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Westport Reports Fourth Quarter and Fiscal 2014 Financial Results
Tuesday, March 10, 2015Company Profile | Careers | Follow Company
~ Global Market Grows Year-over-Year for Natural Gas Vehicles; Cummins Westport Posts Record Year for Revenue; Weichai Westport Posts Record Year for Revenue and Net Income; Westport Total Segments Revenue Exceeds $1 Billion ~
Vancouver, BC, March 10, 2015--(T-Net)--Westport Innovations Inc. (TSX:WPT / NASDAQ:WPRT), developers of advanced natural gas engines and systems, today reported financial results for the fourth quarter and year ended December 31, 2014 and provided an update on operations.
All figures are in U.S. dollars unless otherwise stated.
Westport believes 2014 was a transformational year, cementing its position as the dominant player and technology leader in an expanding global market.
For the first time, Westport's total segments revenue exceeded $1 billion; a significant milestone for both Westport and the natural gas engine and vehicle industry. This establishes natural gas as a global industry with a resilient ecosystem of engine, vehicles, and system providers with the associated service/support, and maintenance capabilities required for a new transportation fuel.
Despite this, observations of "slower than expected market uptake" have been raised about the state of the global natural gas vehicle market.
The sudden and dramatic decline in global oil prices in the second half of 2014 caught most by surprise. While this volatility has created challenges in some markets and segments, in most parts of the world, the favourable price differential between natural gas and conventional fuels remains intact.
The economic fundamentals of natural gas versus petroleum-based fuels are expected to remain strong even though lower and volatile oil prices are exerting pressure. Original Equipment Manufacturers (OEMs) have new natural gas products in development and the global network of fueling infrastructure continues to expand.
Fourth Quarter and Fiscal Year 2014 Highlights
Revenue & Net Results
"Despite volatile energy markets in 2014, market interest in alternative fuels continues to grow in many parts of the world," said David Demers, CEO of Westport. "Achieving over $1 billion in sales in 2014 highlights the dramatic growth in our market presence and prospects going forward, with 55% CAGR over the past five years. Our joint ventures posted record annual revenue with over 61,000 combined units sold during the year, representing approximately 2.7% of the global medium- and heavy-duty on-road engines sold in 2014. Development of our HPDI 2.0 heavy duty vehicle products also made strong progress with development partners such as Delphi."
"Given current energy market and global economic volatility, we took significant steps in 2014 to advance our business model as we shift from many years of market creation and product demonstrations to full commercial operation and profitability. Q4 2014 saw us rapidly re-prioritize investment programs and reduce strategic investments resulting in a roughly 40% reduction going into 2015. We have prioritized investments and product development efforts to maximize our near term success by focusing on those markets that have the conditions needed for the adoption of natural gas and where we have tangible partner commitments. Some segments and applications like transit and refuse in North America, trucks and buses in China, and taxis and urban delivery vehicles in Europe and South America are already shifting from niche to mainstream."
"Our operating business units and joint ventures are all positioned for improved bottom line profitability in 2015, and if markets stabilize and recover, we should see strong leverage to the upside. That said, we remain committed to our strategic investment in HPDI 2.0 products and expect 2015 to be a breakthrough year for OEM commitments to HPDI 2.0 as the technology platform for their heavy-duty natural gas products."
"We made our commitment to company-wide adjusted EBITDA by the end of 2015 during a time of higher energy prices and stable demand growth. While confident in the variables that we can control, Q4 2014 has injected more risk and uncertainty from forces we do not control into our plans. We remain committed to the goal of consolidated positive cash flow from our global operations, and joint ventures by improving sales of existing products, maintaining a tight control of expenses and investments, completing our product development commitments for future products, reducing our core cash burn rate, and unlocking greater value from our joint ventures."
Four Key Components to Westport Strategy in 2015
Q4 2014 Business Highlights
Cash and Prioritization of Investments
Adjusted EBITDA (The reconciliation of Adjusted EBITDA is described below)
Westport is focused on improving its operational adjusted EBITDA contributions despite economic headwinds, and successfully completing the first commercial development of HPDI 2.0 vehicles with launch OEM customers. The path to breakeven for Westport has stronger headwinds now than when it was originally proposed in 2013, however, Westport is controlling what it can—rationalizing businesses, development programs, and technology investments—while looking for opportunities for incremental sales.
