[Consolidated Financial Statements](index=1&type=section&id=Consolidated%20Financial%20Statements) This section presents the audited consolidated financial statements, including the balance sheets, statements of operations, shareholders' equity, and cash flows, along with the independent auditor's report [Report of Independent Registered Public Accounting Firm](index=2&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) KPMG LLP issued an unqualified opinion on Westport Fuel Systems Inc.'s consolidated financial statements for the years ended December 31, 2023 and 2022, stating they are presented fairly in conformity with U.S. GAAP. A separate unqualified opinion was also issued on the effectiveness of the company's internal control over financial reporting as of December 31, 2023. The auditor identified no critical audit matters - The auditor, KPMG LLP, provided an **unqualified opinion**, confirming the financial statements for 2023 and 2022 are **fairly presented** in accordance with **U.S. generally accepted accounting principles**[3](index=3&type=chunk) - The company's internal control over financial reporting as of December 31, 2023, was deemed **effective**, receiving an **unqualified opinion** from the auditor[4](index=4&type=chunk)[10](index=10&type=chunk) - The audit for the current period did not identify any **critical audit matters**, which are issues that are material and involve especially challenging, subjective, or complex judgments[7](index=7&type=chunk) [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2023, Westport Fuel Systems Inc. reported total assets of $355.7 million, a decrease from $407.5 million in 2022. Total liabilities slightly decreased to $195.3 million from $203.5 million. Consequently, total shareholders' equity declined significantly to $160.4 million from $204.0 million, primarily due to an increased accumulated deficit Consolidated Balance Sheet Summary (in thousands of USD) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $216,783 | $277,219 | | **Total Assets** | $355,748 | $407,451 | | **Total Current Liabilities** | $134,837 | $135,519 | | **Total Liabilities** | $195,300 | $203,485 | | **Total Shareholders' Equity** | $160,448 | $203,966 | - Cash and cash equivalents decreased from **$86.2 million** in 2022 to **$54.9 million** in 2023[16](index=16&type=chunk) - The accumulated deficit grew from **$(1,024.7) million** in 2022 to **$(1,074.4) million** in 2023, contributing to the reduction in shareholders' equity[16](index=16&type=chunk) [Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) For the year ended December 31, 2023, revenue increased to $331.8 million from $305.7 million in 2022. Despite higher revenue, the net loss widened to $49.7 million from $32.7 million in the prior year. The loss per share increased to $2.90 from $1.91. The 2022 results included a significant one-time gain on sale of investment of $19.1 million, which was absent in 2023 Statement of Operations Summary (in thousands of USD, except per share amounts) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | **Revenue** | $331,799 | $305,698 | | **Loss from Operations** | $(45,883) | $(50,266) | | **Net Loss** | $(49,718) | $(32,695) | | **Net Loss Per Share** | $(2.90) | $(1.91) | - Revenue grew by **8.5%** year-over-year[17](index=17&type=chunk) - The net loss in 2023 was impacted by a **$2.9 million loss on extinguishment of royalty payable**, whereas 2022 benefited from a **$19.1 million** gain on the sale of an investment[17](index=17&type=chunk) [Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) Total shareholders' equity decreased from $204.0 million at the end of 2022 to $160.4 million at the end of 2023. The decline was primarily driven by the net loss of $49.7 million for the year, which was partially offset by $4.5 million in other comprehensive income from cumulative translation adjustments Shareholders' Equity Reconciliation (in thousands of USD) | Description | Amount | | :--- | :--- | | **Balance at Dec 31, 2022** | $203,966 | | Stock-based compensation | $1,727 | | Net loss for the year | $(49,718) | | Other comprehensive income | $4,473 | | **Balance at Dec 31, 2023** | $160,448 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the year ended December 31, 2023, the company used $13.2 million in cash from operating activities, an improvement from the $34.6 million used in 2022. Cash used in investing activities was $15.4 million, while financing activities used $2.2 million. Overall, cash and cash equivalents decreased by $31.3 million, ending the year at $54.9 million Cash Flow Summary (in thousands of USD) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | **Net cash used in operating activities** | $(13,193) | $(34,615) | | **Net cash (used in) provided by investing activities** | $(15,413) | $17,647 | | **Net cash used in financing activities** | $(2,224) | $(19,423) | | **Net decrease in cash and cash equivalents** | $(31,331) | $(38,708) | | **Cash and cash equivalents, end of year** | $54,853 | $86,184 | - The improvement in operating cash flow was primarily due to **positive changes in working capital**, including a **$9.5 million** decrease in inventories and a **$5.3 million** decrease in accounts receivable[21](index=21&type=chunk) - Investing activities in 2022 were significantly boosted by **$31.4 million** in proceeds from the sale of an investment, a cash source not present in 2023[21](index=21&type=chunk) [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed disclosures and explanations for the consolidated financial statements, covering accounting policies, specific balance sheet and income statement accounts, and subsequent events [Note 1: Company organization and operations](index=9&type=section&id=1.