Westport Fuel Systems Inc

Good morning, everyone. Welcome to Westport Fuel Systems conference call regarding its first quarter 2025 financial and operational results. This call is being held to coincide with the press release containing Westport's financial results that were issued yesterday after market close. On today's call, speaking on behalf of Westport is Chief Executive Officer and Director Dan Selay 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 the statements made on this call and our responses to certain questions may constitute forward-looking statements within the meaning of the U.S. and applicable Canadian securities laws, 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, Dan.

Thank you, Ashley, and good morning, everyone. We continue to make meaningful progress in transforming Westport and sharpening our strategic focus. Our priorities do remain clear, driving success through Suspira, our HPDI joint venture with Volvo, pursuing operational excellence by streamlining operations and reducing costs, and positioning Westport as a leader in the shift to alternative fuels. These three pillars are guiding us toward a stronger future in Q1 2025, our efforts translated into measurable results. Reported revenue was 71 million for the quarter. In addition, Suspiria generated 16.7 million in revenue, which isn't reflected in our top line due to the equity method of accounting. When adjusting for our 55% ownership share, total revenue would have exceeded 80 million, higher than the 77.6 million reported in Q1, 2024. Net loss improved significantly $2.5 million from a net loss of $13.6 million in Q1 2024. Gross profit rose by $3.5 million, while operating expenditures dropped by $8 million. Adjusted EBITDA also showed marked improvement year over year. At the end of Q1, we also announced the proposed sale of our light-duty business, through which I aim to align Westport more with the hardest-to-decarbonize applications, primarily long-haul and heavy-duty transport. Our HPDI and high-pressure technologies offer a clear path forward in these segments. This transaction is expected to deliver immediate cash proceeds to strengthen our balance sheet and fuel growth in both Suspira and our high-pressure controls and systems business. This is an exciting time to be doing this. It is clear the market recognizes that the internal combustion engine utilizing alternative fuels will be instrumental in decarbonizing long-haul heavy-duty transport. And natural gas is no longer viewed as a bridge to hydrogen, but rather as the foundation of the future. At our core, we are a clean tech innovation company positioned to help drive this change. Through Suspira, the HPDI fuel system does the on-engine work to our high-pressure controls and systems business, where our components do the off-engine work. We are providing OEMs with simplified solutions to decarbonize. As you know, we welcomed Carlos Gonzalez as president of Suspira back in April. Carlos is already fully engaged and leading Suspira into its future of growth and success. As stated before, Carlos comes to Suspira with many years of tier one supplier experience and connections. Earlier this month, we were pleased to see Volvo trucks highlight the success they achieved with their gas powered solution using Suspira's HPDI technology. In 2024, sales increased by more than 25% and we saw demand continue to grow into the first quarter of 2025. Sweden, Norway, Netherlands, Spain, and the UK have been the key markets, and we are also excited to see increased interest from the Indian market for this solution. We continue to do things to right-size the business and cut costs where we can. In Q1, gross margin improved significantly compared to last quarter, as well as an increase in efficiencies partly evidenced through the material reduction in operating expenditures. As we mentioned last quarter, we are still charging ahead with the sale of Westport's light duty business. Once we close this deal, will we have the liquidity and therefore the opportunity to further rationalize our costs? We will continue to remain diligent when it comes to cost and decreasing expenses, ensuring that the business runs more efficiently and effectively over time. We are pleased with our progress so far, but acknowledge that there is still much work ahead of us on this front. We remain confident in the role that alternative fuels will play in driving sustainability in the future of transportation and industrial application spaces. Over the last several months, we have addressed that there is a slowdown in hydrogen infrastructure development, which is leading to a slower adoption of automotive and industrial applications powered by hydrogen. We have also presented the solutions that Westport can bring to fruition today, specifically related to natural gas applications. While we remain focused on scaling our alternative fuel solutions, including LNG, CNG, and RNG, and hydrogen systems, we are matching the cleanest gaseous fuels with the most efficient engine technologies. We are committed to delivering practical, commercially viable low-carbon solutions today and providing sustainable, high-performance solutions that help our customers achieve their goals now and for years to come. Westport is focused on its future, and the proposed divestment of our light-duty business will lead us to what's next. The transaction allows Westport to significantly strengthen its financial perspective and taper our focus on creating solutions for hard-to-decarbonize segments of the long-haul heavy-duty transport and industrial space. In the evolving landscape of sustainable transportation, Spira and Westport stand at the forefront, redefining what's possible with internal combustion engines. This commitment to innovation has led our teams to the latest breakthrough, a CNG HPDI solution running on 700-bar storage without a compressor. This advancement not only enhances performance, but also expands the horizons for cleaner fuel alternatives. Successfully operating at pressures up to 600-bar, The HPDI fuel system demonstrated normal operation, even with a 5 to 10% hydrogen blend by volume. This innovation opens up new decarbonization pathways, especially in regions where CNG is more accessible than LNG. Developed in collaboration with GFI, our high pressure controls and systems team, this project exemplifies our commitment to innovation and sustainability. Speaking to our GFI brand, or high pressure controls and systems business, We are excited about the upcoming completion of our new hydrogen innovation center and manufacturing facility located in China. Production at the facility is anticipated to come online later this year and will focus on delivering the Chinese market. Westport's GFI branded hydrogen fuel system components have had a strong presence in the Chinese marketplace for over 10 years, supporting both fuel cell and internal combustion engine applications that use hydrogen fuel. Currently, China represents approximately half of our high-pressure controls and systems revenue. I'll now hand the call over to Bill so he can provide some more information on the financial results. Bill?

