Today's News

Vancouver, BC, March 15, 2022--(T-Net)--Westport Fuel Systems Inc. (TSX:WPRT / Nasdaq:WPRT) today reported financial results for the fourth quarter and year ended December 31, 2021, and provided an update on operations. All figures are in U.S. dollars unless otherwise stated.

FOURTH QUARTER 2021 HIGHLIGHTS

• Revenue of $82.7 million, a decrease of 1% over the same period last year, reflecting manufacturing delays caused by the shortage of semiconductors in our heavy and light-duty businesses
  
  
• Net income of $5.3 million or $0.03 per share; Adjusted EBITDA1 was $10.0 million, or a $1.9 million improvement year-over-year
  
  
• Completed refinancing of $20 million Term Loan from Export Development Canada

FULL-YEAR 2021 HIGHLIGHTS

• Revenue of $312.4 million, up 24% vs. 2020 due to the continued recovery of sales volumes in our Original Equipment Manufacturer ("OEM") and Independent Aftermarket (" IAM") businesses
• Net income of $13.7 million, or $0.09 per share, compared to a net loss of $7.4 million in the prior year and Adjusted EBITDA1 of $17.5 million, compared to $14.7 million in the prior year
• Announced a project with truck and bus manufacturer, Scania to apply HPDI 2.0 with hydrogen to the latest Scania commercial vehicle engine
• Announced a collaboration with Tupy and AVL to develop a highly efficient hydrogen internal combustion engine using HPDI 2.0 for commercial vehicle applications
• Completed the acquisition of Stako s.p. z.o.o ("Stako"), a world-leading manufacturer of Liquified Petroleum Gas Fuel Storage for a total purchase price of $7.1 million
• Awarded a tender issued by NAFTAL for the supply of 60,000 liquefied petroleum gas systems
• Completed an over-subscribed equity offering for net proceeds of $120.7 million, further strengthening the company's balance sheet
• Completed the refinancing of a $20.0 million Term Loan from Export Development Canada
• Attributable Cummins Westport Inc. ("CWI") net income of $33.0 million. On February 7, 2022, we agreed to sell 100% of our shares in CWI to Cummins Inc. for proceeds of approximately $22.2 million, along with our interest in the joint venture's intellectual property for an additional $20.0 million. We received proceeds of $31.4 million, net of a $10.8 million holdback, after the closing date.

1Adjusted EBITDA is a non-GAAP financial measures. Refer to section 'GAAP and Non-GAAP Financial Measures' for the reconciliation.

(1) This includes income primarily from our Cummins Westport Inc. ("CWI"), Minda Westport and Westport Weichai Inc. joint ventures.
(2) These financial measures and ratios are non-GAAP measures. Please refer to GAAP and NON-GAAP FINANCIAL MEASURES for the reconciliation.

4Q21 AND FULL-YEAR 2021 OPERATIONS

Westport generated revenues of $82.7 million and $312.4 million in 4Q21 and FY 2021, compared to $83.9 million and $252.5 million for 4Q20 and FY 2020, respectively. Revenues for the full year 2021 increased 24% due to the continued recovery of sales volumes in our OEM and IAM businesses and the addition of $13.8 million in revenue from our recently acquired fuel storage business.

Consolidated net income for 4Q21 was $5.3 million, resulting in earnings of $0.03 per share, compared to net income of $4.1 million, or $0.03 per share, for the same period in 2020.

Westport reported net income of $13.7 million for the year ended December 31, 2021, compared to net loss of $7.4 million for the prior year. The improvement in net income was driven primarily by increases in gross margin of $8.7 million from higher sales volumes, an income tax recovery of $8.1 million compared to an income tax expense of $1.4 million in the prior year and a bargain purchase gain of $5.9 million from the acquisition of Stako.

The company reported $17.5 million Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA"), see "Non-GAAP Measures" section in the MD&A) during the year ended December 31, 2021, compared to $14.7 million in the prior year.