%20Company%20organization%20and%20operations) Westport Fuel Systems Inc. is a global company that engineers, manufactures, and supplies alternative fuel systems and components for transportation. Its products enable the use of fuels like LPG, CNG, LNG, RNG, and hydrogen in various vehicle types, and are sold in over 70 countries through OEMs and aftermarket channels - The company focuses on alternative fuel systems and components for fuels such as LPG, CNG, LNG, RNG, and hydrogen[24](index=24&type=chunk) - Products are supplied globally to over **70 countries**, serving passenger cars, trucks, and off-road applications through a network of distributors and directly to OEMs[24](index=24&type=chunk) [Note 2: Liquidity and Going Concern](index=9&type=section&id=2.%20Liquidity%20and%20Going%20Concern) Despite sustaining operating losses and negative cash flows, management has concluded that there is no substantial doubt about the company's ability to continue as a going concern for at least one year from the financial statement issuance date. The company had $54.9 million in cash at year-end 2023 and is actively managing working capital and profitability to improve cash flow. The ability to continue beyond March 2025 depends on generating positive cash flows and financing strategic objectives - Management concluded there are no conditions that raise **substantial doubt** about the Company's ability to continue as a going concern within one year[26](index=26&type=chunk) - The company continues to experience operating losses (**$45.9 million** in 2023) and negative operating cash flows (**$13.2 million** in 2023)[28](index=28&type=chunk) - As of December 31, 2023, the company had **$54.9 million** in cash and cash equivalents. A minimum cash covenant of **$15.0 million** is required under its EDC term loan[28](index=28&type=chunk) [Note 3: Significant accounting policies](index=10&type=section&id=3.%20Significant%20accounting%20policies) The financial statements are prepared under U.S. GAAP. The company's reporting currency is the U.S. Dollar, while its functional currency is the Canadian Dollar. Key policies include recognizing revenue when control of goods transfers to the customer, expensing R&D costs as incurred, testing goodwill for impairment annually, and accounting for leases by recognizing right-of-use assets and liabilities for terms over 12 months - The consolidated financial statements are presented in accordance with **U.S. GAAP**[32](index=32&type=chunk) - Revenue from product sales is recognized when the customer obtains control of the goods[44](index=44&type=chunk) - Goodwill is not amortized but is tested for **impairment** at least annually on December 31[43](index=43&type=chunk) - Stock-based compensation is measured at fair value on the grant date and expensed over the requisite service period[51](index=51&type=chunk) [Note 4: Accounts receivable](index=18&type=section&id=4.%20Accounts%20receivable) Net accounts receivable decreased to $88.1 million at the end of 2023 from $101.6 million in 2022. The decrease was primarily driven by a reduction in 'Other receivables' from $19.4 million to $6.7 million. Customer trade receivables remained relatively stable Accounts Receivable Breakdown (in thousands of USD) | Component | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Customer trade receivables | $83,175 | $82,533 | | Other receivables | $6,709 | $19,355 | | Due from related parties | $1,671 | $3,974 | | Allowance for credit losses | $(4,847) | $(5,040) | | **Total** | **$88,077** | **$101,640** | [Note 5: Inventories](index=18&type=section&id=5.%20Inventories) Inventories decreased to $67.5 million in 2023 from $81.6 million in 2022. During 2023, the company recorded a significant inventory write-down of $7.1 million, a sharp increase from $0.7 million in 2022. A major portion of the 2023 write-down ($4.5 million) was due to an engine development contract that will not be commercialized Inventory Breakdown (in thousands of USD) | Component | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Purchased parts and materials | $50,770 | $61,213 | | Work-in-progress | $2,801 | $2,423 | | Finished goods | $13,959 | $17,999 | | **Total** | **$67,530** | **$81,635** | - The company recorded inventory write-downs of **$7.1 million** in 2023, compared to only **$0.7 million** in 2022. This included a **$4.5 million** write-down from a non-commercialized engine development contract[57](index=57&type=chunk) [Note 6: Sale of investment](index=18&type=section&id=6.%20Sale%20of%20investment) In February 2022, the company sold its 100% stake in Cummins Westport Inc. (CWI) to Cummins Inc. The transaction resulted in net proceeds of $31.4 million and a pre-tax gain on sale of $19.1 million. A holdback of $10.8 million was retained by Cummins for three years to cover potential warranty obligations Gain on Sale of Investment - 2022 (in thousands of USD) | Description | Amount | | :--- | :--- | | Proceeds from sale of investment | $31,445 | | Holdback receivable | $9,713 | | Less: carrying value of investment | $(22,039) | | **Gain on sale of investment** | **$19,119** | [Note 7: Long-term investments](index=19&type=section&id=7.