Westport's current forecast for reaching consolidated breakeven (using adjusted EBITDA as a metric) is now mid-2016, with the following catalysts for earlier success:
Adjusted EBITDA Bridge from Q4 2014*
($ in millions) | Three Months Ended December 31, 2014 |
Catalysts to Improve 2015 Results |
Adjusted EBITDA Loss from Operations | $ (11.6) | • Expected to return to positive adjusted EBITDA from operations in 2015 • Geographic expansion of Westport's products |
Corporate & Technology Investments | (22.8) | • Deferral of non-core programs; associated reduction in expenses of 20% to 30% • Completion of program results in shift from investment to revenue |
Income from unconsolidated joint ventures | 11.4 | • Stronger sales • CWI warranty performance and recovery of over-accruals |
Consolidated Adjusted EBITDA | $ (23.0) |
*Adjusted EBITDA reconciliation is described below. |
Financial Outlook for 2015
With continued uncertainty in global energy markets, and due to fluctuations in exchange rates, 2015 topline revenue forecasts are quite uncertain today. Nevertheless, Westport is forecasting modest growth in some markets and expects total segments revenue of approximately $1.1 billion for Westport Operations and joint ventures for the year ended December 31, 2015. Westport expects CWI to have modest revenue growth year-over-year due to the current energy prices; however the net income to Westport in fiscal year 2015 would improve as a result of identifying and resolving warranty issues associated with the Cummins Westport 8.9L ISL G. WWI is expected to see continued growth. Revenue from Westport Operations is expected to be between $110 million and $125 million, primarily due to currency fluctuations, volatility in US gasoline prices and continued economic uncertainty in Europe, offset by opportunities in new markets. Westport is able to provide revenue outlook for Westport Operations but will refrain from a specific revenue number on each of the joint venture for competitive reasons.
The following conditions affect the revenue outlook for 2015:
Fourth Quarter and Fiscal Year 2014 Financial Highlights
Three Months Ended December 31, |
% Change Better/ (Worse) |
Year ended December 31, | % Change Better/ (Worse) |
|||
($ in millions, except per share amounts) | 2014 | 2013 | 2014 | 2013 | ||
Consolidated revenues | $ 27.4 | $ 52.6 | (48%) | $ 130.6 | $ 164.0 | (20%) |
Consolidated gross margin | (1.2) | (17.0) | 93% | 32.7 | 15.3 | 114% |
Consolidated gross margin percentage | (4.4%) | (32.3%) | - | 25.0% | 9.3% | - |
Operating expenses (Research and development, general and administrative and sales and marketing) |
34.9 | 39.2 | 11% | 142.2 | 166.3 | 14% |
Income from unconsolidated joint ventures | 11.4 | 3.5 | 226% | 14.2 | 13.4 | 6% |
Consolidated adjusted EBITDA (The reconciliation of adjusted EBITDA is described below) |
(23.0) | (23.2) | 1% | (83.9) | (96.9) | 13% |
Cash and short-term investments balance | 94.0 | 210.6 | (55%) | 94.0 | 210.6 | (55%) |
Net loss | (64.9) | (89.5) | 27% | (149.6) | (185.4) | 19% |
Net loss per share | (1.02) | (1.42) | 28% | (2.37) | (3.22) | 26% |
Westport Operations Highlights
Business Units Adjusted EBITDA*
Three Months Ended | |||||||||||||||||||
($ in millions) | December 31, 2014 | September 30, 2014 | June 30, 2014 | March 31, 2014 | |||||||||||||||
Applied Technologies | $ | (3.4) | $ | (2.0) | $ | 2.2 | $ | 0.1 | |||||||||||
On-Road Systems | (7.8) | (2.6) | (0.6) | (1.2) | |||||||||||||||
Off-Road Systems | (0.4) | (0.8) | (0.6) | (0.5) | |||||||||||||||
Westport Operations Adjusted EBITDA | $ | (11.6) | $ | (5.4) | $1.0 | $ | (1.6) | ||||||||||||
Corporate and Technology Investments | (22.8) | (18.7) | (19.0) | (20.1) | |||||||||||||||
Westport's Share of Income from the Joint Ventures | 11.4 | 2.1 | 1.1 | (0.4) | |||||||||||||||
Consolidated Adjusted EBITDA | $ | (23.0) | $ | (22.0) | $ | (17.0) | $ | (22.1) |
*Adjusted EBITDA reconciliation is described below. |
Applied Technologies, On-Road Systems, and Off-Road Systems
Cummins Westport Inc. Highlights
Three Months Ended December 31, |
