidated joint ventures (0.4) 1.7 (124%)
Consolidated Adjusted EBITDA
(The reconciliation of Adjusted EBITDA is described below)
(22.1) (26.3) 16%
Cash and short-term investments balance 183.9 173.9 6%
Net loss (23.9) (31.8) 25%
Net loss per share (0.38) (0.57) 33%
  • The increase in gross margin percentage for the quarter ended¬†March 31, 2014¬†is due primarily to sales of higher margin product such as the Westport WiNG‚ĄĘ System and service revenue.
  • Research and development expenses were¬†$21.0 million¬†for the quarter ended¬†March 31, 2014, compared with¬†$20.4 million¬†in the same period last year.
  • Selling, general and administrative expenses were¬†$18.3 million¬†for the quarter ended¬†March 31, 2014, a decrease of¬†$0.8 million¬†from¬†$19.1 million¬†in the same period last year. The decrease year over year is primarily due to cost reduction initiatives.

Operating Business Unit Highlights

Business Units Adjusted EBITDA*

Three Months Ended
($ in millions) March 31, 2014 December 31, 2013 September 30, 2013 June 30, 2013
Applied Technologies $      0.1 $         1.6 $          2.1 $         2.8
On-Road Systems (1.2) (6.9) (6.8) (8.6)
Off-Road Systems (0.5) (3.1) (3.9) (3.1)
Total Operating Business Units Adjusted EBITDA (1.6) (8.4) (8.6) (8.9)

*Adjusted EBITDA reconciliation is described below.

Applied Technologies

  • Applied Technologies revenue for the quarter ended¬†March 31, 2014¬†decreased 6% to¬†$21.9 million¬†compared with¬†$23.3 million¬†in the prior year period primarily due to the weakness in certain markets, particularly¬†Italy, offset by continued growth in¬†China.
  • Applied Technologies gross margin and gross margin percentage for the quarter ended¬†March 31, 2014¬†decreased to¬†$5.6 million¬†and 25.6%, respectively, compared with¬†$6.7 million¬†and 28.8%, respectively, in the prior year period primarily due to mix of products.
  • Applied Technologies operating expenses for the quarter ended¬†March 31, 2014¬†increased by$1.3 million¬†to¬†$6.1 million¬†compared to the prior year period primarily related to higher research and development costs for new products.

On-Road Systems

  • On-Road Systems revenue for the quarter ended¬†March 31, 2014¬†increased by 277% to¬†$17.7 million¬†compared with¬†$4.7 million¬†in the same period last year due primarily to the addition of revenue from acquired organizations, BAF and its subsidiary, ServoTech, shipment of¬†WestportiCE PACK LNG Tank systems, and increased sales of Volvo cars with¬†Westport¬†bi-fuel systems.
  • On-Road Systems gross margin and gross margin percentage for the quarter ended¬†March 31, 2014¬†increased to¬†$5.5 million¬†and 31.1%, respectively, from¬†$0.2 million¬†and 4.3%, respectively. The increase is primarily due to economies of scale as a result of higher shipments and product mix.
  • On-Road Systems operating expenses for the quarter ended¬†March 31, 2014¬†decreased by$2.1 million¬†to¬†$7.1 million¬†compared to the prior year period due primarily to reduced expenses related to changes in operating structure, consolidation of facilities, and exiting production of the first generation of Westport‚ĄĘ HPDI system.

Off-Road Systems

  • Off-Road Systems revenue for the quarter ended¬†March 31, 2014¬†increased by 18% to¬†$1.3 million¬†compared with¬†$1.1 million¬†in the prior year period.
  • Off-Road Systems operating expenses decreased by¬†$2.2 million¬†to¬†$0.8 million¬†for the quarter ended¬†March 31, 2014¬†primarily due to cost reduction initiatives.

Cummins Westport Inc. Highlights

Three Months Ended March 31, % Change 
Better/(Worse)
($ in millions) 2014 2013
Units 2,480 1,313 89%
Revenue      $         80.1 $        44.7 79%
Gross margin 7.6 12.3 (38%)
Gross margin percentage 9.5% 27.5% -
Gross margin percentage excluding warranty adjustments 28.2% 36.0% -
Operating expenses 9.7 10.8 10%
Segment operating (loss) income (2.1) 1.5 (240%)
Net (loss) income to Westport (0.8) 0.8 (200%)
  • CWI engine shipments for the quarter ended¬†March 31, 2014¬†increased by 89% to 2,480 units compared with 1,313 units in the prior year period. The yearly volumes in¬†North Americaincreased by 102% driven by higher sales in all segments particularly truck applications, up 223%, as a result of the launch of the ISX12 G. The ISX12 G has been performing to expectations and has been well received. CWI quarterly volumes in the international market also increased by 48% as a result of large deliveries for fleets in regions such as¬†China¬†andSouth America.
  • Gross margins in the first quarter of 2014 and 2013 were impacted by adjustments to warranty of¬†$15.0 million¬†and¬†$3.8 million, respectively, and the gross margin percentage excluding these adjustments would have been 28.2% and 36.0% in 2014 and 2013, respectively. The majority of warranty adjustments are associated with the Cummins Westport 8.9L ISL G.
  • The decrease in CWI operating expenses were primarily driven by lower research and development expenses as a result the launch of the Cummins Westport ISX12 G last year and cost management initiatives.
  • CWI’s net loss attributable to¬†Westport¬†was¬†$0.8 million, compared with¬†$0.8 million¬†income in the prior year period. Excluding the warranty impact, CWI’s net income attributable to¬†Westportwould have been¬†$4.1 million.