%20Long-term%20investments) The company's long-term investments totaled $4.8 million as of December 31, 2023, slightly up from $4.6 million in 2022. The portfolio includes interests in Weichai Westport Inc. (WWI) and Minda Westport Technologies Limited (MWTL). In 2023, an impairment loss of $413,000 was recognized on the WWI investment. The company also agreed to sell a 26% stake in MWTL to its joint venture partner, Minda - An **impairment loss** of **$413,000** was recognized on the Weichai Westport Inc. (WWI) investment in December 2023, as its fair value was assessed to be lower than its carrying amount[62](index=62&type=chunk) - The company entered into an agreement to sell a **26%** share of its **50%** interest in Minda Westport Technologies Limited (MWTL) to its partner, Uno Minda Limited[63](index=63&type=chunk) [Note 15: Long-term debt](index=24&type=section&id=15.%20Long-term%20debt) Total long-term debt, including the current portion, increased to $45.1 million in 2023 from $43.9 million in 2022. The debt portfolio consists of several term loan facilities with entities like EDC and UniCredit, other bank financing, and capital lease obligations. In 2023, the company entered into new Euro-denominated loan agreements with Banca de Credito Cooperativo, Deutsche Bank, and Rabobank totaling approximately $11.5 million. The company uses interest rate swaps to hedge against interest rate fluctuations on some of its loans Long-Term Debt Breakdown (in thousands of USD) | Component | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Term loan facilities, net | $42,879 | $41,934 | | Other bank financing | $531 | $512 | | Capital lease obligations | $1,655 | $1,416 | | **Total Long-Term Debt** | **$45,065** | **$43,862** | | Less: current portion | $(14,108) | $(11,698) | | **Long-term portion** | **$30,957** | **$32,164** | - In late 2023, the company secured three new Euro-denominated loans: **$2.2M** from Banca de Credito Cooperativo, **$7.7M** from Deutsche Bank, and **$1.5M** from Rabobank[80](index=80&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk) - The company is in compliance with all financial and non-financial covenants related to its financing arrangements as of December 31, 2023[86](index=86&type=chunk) [Note 16: Long-term royalty payable](index=26&type=section&id=16.%20Long-term%20royalty%20payable) In April 2023, the company settled and terminated its royalty payable agreement with Cartesian Capital Group. The company made a final payment of $8.7 million, which fully extinguished the liability that stood at $5.5 million at the end of 2022. This transaction resulted in a loss on extinguishment of $2.9 million and released the security interest on the company's HPDI 2.0 intellectual property - The company terminated its royalty payable agreement with Cartesian Capital Group in April 2023 by making a final payment of **$8,687 thousand**[89](index=89&type=chunk) - The settlement resulted in a recorded **loss on extinguishment** of **$2,909 thousand** and eliminated the entire royalty payable balance, which was **$5,538 thousand** at the end of 2022[89](index=89&type=chunk) [Note 18: Share capital, stock options and other stock-based plans](index=26&type=section&id=18.%20Share%20capital%2C%20stock%20options%20and%20other%20stock-based%20plans) On June 1, 2023, the company executed a 1-for-10 reverse stock split (consolidation) of its common shares. All share and per-share amounts have been retroactively adjusted. Total stock-based compensation expense recognized in 2023 was $1.7 million. During the year, 435,128 new share units (RSUs, PSUs, DSUs) were granted to directors, executives, and employees - The company completed a **1-for-10 reverse stock split** of its common shares on June 1, 2023. All share data has been retroactively adjusted[91](index=91&type=chunk) - Total stock-based compensation expense for 2023 was **$1,727 thousand**, compared to **$2,066 thousand** in 2022[95](index=95&type=chunk) Continuity of Share Units | Description | Number of Units (2023) | Number of Units (2022) | | :--- | :--- | :--- | | Outstanding, beginning of year | 317,432 | 186,643 | | Granted | 435,128 | 254,109 | | Vested and exercised | (44,186) | (50,384) | | Forfeited/expired | (229,731) | (72,936) | | **Outstanding, end of year** | **478,643** | **317,432** | [Note 19: Income taxes](index=30&type=section&id=19.%20Income%20taxes) The company recorded an income tax expense of $1.0 million in 2023 on a pre-tax loss of $48.7 million, resulting in an effective tax rate that differs significantly from the Canadian statutory rate of 27%. The difference is mainly due to changes in the valuation allowance ($9.5 million) and expired losses ($1.4 million). The company holds significant deferred tax assets of $280.1 million, primarily from net loss carry-forwards, but has a valuation allowance of $268.6 million against them - The company has net loss carry-forwards totaling **$778.5 million** available to offset future taxable income in various jurisdictions, with the majority having long-term or indefinite expiration dates[106](index=106&type=chunk) Net Deferred Tax Assets (in thousands of USD) | Component | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total gross deferred income tax assets | $280,131 | $259,669 | | Valuation allowance | $(268,577) | $(249,239) | | **Total deferred income tax assets** | **$11,554** | **$10,430** | - As of December 31, 2023, the company had **$5.6 million** in uncertain tax benefits, which, if recognized, would affect the effective tax rate[109](index=109&type=chunk) [Note 22: Segment information](index=34&type=section&id=22.