Thanks, Dan, and good morning to everyone. Moving on to our first quarter 2025 results, we reported $71 million in revenue for the quarter, which was a 9% decrease compared to the same period last year. As expected, the transition of the heavy-duty OEM business into Suspiria shifted revenue to the JV in Q1 of 25, as we were accounting for the Suspiria JV under the equity method of accounting. This impact to our reported revenue was partially offset by an increase in sales in our light-duty segments. We continued to deliver improved margins. In Q1 of 25, gross margin increased to $15.2 million, or 21% of revenue. This is up from $11.7 million, or 15% of revenue in Q1 of 24. This improvement was driven by sales mix with higher OEM and DOEM sales. Plus, we are seeing the benefits of our cost reduction initiatives. Also, we had significant reduction in our Q1 2025 operating costs, where R&D and SG&A expenses declined by $8 million compared to the prior year period. The reduction in operating expenses for Q125 is a combination of transition and heavy-duty OEM businesses to spare, which accounted for approximately $5 million reduction, and continuing our disciplined approach to cost reductions and operational efficiency. For Q125, we generated operating income of $1.7 million compared to operating loss of $12.5 million in the prior year period, which is a $14.2 million improvement. We also demonstrated continued improvement in our adjusted EBITDA for the quarter end of March 31, 2025, reporting adjusted EBITDA of nil, which is a significant improvement over the reported adjusted EBITDA loss of $6.6 million in Q1 of 24. Our light duty revenue for Q1 of 25 was $64.2 million, as compared to $63.3 million for Q1 of 24. This increase was primarily driven by an increase in sales in our light-duty OEM as a result of the Year 06 program, an increase in delayed OEM businesses compared to Q1 of 24, where we saw a significant decline in sales because of an inventory build within our key delayed OEM customer. Gross margin in our light-duty business increased in the quarter to $14 million, or 22% of revenue, as compared to $12.4 million, or 20% of revenue, in Q1 of 24. This improvement was primarily driven by a change in sales mix with an increase in sales to European customers and a reduction in sales to developing regions and an increase in sales volumes. Hypertension controls and systems revenue for Q1 of 25 was 1.4 million. This is a decrease as compared to 2.4 million for Q1 of 24. This decline was primarily driven by a slowdown in the hydrogen industry. Gross margin decrease in the quarter to $200,000 or 14% of revenue as compared to $400,000 or 17% of revenue in Q1-24. This decrease is primarily driven by lower sales volumes, therefore increasing the per unit manufacturing costs of the components in the quarter. Heavy duty OEM revenue for the first quarter of 25 was $5.4 million. The revenue decrease compared to the same period last year was the result of the transfer and continuation of business in SUSPARA. Revenue earned in the first quarter of 25 relates to our transitional services agreement with SUSPARA, which is expected to be in place until mid-2025. Gross margin in our heavy-duty OEM business in the first quarter of 25 was $1 million, or 19% of revenue, compared to negative $1.1 million, or negative 9% of revenue in Q1 of 24. Gross margin Q125 was positively impacted by realizing $900,000 in credits from component suppliers for inventory sold during the quarter. Disparity generated $16.7 million in Q125 in the prior year heavy duty OEM segment, which at that time included our HPDI business to have revenues of $11.9 billion. This was primarily driven by an increase in HPDI fuel systems sold in the quarter. Gross profit for Suspiria was $500,000 for the three months ended March 31, 2025. In the prior year, the heavy duty OEM segments had negative $1.1 million in gross profits. The increase in gross profit was primarily driven by the increase in sales volumes compared to the prior year and reductions in manufacturing costs. Regarding liquidity, our cash and cash equivalents at March 31, 2025 was $32.6 million, as compared to $37.6 million at December 31, 2024. For Q1, 2025, net cash used in operating activities was $4.9 million. Cash used in operating activities was primarily driven by an $8.1 million increase in net working capital, specifically in inventory and accounts receivable related to our light duty business. Net cash provided by investment activities was $2.7 million for the quarter, driven by the collection of a total of $11.4 million from Cummins for holdback receivable, of which $10.5 million was allocated to the holdback, and the remainder was allocated to interest. We purchased capital assets of $3.1 million, mostly for European operations. And finally, we contributed $4.7 million into Suspiria in the quarter, representing approximately a quarter of our anticipated 2025 cash contributions to SUSPIR. Net cash used in financing activities is $3.9 million in Q1 of 2025. This is due to payments on our long-term credit facilities. This is compared to $17.7 million in the prior year period as we had higher payments related to the revolving financing facility that was closed in November of 24. We've had a strong start to 2025 and truly believe that the proposed divestiture transaction will shift our business in the right direction while allowing us to follow through our commitment to strengthening the balance sheet as well as continue to develop the HPDI and high-pressure controls and systems segments. With that, I'll pass the call back to Dan.