David M. Johnson, Chief Executive Officer, Westport Fuel Systems

"Westport delivered record annual revenue in 2021 despite customer demand constrained by the effects of lingering COVID restrictions, supply chain shortages and other disruptions that our global industry faces. Our acquisition of Stako contributed strongly to our 2021 performance, and importantly, expanded our product portfolio and manufacturing capabilities. Balance sheet and organizational improvements completed during the year position us well to achieve our mid-and long-term goals. The gross margin pressure we faced in 2021 will be addressed by the economies of scale that will result from continued and accelerating growth. Increasing demand will lead to higher production and sales that drive profitability improvement.

This is our decade. The world needs and demands clean affordable transportation. Westport Fuel Systems' solutions are available now. I'm confident that our committed global team will drive our growth and profitability in the years ahead". said David M. Johnson, Chief Executive Officer.

SEGMENT INFORMATION

Original Equipment Manufacturer Segment

Original Equipment Manufacturer ("OEM") revenue for the three months and year ended December 31, 2021, was $57.4 million and $195.5 million, respectively, compared with $58.8 million and $149.6 million for the three months and year ended December 31, 2020. OEM revenue decreased by $1.4 million in the current quarter reflecting the manufacturing delays caused by the shortage of semiconductors in our heavy and light-duty businesses, and the effect of year-over-year price decreases in components sold to our initial OEM launch partner. Revenue for the OEM business segment increased by $45.9 million for the year. The increase in the year was mainly due to the higher light-duty OEM sales volumes, particularly sales to Indian and Russian OEMs, and $13.8 million of additional revenue from the fuel storage business.

Independent Aftermarket Segment

Revenue for the three months and year ended December 31, 2021, was $25.3 million and $116.9 million, respectively, compared with $25.1 million and $102.9 million for the three months and year ended December 31, 2020. Revenue for the three months and year ended December 31, 2021, for the IAM business segment increased by $0.2 million and $14.0 million, respectively, primarily due to growth in the African and South American markets, consistent year-over-year sales in western Europe was offset by softness in demand from the Russian and Turkish markets due to the rapid increase in LPG prices. We expect to see continued improvement in revenues from the IAM business segment for the full year of 2022, but temper expectations in the near term due to the elevated LPG prices in our key markets.

CUMMINS WESTPORT INC.

Revenue for 4Q21 increased by $15.7 million to $111.7 million, or 16% over the same period last year. Unit sales were higher for Q4 2021 compared to the prior year due to the timing of sales from the slowdown in Q3 2021 due to supply chain issues. Gross margin for 4Q21 increased by $10.7 million to $39.2 million, or 35% of revenue from $28.5 million or 30% of revenue in the prior-year quarter. The increase in gross margin percentage from 30 to 35% of revenue was largely driven by increases in sales volume of high-margin parts revenue.

The following tables sets forth a summary of the financial results of CWI for the years ended December 31, 2021, and 2020, and three months ended December 31, 2021, and 2020.

Outlook

Strategy

The market dynamics and global trends impacting the continued adoption of alternative fuel systems and components for transportation applications have shaped our corporate strategy to realize the opportunities ahead for Westport Fuel Systems. The foundation of our strategic pillars is based on the continued strengthening of our organizational capability and a focus on operational excellence. Our people are at the heart of what we do. We leverage technology to turn data into insights, driving smart decisions and accelerating sustainable, principled growth. We strive to deliver valuable, impactful products and services to customers around the world, enabling a collective contribution to a decarbonized transportation sector.

Westport's strategy to leverage innovation and technology to grow their  business as a leading Tier 1 supplier towards sustainable profitability is based on the following pillars:

1. Principled Growth Realized through a Diverse Portfolio of Technology, Products, and Services

Our diverse portfolio of technology, products, and services are sold today under a wide range of established brands. They provide the foundation for sustainable growth in existing markets and guide our expansion into new and emerging markets around the world.