%20Segment%20information) The company operates through three segments: OEM, Independent Aftermarket (IAM), and Corporate. In 2023, the OEM segment generated $222.7 million in revenue but had an operating loss of $31.2 million. The IAM segment had revenue of $109.1 million and operating income of $2.6 million. Geographically, Europe is the largest market, accounting for 70% of total revenue in 2023, up from 64% in 2022 Segment Performance - 2023 (in thousands of USD) | Segment | Revenue | Operating Income (Loss) | | :--- | :--- | :--- | | OEM | $222,741 | $(31,222) | | IAM | $109,058 | $2,583 | | Corporate | — | $(17,244) | | **Total** | **$331,799** | **$(45,883)** | Revenue by Geographic Region | Region | % of Total Revenue (2023) | % of Total Revenue (2022) | | :--- | :--- | :--- | | Europe | 70% | 64% | | Americas | 13% | 12% | | Asia | 10% | 15% | | Africa | 3% | 5% | | Other | 4% | 4% | - A single OEM launch partner accounted for **16%** of total revenue (**$53.7 million**) in 2023, up from **14%** (**$43.3 million**) in 2022[114](index=114&type=chunk) [Note 23: Financial instruments](index=36&type=section&id=23.%20Financial%20instruments) The company is exposed to liquidity, credit, foreign currency, and interest rate risks. Liquidity risk is managed despite a history of losses, with $54.9 million in cash at year-end. Credit risk is managed by diversifying investments and reviewing customer credit. Foreign currency risk arises from conducting business in multiple currencies, primarily the U.S. dollar and Euro. Interest rate risk on variable-rate debt is mitigated through the use of interest rate swaps - The company has a history of losses and negative cash flows, posing a liquidity risk. As of Dec 31, 2023, it has **$54.9 million** in cash and cash equivalents[120](index=120&type=chunk) - A hypothetical **200 basis point (2%)** increase/decrease in interest rates would have impacted the 2023 net loss by approximately **$0.7 million**[128](index=128&type=chunk) - A hypothetical **5%** increase/decrease in the U.S. dollar's value against the Canadian dollar and Euro would have impacted the 2023 income from operations by approximately **$0.1 million**[126](index=126&type=chunk) [Note 24: Subsequent Events](index=39&type=section&id=24.%20Subsequent%20Events) Subsequent to year-end, the company entered into significant agreements. In January 2024, it secured a new Euro-denominated loan of $3.8 million from UniCredit. More notably, in March 2024, it signed agreements with the Volvo Group to establish a joint venture (JV) for its HPDI™ fuel system technology. Volvo will acquire a 45% interest in the JV for an initial $28.4 million. This transaction is expected to have a material impact on future financial statements - On March 11, 2024, the company entered into agreements with the Volvo Group to form a joint venture (JV) focused on HPDI™ technology. Volvo will acquire a **45%** interest for an initial consideration of **$28.35 million**[136](index=136&type=chunk) - The formation of the HPDI joint venture with Volvo is expected to have a **material impact** on the company's future financial position, results of operations, and cash flows[138](index=138&type=chunk) - On January 10, 2024, the company secured an additional Euro-denominated loan of **$3.8 million** from UniCredit, maturing in 2028[135](index=135&type=chunk)

Financial Performance - Westport reported a net loss of $11.9 million for Q3 2023, consistent with the same quarter last year[12]. - Revenues increased by 9% to $77.4 million in Q3 2023, compared to $71.2 million in Q3 2022, driven by higher sales volumes in delayed OEM, electronics, and fuel storage[15]. - Adjusted EBITDA improved to negative $3.0 million in Q3 2023 from negative $4.5 million in Q3 2022, reflecting a 33% improvement[13]. - Gross margin increased by 17% to $13.2 million in Q3 2023, up from $11.3 million in Q3 2022, with gross margin percentage rising to 17%[13]. - Revenue for Q3 2023 was $77.4 million, an increase of 8.5% compared to $71.2 million in Q3 2022[35]. - Net loss for Q3 2023 was $11.9 million, slightly higher than the net loss of $11.9 million in Q3 2022[35]. - Adjusted EBITDA improved to $(3.0) million in Q3 2023 from $(4.5) million in Q2 2023[31]. - The company reported a comprehensive loss of $8.5 million for Q3 2023, compared to a comprehensive loss of $17.4 million in Q3 2022[35]. Segment Performance - The OEM segment revenue for Q3 2023 was $52.9 million, an increase from $44.1 million in Q3 2022, primarily due to higher sales volumes[19]. - The IAM segment revenue decreased to $24.5 million in Q3 2023 from $27.1 million in Q3 2022, attributed to lower sales volumes in Africa and Europe[22]. Cash and Assets - Cash and cash equivalents stood at $44.0 million at the end of Q3 2023[12]. - Total current assets decreased to $227.9 million as of September 30, 2023, down from $277.2 million at the end of 2022[33]. - Cash and cash equivalents, including restricted cash, were $43.97 million as of September 30, 2023, down from $86.18 million at the end of 2022[33]. - Total liabilities decreased to $184.3 million as of September 30, 2023, compared to $203.5 million at the end of 2022[33]. Research and Development - Research and development expenses for Q3 2023 were $5.7 million, a decrease from $6.5 million in Q3 2022[35]. Strategic Initiatives - Westport is reorganizing its partnership with Minda in India, reducing its stake from 50% to 24% for approximately $1.8 million, expected to close by the end of Q1 2024[12]. - The company anticipates improved profitability through the amended joint venture agreement, which will include future hydrogen components[12]. Shareholder Information - The weighted average common shares outstanding increased to 17.67 million in Q3 2023 from 17.12 million in Q3 2022[35]. Other Expenses - The company incurred severance costs of $4.5 million in Q3 2023[31].

