Westport Fuel Systems Inc

Good morning. My name is Anas and I'll be your conference operator today. At this time, I would like to welcome everyone to the Westport Fuel Systems Q1 2024 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. Thank you. Ms. Ashley Newell, you may begin your conference.

Thank you. Good morning, everyone. Welcome to Westport Fuel Systems' first quarter conference call for 2024. This call is being held to coincide with the press release containing Westport's financial results that was issued yesterday. On today's call, speaking on behalf of Westport is Chief Executive Officer and Director Dan Zelai and Chief Financial Officer Bill Larkin. Attendance on this call is open to the public, but questions will be restricted to the investment community. You are reminded that certain statements made on this conference call and our responses to certain questions may constitute forward-looking statements within the meaning of U.S. and applicable Canadian securities law, and as such, forward-looking statements are made based on our current expectations and involve certain risks and uncertainties. With that, I'll turn the call over to you, Derek.

Thanks, Ashley. Good day, everyone. Today, I will be recapping our Q1 results and providing color on our 2024 strategic priorities. I will also be sharing an update on the JV with Volvo and touching on the recently announced zero emission vehicle or ZEV legislation. Then I'll turn the call over to Bill to walk us through our Q1 results in more detail. So touching first on our financial results, Q1 2024 revenues were down 6% year over year, primarily due to decreased volumes in our delayed OEM business. As a key customer works through their existing inventory, although we are seeing volumes begin to tick back up here in May. On the cost side of the equation, we have been aggressive in cost cutting and have begun to make changes. As you well know, some of these adjustments will take time before we see the benefits in our financial statements. As I mentioned at year end, nothing is off limits with respect to reducing expenditures. We have been reducing costs everywhere from the board level to the shop floor. I will dig into some examples of where we are seeing success and where we'll be putting more pressure in just a moment. In my first three months in the role, I established three main priorities for 2024 and beyond, including number one, driving success via our HPDI joint venture with Volvo, number two, improving operational excellence, and three, reimagining our hydrogen-powered future. To ensure that Westport creates value for our shareholders, we need disciplined operations that flow from a strong strategic plan. These priorities are consistent with that need and are expected to elevate the performance and value of our business long into the future. As you know, we signed the investment agreement with HPDI Joint Venture in Q1 and are in the final stage of formalizing the joint venture. We received approval of our competition filing earlier this week great news and continue to work towards an expected closing in the second quarter. The investment agreement was a critical step and it solidifies Volvo and Westport's commitment to accelerating the commercialization and global adoption of Westport's HPDI fuel system for long haul and off-road applications. We continue to work towards an expected closing in the second quarter with some administrative items still outstanding. Once the JV is closed, this is when the real work begins. In our pursuit of profitability, cost-cutting is not merely a priority. It's an imperative. We recognize that sustainable growth relies on our ability to manage expenses. Therefore, while we are committed to driving top-line growth and operational efficiencies, our foremost focus remains on reducing costs at every opportunity. We have begun to act in a more disciplined way by identifying cost-saving opportunities and making changes. In Q1, we incurred $1.5 million in one-time expenses related to severance and costs associated with setting up the JV. These costs will taper off following the closing of the JV. We have reduced senior management by six individuals and announced in our information circular we plan to reduce the board size by one. We also plan to reduce board costs in general. Also, we closed the amended Westport Minda JV in 2024 in the second quarter and are progressing with a restructuring our presence in India, which is expected to improve our position in that business to generating positive cash flows for the first time in years. Through strategic headcount reductions across the organization, we are streamlining our workforce to increase operational agility. In addition, we are decreasing our reliance on external consultancy, signaling a shift towards internal expertise and resource optimization, and initiating changes in our production lines to optimize manufacturing cost reductions. For example, in Italy, we have brought in an experienced individual dedicated to operations who, with the team there, is identifying areas of excess and plans and when and how to reduce the cost without impacting our ability to deliver. Currently we are evaluating all discretionary costs and so far I've updated our hiring policy to focus on limiting any new hiring to key positions only. Focused on ensuring operational continuity and have implemented travel restrictions to reduce expenses. The goal is to simplify the business and go back to the basics. Westport is fortunate to be part of a compelling industry in which alternative fuels are seeing increased support and investments. We are also fortunate that government policy in key jurisdictions like Europe and North America is heading in the right direction for hydrogen as a fuel source. Recently, here in Canada, we saw the province of Alberta commit $57 million to the development of hydrogen power along with a commitment from Air Products to build hydrogen refueling stations along a key