• Responsibly achieve sustainable profitability in businesses focused on growth in key markets - Europe, India, North America and China - to satisfy the demand for clean, low emissions transportation with our diverse portfolio of technology solutions for low carbon gaseous fuels
• Complement our growth and scale efficiencies through strategic merger and acquisition ("M&A") and corporate development activities

2. Quality and Reliability will drive our reputation as a Leading Tier I Supplier

We strive for operational excellence in our approach to manufacturing and supply chain management. The goal to achieve greater profitability is also predicated on our ability to enhance quality, production efficiency, and reliability that fosters strong long-term partnerships with OEMs, distributors, and customers. This is accomplished in line with our focus on our ESG goals.

• Aim to reduce GHG emissions throughout the value chain while embedding these efforts in our day-to-day business
• Adherence to the WFS Quality Management System across all global operations, validated by requisite ISO certifications
• Improving our business processes and interactions within our ESG framework to guide our actions and improvements

3. Deliver clean, affordable transportation solutions through our innovation & technology that power a cleaner future

Investing in innovation and delivering new technology to the market is a critical aspect to our future growth and building opportunities in our business that address global trends impacting the evolution and diversification of sustainable transportation fuel alternatives. This includes, but is not limited to, advancing our HPDI™ fuel system, including Westport's HPDI 3.0™ fuel system and hydrogen-fuelled H2 HPDI™ fuel system and advancements in our direct injection aftermarket technologies.

• Provide customers with the ability to preserve investments in capital and manufacturing infrastructure while achieving the goal of reducing their carbon footprint with Westport's H2 HPDI fuel system, and seamlessly integrated engineering services
• Strengthen our product portfolio by identifying and addressing strategic opportunities for growth that complements our business and our technology

2022

The long-term growth potential of our HPDI technology in Heavy-Duty commercial vehicles and our diversified portfolio of gaseous fuel systems and components is poised to capture a share of the global transition to cleaner transportation, especially in promising markets like India.

However, against the current backdrop of supply chain disruptions that continue to challenge the automotive industry and the recent volatility in fuel prices, we are not providing quantitative guidance on revenues or profitability for 2022. Since the fourth quarter of 2021, we have observed softness in demand caused by the continued uncertainty of the elevated prices of gaseous fuels relative to diesel and gasoline. At this time, we are uncertain as to the duration of the price fluctuations and their impact on sales volumes but remain cautiously optimistic that price differentials will return to historically normal ranges in the long term.

The Russia-Ukraine Conflict

We conduct a substantial portion (10 to 15%) of our LD OEM and IAM businesses in Russia by selling our products to numerous OEMs and other IAM customers. This Russian business has been a growing and important market for gaseous fuel systems and components. Due to the Russian invasion of Ukraine in late February 2022, the United States, European Union, Canada and other Western countries and organizations have announced and enacted numerous sanctions against Russia to impose severe economic pressure on the Russian economy and government.

Potential consequences of the sanctions that could impact our business in Russia include but are not limited to: (1) limiting and/or banning the use of the SWIFT financial and payment system by Russian entities to buy and pay for our products; (2) devaluation of the Ruble and the related impact on applicable exchange rates to negatively impact the competitiveness of our products; (3) government-owned entities (or partially owned entities) being potentially limited by sanctions from purchasing our products; and (4) a general deterioration of the Russian economy which may limit the ability for end customers to purchase our products.

The full impact of the commercial and economic consequences of the conflict are uncertain at this time, and we cannot provide assurance that future developments in the Russian-Ukraine conflict would not have an adverse impact on the ongoing operations and financial condition of our business in Russia.

FINANCIAL STATEMENTS & MANAGEMENT'S DISCUSSION AND ANALYSIS

To view WFS full financials for the fourth quarter and year ended December 31, 2021, please visit https://investors.wfsinc.com/financials/

About Westport Fuel Systems

Westport Fuel Systems is driving innovation to power a cleaner tomorrow. The Company is a leading supplier of advanced fuel delivery components and systems for clean, low-carbon fuels such as natural gas, renewable natural gas, propane, and hydrogen to the global automotive industry. Westport Fuel Systems' technology delivers the performance and fuel efficiency required by transportation applications and the environmental benefits that address climate change and urban air quality challenges. Headquartered in Vancouver, Canada, with operations in Europe, Asia, North America and South America, the Company serves customers in more than 70 countries with leading global transportation brands.