[Financial & Operational Highlights](index=1&type=section&id=Financial%20%26%20Operational%20Highlights) Westport achieved record quarterly revenue of $85.0 million with improved gross margin, despite a net loss, driven by strategic advancements in HPDI technology and expanded LPG programs - Revenue growth was driven by increased sales in delayed OEM, electronics, fuel storage, and IAM businesses in Eastern Europe and South America, but was partially offset by lower sales in India's light-duty OEM business and reduced volumes in hydrogen and heavy-duty OEM businesses[2](index=2&type=chunk)[10](index=10&type=chunk) - Signed a non-binding letter of intent with Volvo to establish a joint venture to accelerate the commercialization of Westport's HPDI™ fuel system technology for long-haul and off-road applications[5](index=5&type=chunk)[8](index=8&type=chunk) - Expanded a Euro 7 program to supply LPG fuel systems for a global OEM, which is now forecasted to generate **€63 million** in revenue from 2025-2028, bringing the total revenue from LPG supply agreements with this OEM to approximately **€255 million**[8](index=8&type=chunk) - Completed a 10:1 share consolidation and settled with Cartesian Capital Group, extinguishing a long-term royalty payable for **$8.7 million** and releasing the security interest in HPDI 2.0 IP[2](index=2&type=chunk) Q2 2023 Key Financial Metrics | Metric | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $85.0M | $80.0M | +6% | | Gross Margin | $14.4M (16.9%) | $10.5M (13.1%) | +$3.9M | | Net Loss | $(13.2)M | $(11.6)M | +$1.6M | | Adjusted EBITDA | $(4.0)M | $(4.3)M | +$0.3M | [CEO Commentary & Outlook](index=2&type=section&id=CEO%20Commentary%20%26%20Outlook) The CEO emphasized solid first-half results and the strategic importance of the Volvo joint venture, anticipating improved performance in H2 2023 driven by new LPG fuel system production and growing demand - Despite expected lower HPDI sales volumes due to a model changeover, the company achieved record revenues and improving gross margins in Q2[4](index=4&type=chunk) - The joint venture with Volvo is described as a 'true inflection point' for Westport, validating its HPDI technology and providing it a global audience for decarbonizing long-haul transport[5](index=5&type=chunk) - The second half of 2023 will see the start of LPG fuel system production and sales to a global OEM, with an expanded Euro 7 scope, driven by the price advantage of LPG over petrol[6](index=6&type=chunk) - The company's diversified business model is positioned to perform well in H2 2023, combining sustainable core businesses with high-growth opportunities[7](index=7&type=chunk) [Consolidated Financial Performance](index=2&type=section&id=Consolidated%20Financial%20Performance) Westport's Q2 2023 revenue increased 6% to $85.0 million with improved gross margin, though net loss widened to $13.2 million due to a one-time expense, while Adjusted EBITDA slightly improved - The net loss for Q2 2023 included a one-time expense of **$2.9 million** related to the extinguishment of the Cartesian royalty payable[11](index=11&type=chunk) Consolidated Results (Q2 & 1H 2023 vs 2022) | ($ in millions, except per share) | 2Q23 | 2Q22 | % Change | 1H23 | 1H22 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $85.0 | $80.0 | 6% | $167.3 | $156.5 | 7% | | **Gross Margin** | $14.4 | $10.5 | 37% | $27.7 | $20.4 | 36% | | **Gross Margin %** | 17% | 13% | - | 17% | 13% | - | | **Net Loss** | $(13.2) | $(11.6) | (14)% | $(23.8) | $(3.9) | (510)% | | **Net Loss per Share** | $(0.77) | $(0.68) | (13)% | $(1.39) | $(0.23) | (504)% | | **Adjusted EBITDA** | $(4.0) | $(4.3) | 7% | $(8.5) | $(10.4) | 18% | [Segment Performance](index=3&type=section&id=Segment%20Performance) In Q2 2023, IAM segment revenue grew 27% to $32.6 million, while OEM revenue slightly declined to $52.4 million, leading to widened OEM operating loss and significant IAM operating income growth Segment Results (Three months ended June 30) | ($ in millions) | Revenue (2Q23) | Revenue (2Q22) | Operating Income (Loss) (2Q23) | Operating Income (Loss) (2Q22) | | :--- | :--- | :--- | :--- | :--- | | **OEM** | $52.4 | $54.3 | $(7.3) | $(5.6) | | **IAM** | $32.6 | $25.7 | $1.7 | $0.1 | | **Corporate** | — | — | $(4.6) | $(5.8) | | **Total** | $85.0 | $80.0 | $(10.2) | $(11.3) | [Original Equipment Manufacturer (OEM) Segment](index=3&type=section&id=Original%20Equipment%20Manufacturer%20%28OEM%29%20Segment) OEM segment revenue slightly decreased to $52.4 million in Q2 2023 due to lower volumes, but gross margin significantly improved to 16% driven by higher-margin sales and engineering services - The revenue decrease was primarily driven by lower sales volumes for the heavy-duty OEM business, reduced sales to customers in India, and lower volumes to hydrogen customers[13](index=13&type=chunk) - Gross margin improvement was due to higher spare parts sales, increased unit pricing