Consolidated Financial Statements 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 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 principles3 - The company's internal control over financial reporting as of December 31, 2023, was deemed effective, receiving an unqualified opinion from the auditor410 - 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 judgments7 Consolidated Balance Sheets 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 202316 - The accumulated deficit grew from $(1,024.7) million in 2022 to $(1,074.4) million in 2023, contributing to the reduction in shareholders' equity16 Consolidated Statements of Operations and Comprehensive Loss 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-year17 - 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 investment17 Consolidated Statements of Shareholders' Equity 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 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 receivable21 - 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 202321 Notes to Consolidated Financial Statements 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 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 hydrogen24 - Products are supplied globally to over 70 countries, serving passenger cars, trucks, and off-road applications through a network of distributors and directly to OEMs24 Note 2: Liquidity and Going Concern 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 year26 - The company continues to experience operating losses ($45.9 million in 2023) and negative operating cash flows ($13.2 million in 2023)28 - 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 loan28 Note 3: Significant accounting policies 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. GAAP32 - Revenue from product sales is recognized when the customer obtains control of the goods44 - Goodwill is not amortized but is tested for impairment at least annually on December 3143 - Stock-based compensation is measured at fair value on the grant date and expensed over the requisite service period51 Note 4: Accounts receivable 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 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 contract57 Note 6: Sale of investment 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 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 amount62 - 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 Limited63 Note 15: Long-term debt 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 Rabobank808283 - The company is in compliance with all financial and non-financial covenants related to its financing arrangements as of December 31, 202386 Note 16: Long-term royalty payable 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 thousand89 - 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 202289 Note 18: Share capital, stock options and other stock-based plans 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 adjusted91 - Total stock-based compensation expense for 2023 was $1,727 thousand, compared to $2,066 thousand in 202295 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 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 dates106 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 rate109 Note 22: Segment information 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 2022114 Note 23: Financial instruments 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 equivalents120 - A hypothetical 200 basis point (2%) increase/decrease in interest rates would have impacted the 2023 net loss by approximately $0.7 million128 - 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 million126 Note 24: Subsequent Events 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 million136 - 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 flows138 - On January 10, 2024, the company secured an additional Euro-denominated loan of $3.8 million from UniCredit, maturing in 2028135
Westport Fuel Systems(WPRT) - 2024 Q1 - Quarterly Report