% Change Better/ (Worse) |
Year Ended December 31, | % Change Better/ (Worse) |
|||
($ in millions) | 2014 | 2013 | 2014 | 2013 | ||
Units | 3,382 | 3,876 | (13%) | 10,512 | 10,314 | 2% |
Revenue | $ 107.0 | $ 110.5 | (3%) | $ 337.2 | $ 310.7 | 9% |
Gross margin | 33.0 | 13.8 | 139% | 66.4 | 64.2 | 3% |
Gross margin percentage | 30.8% | 12.5% | - | 19.7% | 20.7% | - |
Operating expenses | 12.2 | 10.1 | (21%) | 44.8 | 40.7 | (10%) |
Segment operating income | 20.8 | 3.7 | 462% | 21.6 | 23.5 | (8%) |
Net income to Westport | 7.7 | 2.8 | 175% | 8.1 | 9.4 | (14%) |
Weichai Westport Inc. Highlights
Three Months Ended December 31, |
% Change Better/ (Worse) |
Year Ended December 31, | % Change Better/ (Worse) |
|||
($ in millions) | 2014 | 2013 | 2014 | 2013 | ||
Units | 16,176 | 8,119 | 99% | 51,006 | 38,138 | 34% |
Revenue | $ 192.8 | $ 93.6 | 106% | $ 618.5 | $ 466.6 | 33% |
Gross margin | 28.5 | 9.6 | 197% | 52.5 | 37.3 | 41% |
Gross margin percentage | 14.8% | 10.3% | - | 8.5% | 8.0% | - |
Operating expenses | 16.3 | 7.2 | 126% | 32.2 | 22.8 | 41% |
Segment operating income | 12.2 | 2.4 | 408% | 20.3 | 14.5 | 40% |
Westport's 35% interest | 3.6 | 0.6 | 500% | 6.0 | 4.3 | 40% |
New Segment Presentation Format for 2015
As Westport narrows the focus within certain business units and defers certain products and related programs, it makes sense to combine operational business units into one "Operations" reporting unit and properly reflect the nature of Westport's own product and systems revenue. As of January 1, 2015, Westport plans to report the total for the Applied Technologies, On-Road Systems, and Off-Road Systems segments as "Westport Operations". Westport will continue to report Corporate and Technology Investments and the two major joint ventures as separate segments.
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 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 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 GAAP results and using Adjusted EBITDA only supplementally.
Three Months Ended | Year Ended | ||||||||||||||||||
December 31, | December 31, | ||||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||||
Net loss | $ | (64.9) | $ | (89.5) | $ | (149.6) | $ | (185.4) | |||||||||||
Provision for income taxes | (0.2) | - | (0.6) | 0.9 | |||||||||||||||
Depreciation and amortization | 5.1 | 4.6 | 18.7 | 16.3 | |||||||||||||||
Interest expense, net | 2.5 | 0.7 | 5.7 | 4.4 | |||||||||||||||
Non-cash and other unusual adjustments | 35.4 | 67.8 | 35.7 | 67.8 | |||||||||||||||
Amortization of stock-based compensation | 0.0 | 3.3 | 9.6 | 14.3 | |||||||||||||||
Unrealized foreign exchange (gain) loss | (0.9) | (10.1) | (3.4) | (15.2) | |||||||||||||||
Adjusted EBITDA | $ | (23.0) | $ | (23.2) | $ | (83.9) | $ | (96.9) |
For the three months ended December 31, 2014 | |||||||||||||||||||||
Adjustments | |||||||||||||||||||||
($ in millions) | Segment operating income (loss) |
Westport's Share of Income from the JVs |
Stock- and incentive-based compensation and non-cash adjustments |
Adjusted EBITDA |
|||||||||||||||||
Operating Business Units | $ | (11.2) | - | $ | (0.4) | $ | (11.6) | ||||||||||||||
Corporate and Technology Investments | (23.3) | 11.4 | 0.5 | (11.4) | |||||||||||||||||
For the three months ended September 30, 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 | $ | (6.4) | $ | - | $ | 1.0 | $ | (5.4) | |||||||||||||
Corporate and Technology Investments | (18.7) | 2.1 | - | (16.6) | |||||||||||||||||
For the three months ended June 30, 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 | $ | (0.3) | $ | - | $ | 1.3 | $ | 1.0 | |||||||||||||
Corporate and Technology Investments | (21.0) | 1.1 | 2.0 | (17.9) | |||||||||||||||||
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) |
Outlook
This press release includes financial outlook information for Westport and such information is being provided for the purpose of forecasting Westport's total revenues for 2015 and updating prior revenue disclosure and may not be appropriate for, and should not be relied upon for, other purposes.