on HPDI systems, and higher engineering service revenue, which offset higher production and logistics costs[15](index=15&type=chunk) - The company remains confident in the OEM outlook, citing the expanded Euro 7 business, higher volumes in delayed OEM, hydrogen growth projects, and the HPDI joint venture with Volvo[17](index=17&type=chunk) OEM Segment Financials (Q2 2023 vs Q2 2022) | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Revenue | $52.4M | $54.3M | | Gross Margin | $8.4M | $4.7M | | Gross Margin % | 16% | 9% | [Independent Aftermarket (IAM) Segment](index=4&type=section&id=Independent%20Aftermarket%20%28IAM%29%20Segment) The IAM segment showed strong Q2 2023 performance, with revenue increasing 27% to $32.6 million, driven by higher sales volumes in key regions, despite a decrease in gross margin percentage - The increase in revenue was primarily driven by higher sales volumes to Africa, Eastern Europe, and South America[19](index=19&type=chunk) IAM Segment Financials (Q2 2023 vs Q2 2022) | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Revenue | $32.6M | $25.7M | | Gross Margin | $6.0M | $5.8M | | Gross Margin % | 18% | 23% | [Financial Statements](index=6&type=section&id=Financial%20Statements) The unaudited condensed consolidated financial statements detail the company's financial position and performance, showing decreased cash, extinguished royalty payable, and a wider net loss [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2023, total assets decreased to $377.6 million, primarily due to reduced cash, while total liabilities decreased to $190.8 million, leading to a decrease in total shareholders' equity Balance Sheet Summary (in thousands) | Account | June 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $243,872 | $277,219 | | Cash and cash equivalents | $52,265 | $86,184 | | **Total Assets** | **$377,631** | **$407,451** | | **Total Current Liabilities** | $132,456 | $135,519 | | Long-term debt | $26,945 | $32,164 | | Long-term royalty payable | $0 | $4,376 | | **Total Liabilities** | **$190,773** | **$203,485** | | **Total Shareholders' Equity** | **$186,858** | **$203,966** | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q2 2023, revenue was $85.0 million, but net loss widened to $13.2 million ($0.77 per share) due to a $2.9 million royalty extinguishment loss and increased operating expenses Statement of Operations Summary (Three months ended June 30, in thousands) | Account | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $85,022 | $79,964 | | Cost of revenue | $70,653 | $69,457 | | **Gross Profit** | **$14,369** | **$10,507** | | Loss from operations | $(10,223) | $(11,325) | | Loss on extinguishment | $(2,909) | $0 | | **Net loss for the period** | **$(13,207)** | **$(11,579)** | | **Net loss per share** | **$(0.77)** | **$(0.68)** | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2023, net cash used in operating activities significantly improved to $8.6 million, while investing and financing activities led to a net decrease in cash of $33.9 million, ending with $52.3 million Cash Flow Summary (Six months ended June 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(8,628) | $(33,404) | | Net cash (used in) from investing activities | $(7,779) | $25,670 | | Net cash used in financing activities | $(18,467) | $(16,407) | | **Net decrease in cash** | **$(33,919)** | **$(26,718)** | | **Cash and cash equivalents, end of period** | **$52,265** | **$98,174** | [Non-GAAP Financial Measures Reconciliation](index=5&type=section&id=Non-GAAP%20Financial%20Measures%20Reconciliation) The company reconciles non-GAAP measures like EBITDA and Adjusted EBITDA to evaluate operational performance, with Q2 2023 net loss of $13.0 million before taxes reconciling to an Adjusted EBITDA of negative $4.0 million - Management defines Adjusted EBITDA as EBITDA from continuing operations excluding stock-based compensation, unrealized foreign exchange gain or loss, and other non-cash adjustments, used as a long-term indicator of operational performance[26](index=26&type=chunk) Adjusted EBITDA Reconciliation (Q2 2023, in millions) | Metric | Amount | | :--- | :--- | | Net loss before income taxes | $(13.0) | | Interest expense (income), net | $(0.1) | | Depreciation and amortization | $3.0 | | **EBITDA** | **$(10.1)** | | Stock based compensation | $0.8 | | Unrealized foreign exchange loss | $2.4 | | **Adjusted EBITDA** | **$(4.0)** |

Condensed Consolidated Interim Financial Statements (unaudited) (Expressed in thousands of United States dollars) WESTPORT FUEL SYSTEMS INC. For the three months ended March 31, 2023 and 2022 WESTPORT FUEL SYSTEMS INC. Condensed Consolidated Interim Balance Sheets (unaudited) (Expressed in thousands of United States dollars, except share amounts) March 31, 2023 and December 31, 2022 | | | March 31, 2023 | | December 31, 2022 | | --- | --- | --- | --- | --- | | Assets | | | | | | Current assets: | | | | | | ...