transportation network in the province, demonstrating that hydrogen is essential to decarbonizing heavy-duty transport. We are very well positioned from a strategic standpoint to be part of the hydrogen play as it evolves. In our hydrogen business, we are seeing this support take shape where over the past two years we have won seven development contracts or production programs for new 700-bar hydrogen products, complementing our current 350-bar and low-pressure offerings where we have also added new programs. Although in early stages, these programs will translate into $70 million in revenue by the end of the decade, With a focus on innovation and staying ahead of the market, we continue to add to and improve our product offering and are in production now for Generation 700 bar hydrogen regulators and are beginning on a new line of 700 bar hydrogen manifolds. Recently, we saw new zero emission vehicle regulations out of the EU, positive news for us and the industry. Our hydrogen HPDI fuel system is compatible threshold of three grams of CO2 per ton kilometer. In addition, our engine management systems for spark ignited engines and our hydrogen components for fuel pressure management and regulation are clean mobility solutions designed and manufactured for a diverse set of zero emission vehicles with high fuel systems and components for both internal combustion engines and fuel cell applications. The ZEV label conveys valuable benefits to qualified vehicles and fleet operators. It is incentivizing adoption of the cleanest, highest performing vehicles across the heavy duty transport sector, aligning with Westport's initiatives. This opens the door for our customers and OEMs to receive incentives, as well as funding and other regulatory benefits for incorporating our solutions. While this is a strong step forward supporting a hydrogen future, the continued competitiveness, affordability, and growing availability of biomethane ensures that biomethane-fueled heavy-duty vehicles will continue to make valuable contributions to the decarbonization of the transport well into the future. Finally, I wanted to touch on our current development projects featuring our HPDI fuel systems across multiple modes of transport. These initiatives represent more than just technological advancements. They embody our unwavering commitment to a brighter, greener future for generations to come. These projects are long-term and ongoing. Therefore, I intend to provide updates or answer any questions about each project throughout their duration, although I may not discuss them in depth as frequently as we have to respect our customers' confidentiality. Before digging into some of our key programs, I wanted to touch on our outlook in China. We remain optimistic on the Chinese natural gas vehicle market, which expanded to well over 100,000 commercial vehicles in 2023. And we continue to collaborate with our OEM partner in the Chinese market to provide an affordable low carbon solution in the future. The parties are currently discussing this work and the obligations of each party going forward. The engine development program continues to evolve and move forward. Moving to our development programs, in November of 2023, we announced a collaboration with a leading global OEM in the rail industry. This partnership aims to adapt our hydrogen HPDI fuel system for applications in locomotives and related equipment used in freight and transit rail sectors. Given the size of these engines, the initial design phase is a large body of work and is currently underway. We anticipate the engine testing to occur later in 2025. In December, Westport announced a monumental development program with a global heavy truck manufacturer. This program focuses on adapting our next generation LNG HPDI fuel system to meet the stringent Euro 7 emissions requirements for heavy duty vehicles. This $33 million project is funded by the OEM, and as we work together to diligently integrate cleaner energy solutions into the transport sector. Lastly, we are engaged in a proof of concept project with a global supplier of power solutions for marine applications to explore alternative sustainable energy sources for maritime transportation. This project commenced in Q1 and explores the use of our HPDI fuel system, fueled with methanol, for marine propulsion. The testing of HPDI technology for use with methanol in marine applications is a natural extension of our HPDI technology. We expect that our HPDI fuel system with methanol will be able to provide similar torque, power, and efficiency to diesel while also potentially reducing NOx emissions. Currently, the engine conversion is being planned with our OEM customer with the intention to run the engine tests later this year. As we see it, HPDI is well-suited for high-horsepower off-road applications as the other low-carbon, zero-carbon competing technologies in on-highway markets including spark ignited fuel cell and battery electric, all have major drawbacks when used in demanding high horsepower applications. Spark injection systems have inherently lower fuel efficiency, which can be an acceptable trade-off in certain on-highway markets, but not in high horsepower applications where the annual fuel use is substantial. Battery electric requires charging time that doesn't work with the daily runtime requirements in the high horsepower space. Finally, fuel cells could be a consideration, but high horsepower applications tend to operate at very high load factors, which is where fuel cell efficiency decreases. We believe that high horsepower applications will be most effective when used with diesel cycle combustion, the option with the highest efficiency and durability. Therefore, changing the fuel instead of changing the fundamental technologies for these applications is the best option for decarbonization and functionality. And HPDI is the solution. With that, I'll hand the call over to Bill, who will walk you through our financial results. Bill?