Financial Statements & Management's Discussion and Analysis
To view Westport's full financials for the year ended December 31, 2014, please point your browser to the following link: http://www.westport.com/company/investors/financial
Supplementary Financial Information
To view unaudited historical financial information, please visit our Financial Information page. Westport is providing this supplement as a guide to Westport's financial information in a quick reference format and it should be read in conjunction with Westport's full financials for the quarter ended December 31, 2014 and Westport's full financials for the year ended December 31, 2014. The Supplementary Financial Information contains previously undisclosed quarterly unaudited historical financial information based on the most recent reporting structure that was implemented in the fourth quarter of 2013 and is being provided in order to allow readers to better reconcile such information with the prior reporting structure.
2015 Annual Meeting of Shareholders
The Westport 2015 Annual & Special Meeting of Shareholders will be held on Thursday, April 30, 2015 at 2:00 pm (Pacific Time) at 1750 West 75 Avenue, Suite 101, Vancouver, British Columbia.
About Westport Innovations Inc.
Westport engineers the world's most advanced natural gas engines and vehicles. More than that, we are fundamentally changing the way the world travels the roads, rails and seas. We work with original equipment manufacturers (OEMs) worldwide from design through to production, creating products to meet the growing demand for vehicle technology that will reduce both emissions and fuel costs. To learn more about our business, visit westport.com.
Forward-looking Statements
This press release contains forward-looking statements, including statements regarding the anticipated timing for Westport's operating business units and consolidated business to be Adjusted EBITDA positive, revenue expectations, the effect of the recent reorganization and restructuring of our business, timing for breakeven of the Ford QVM business, future of our development programs, timing for launch, delivery and completion of milestones related to the products referenced herein, including but not limited to the ISB6.7G natural gas engine, Westport's expected actions and results relating to the key components of its strategy in 2015, the demand for our products, the future success of our business and technology strategies, investment in new product and technology development and otherwise, cash and capital requirements, intentions of partners and potential customers, the performance and competitiveness of Westport's products and expansion of product coverage, future market opportunities, speed of adoption of natural gas for transportation and terms and timing of future agreements as well as Westport management's response to any of the aforementioned factors. These statements are neither promises nor guarantees, but involve known and unknown risks and uncertainties and are based on both the views of management and assumptions that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activities, performance or achievements expressed in or implied by these forward looking statements. These risks and uncertainties include risks and assumptions related to our revenue growth, operating results, industry and products, the general economy, conditions of and access to the capital and debt markets, governmental policies and regulation, technology innovations, fluctuations in foreign exchange rates, operating expenses, the availability and price of natural gas, global government stimulus packages, the acceptance of and shift to natural gas vehicles, the relaxation or waiver of fuel emission standards, the inability of fleets to access capital or government funding to purchase natural gas vehicles, the development of competing technologies, our ability to adequately develop and deploy our technology, the actions and determinations of our joint venture and development partners, as well as other risk factors and assumptions that may affect our actual results, performance or achievements or financial position discussed in our most recent Annual Information Form and other filings with securities regulators. Readers should not place undue reliance on any such forward-looking statements, which speak only as of the date they were made. We disclaim any obligation to publicly update or revise such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in these forward looking statements except as required by National Instrument 51-102. The contents of any website, RSS feed or twitter account referenced in this press release are not incorporated by reference herein.
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