Table of Contents | Letter | to Shareholders | 1 | | --- | --- | --- | | Notice | of Annual General and Special Meeting | 2 | | Section | 1: Voting | 4 | | | Solicitation of Proxies | 4 | | | Communication Process for Proxy-Related Materials | 5 | | | Voting of Common Shares | 5 | | | Currency and Nomenclature in this Management Information Circular | 7 | | | Matters to be Acted Upon | 7 | | | Interest of Certain Persons or Matters to be Acted Upon | 13 | | Section | 2: Board of Directors | 13 | | | Nominee ...

[Condensed Consolidated Interim Financial Statements (unaudited)](index=1&type=section&id=Condensed%20Consolidated%20Interim%20Financial%20Statements) This section presents the unaudited balance sheets, statements of operations, equity, and cash flows for the period [Condensed Consolidated Interim Balance Sheets](index=2&type=section&id=Condensed%20Consolidated%20Interim%20Balance%20Sheets) Total assets decreased to $424.4 million and shareholders' equity slightly declined to $229.1 million as of June 30, 2022 Balance Sheet Summary (in thousands of USD) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $291,863 | $338,564 | | Cash and cash equivalents | $98,174 | $124,892 | | **Total Assets** | **$424,398** | **$471,313** | | **Total Current Liabilities** | $123,427 | $146,447 | | **Total Liabilities** | **$195,252** | **$234,894** | | **Total Shareholders' Equity** | **$229,146** | **$236,419** | [Condensed Consolidated Interim Statements of Operations and Comprehensive Income (Loss)](index=3&type=section&id=Condensed%20Consolidated%20Interim%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20%28Loss%29) The company reported a net loss of $3.9 million for the first six months of 2022, a reversal from a net income of $14.1 million in the prior year Statement of Operations Summary (in thousands of USD, except per share amounts) | Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | $79,964 | $79,008 | $156,508 | $155,451 | | **Loss from operations** | $(11,325) | $(3,686) | $(22,128) | $(11,843) | | **Net income (loss)** | **$(11,579)** | **$17,229** | **$(3,869)** | **$14,089** | | **Net income (loss) per share - basic and diluted** | **$(0.07)** | **$0.11** | **$(0.02)** | **$0.09** | [Condensed Consolidated Interim Statements of Shareholders' Equity](index=4&type=section&id=Condensed%20Consolidated%20Interim%20Statements%20of%20Shareholders%27%20Equity) Shareholders' equity decreased in H1 2022, driven by a net loss and other comprehensive loss from currency translation Reconciliation of Shareholders' Equity (Six months ended June 30, 2022, in thousands of USD) | Description | Amount | | :--- | :--- | | **Balance at January 1, 2022** | **$236,419** | | Net loss for the period | $(3,869) | | Other comprehensive loss | $(4,645) | | Stock-based compensation | $1,241 | | Issuance of common shares on exercise of share units | $0 | | **Balance at June 30, 2022** | **$229,146** | [Condensed Consolidated Interim Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Interim%20Statements%20of%20Cash%20Flows) Cash used in operations increased significantly, leading to a $26.7 million decrease in total cash during the first half of 2022 Cash Flow Summary (Six months ended June 30, in thousands of USD) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(33,404) | $(11,306) | | Net cash from investing activities | $25,670 | $6,063 | | Net cash (used in) from financing activities | $(16,407) | $99,859 | | **Decrease in cash and cash equivalents** | **$(26,718)** | **$96,449** | | **Cash and cash equivalents, end of period** | **$98,174** | **$160,711** | [Notes to Condensed Consolidated Interim Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Interim%20Financial%20Statements) This section details accounting policies, liquidity risks, investment sales, debt structure, and segment performance [Note 1: Company organization and operations](index=7&type=section&id=1.%20Company%20organization%20and%20operations) The company engineers and supplies alternative fuel systems and components for the global transportation industry - The company focuses on providing alternative fuel systems (LPG, CNG, LNG, RNG, hydrogen) and components for a wide range of transportation applications globally[9](index=9&type=chunk) [Note 2: Liquidity and impact of COVID-19](index=7&type=section&id=2.