 

Weichai Westport Inc. Highlights

Three Months Ended March 31, % Change 
Better/(Worse)
($ in millions) 2014 2013
Units 9,172 8,529 8%
Revenue $      113.4 $      105.9 7%
Gross margin 6.3 7.0 (10%)
Gross margin percentage 5.6% 6.6% -
Operating expenses 4.6 3.7 (24%)
Segment operating  income 1.7 3.3 (48%)
Westport’s 35% interest 0.5 1.0 (50%)
  • Gross margin decreased¬†$0.7 million¬†or 10% in the quarter ended¬†March 31, 2014¬†due primarily to competitive product mix.
  • Operational expenses increased by¬†$0.9 million¬†for the three months ended¬†March 31, 2014due primarily to increased product development costs related to new products, facilities and support costs associated with continued growth of this business.
  • For the quarter ended¬†March 31, 2014, WWI increased volume by 8% compared to the same period last year.

 

Non-GAAP Financial Measure; Adjusted EBITDA Results
Adjusted EBITDA is used by management to review operational progress of its business units and investment programs over successive periods and as a long-term indicator of operational performance since it ties closely to the unit’s ability to generate sustained cash flows.¬†Westport¬†defines Adjusted EBITDA as net income (loss) attributed to the business unit or the consolidated company excluding expenses for (a) income taxes, (b) depreciation and amortization, (c) interest expense, net, (d) non-cash and other unusual adjustments, (e) amortization of stock-based compensation, and (f) unrealized foreign exchange gain or loss. Adjusted EBITDA includes¬†Westport’s¬†share of income (loss) from the joint ventures (JVs). The term Adjusted EBITDA is not defined under U.S. generally accepted accounting principles (U.S. GAAP) and is not a measure of operating income, operating performance or liquidity presented in accordance with U.S. GAAP. Adjusted EBITDA has limitations as an analytical tool, and when assessing¬†Westport’s¬†operating performance, investors should not consider Adjusted EBITDA in isolation, or as a substitute for net loss or other consolidated statement of operations data prepared in accordance with U.S. GAAP. Among other things, Adjusted EBITDA does not reflect¬†Westport’s¬†actual cash expenditures. Other companies may calculate similar measures differently than¬†Westport, limiting their usefulness as comparative tools.¬†Westport¬†compensates for these limitations by relying primarily on its U.S. GAAP results and using Adjusted EBITDA only supplementally.

 

Three Months Ended March 31,
2014 2013
Net loss $   (23.9) $   (31.8)
Provision for income taxes - 0.3
Depreciation and amortization 4.3 3.6
Interest expense, net 0.8 1.2
Non-cash and other unusual adjustments 0.9 -
Amortization of stock-based compensation 4.7 3.4
Unrealized foreign exchange (gain) loss (8.9) (3.0)
Adjusted EBITDA $   (22.1)    $   (26.3)

 

 

For the three months ended March 31, 2014
Adjustments
($ in millions) Segment operating
income (loss)
Westport’s¬†
Share of 
Income from 
the JVs
Stock-based 
compensation
and non-cash 
adjustments
Adjusted 
EBITDA
Operating Business Units               $       (2.7)         $           -           $       1.1       $        (1.6)
Corporate and Technology Investments                                (24.3)                         (0.4) 4.2              (20.5)
For the three months ended December 31, 2013
Adjustments
($ in millions) Segment operating
income (loss)
Westport’s¬†
Share of 
Income from 
the JVs
Stock-based  
compensation
Adjusted 
EBITDA
Operating Business Units* $           (9.5)   $           -         $        1.1         $        (8.4)
Corporate and Technology Investments (20.4) 3.5 2.1 (14.8)
*Excluding non-cash and other unusual adjustments related to the first generation of WestportTM HPDI systems.
For the three months ended September 30, 2013
Adjustments
($ in millions) Segment operating
income (loss)
Westport’s¬†
Share of 
Income from 
the JVs
Stock-based  
compensation
Adjusted 
EBITDA
Operating Business Units $       (10.9)   $           -         $        2.3         $        (8.6)
Corporate and Technology Investments                                (16.0)                         3.7                         1.4              (10.9)
For the three months ended June 30, 2013
Adjustments
($ in millions) Segment operating
income (loss)
Westport’s¬†
Share of 
Income from 
the JVs
Stock-based  
compensation
Adjusted 
EBITDA
Operating Business Units                     $      (10.8)       $           -             $       1.9     $    (8.9)
Corporate and Technology Investments                                (25.7)                         4.6                         2.2              (18.9)

Outlook 

This press release includes financial outlook information for Westport and such information is being provided for the purpose of updating prior revenue disclosure and may not be appropriate for, and should not be relied upon for, other purposes.