%20Liquidity%20and%20impact%20of%20COVID-19) The company faces going concern risk due to operating losses, with future viability dependent on new financing or positive cash flow - The company continues to sustain operating losses and negative cash flows from operations, and its ability to continue as a **going concern beyond August 2023** depends on generating sufficient positive cash flows or obtaining financing[11](index=11&type=chunk) - As of June 30, 2022, the company has **cash and cash equivalents of $98,174 thousand**[11](index=11&type=chunk) [Note 6: Sale of investment](index=9&type=section&id=6.%20Sale%20of%20investment) The company sold its stake in the Cummins Westport Inc. joint venture, resulting in a total gain on sale of $19.1 million - The company sold its **100% interest in Cummins Westport Inc. ("CWI")** to Cummins Inc. on February 7, 2022[20](index=20&type=chunk) Gain on Sale of Investment (in thousands of USD) | Description | Amount | | :--- | :--- | | Proceeds from sale of investment | $31,445 | | Holdback receivable | $9,713 | | Carrying value of investment | $(22,039) | | **Gain on sale of investment** | **$19,119** | [Note 11: Short-term debt](index=11&type=section&id=11.%20Short-term%20debt) Short-term debt from revolving facilities decreased to $8.6 million as of June 30, 2022 Short-Term Debt (in thousands of USD) | Facility | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Revolving financing facilities | $8,610 | $13,652 | [Note 12: Long-term debt](index=12&type=section&id=12.%20Long-term%20debt) Total long-term debt decreased to $47.9 million, and the company remained in compliance with all debt covenants Long-Term Debt Summary (in thousands of USD) | Category | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Term loan facilities, net | $46,143 | $53,516 | | Other bank financing | $502 | $544 | | Capital lease obligations | $1,295 | $1,655 | | **Total Long-Term Debt** | **$47,940** | **$55,715** | [Note 15: Share capital, stock options and other stock-based plans](index=14&type=section&id=15.%20Share%20capital%2C%20stock%20options%20and%20other%20stock-based%20plans) Stock-based compensation expense increased to $1.4 million in H1 2022, with 2.5 million new share units granted - During the six months ended June 30, 2022, the company granted **2,533,288 share units**, including 1,311,890 RSUs and 1,221,398 PSUs[49](index=49&type=chunk) Stock-Based Compensation Expense (in thousands of USD) | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three Months Ended June 30 | $864 | $539 | | Six Months Ended June 30 | $1,395 | $623 | [Note 18: Segment information](index=16&type=section&id=18.%20Segment%20information) OEM segment revenue grew while IAM revenue declined, with both segments reporting operating losses in H1 2022 - Revenue from Europe constituted **66% of total revenue** for the six months ended June 30, 2022, compared to 65% in the prior year period[59](index=59&type=chunk) Segment Performance (Six months ended June 30, in thousands of USD) | Segment | Revenue 2022 | Revenue 2021 | Operating income (loss) 2022 | Operating income (loss) 2021 | | :--- | :--- | :--- | :--- | :--- | | OEM | $106,101 | $90,165 | $(11,914) | $(9,883) | | IAM | $50,407 | $65,286 | $(367) | $2,744 | | Corporate | — | — | $(9,847) | $(4,704) | | **Total** | **$156,508** | **$155,451** | **$(22,128)** | **$(11,843)** | [Note 19: Financial instruments](index=18&type=section&id=19.%20Financial%20instruments) The company faces significant liquidity risk, with $112.9 million in contractual obligations due within one year - The company highlights **liquidity risk** as a key financial risk due to its history of operating losses and negative cash flows from operations[61](index=61&type=chunk) Contractual Maturities of Financial Obligations (as of June 30, 2022, in thousands of USD) | Period | Contractual Cash Flows | | :--- | :--- | | < 1 year | $112,928 | | 1-3 years | $41,449 | | 4-5 years | $15,513 | | >5 years | $15,843 | | **Total** | **$185,733** |

FOURTH QUARTER 2021 HIGHLIGHTS FULL-YEAR 2021 HIGHLIGHTS Adjusted EBITDA is a non-GAAP financial measures. Refer to section 'GAAP and Non-GAAP Financial Measures' for the reconciliation. EXHIBIT 99.1 Westport Fuel Systems Reports Fourth Quarter and Full-Year 2021 Financial Results VANCOUVER, British Columbia, March 14, 2022 (GLOBE NEWSWIRE) -- Westport Fuel Systems Inc. ("WFS") (TSX:WPRT / Nasdaq:WPRT) today reported financial results for the fourth quarter and year ended December 31, 2021, and provided an ...