Ms. Nancy Gougarty reports
WESTPORT FUEL SYSTEMS PRESENTS UNAUDITED FOURTH QUARTER AND FISCAL 2016 FINANCIAL RESULTS
Westport Fuel Systems Inc. has released unaudited financial results for the fourth quarter and year ended Dec. 31, 2016, and has provided also an update on operations. The company will be filing its 2016 audited consolidated financial statements later this week on March 31, 2017.
While the figures indicated in this release are not expected to change in the audited consolidated financial statements, the company and its auditor are continuing to finalize the evaluation of Westport Fuel Systems' internal controls over financial reporting and whether management's current plans and their implementation can be considered sufficient to alleviate doubts identified over the company's ability to carry on as a going concern. The results of such analysis regarding internal control and going concern will be included in Westport Fuel Systems' 2016 audited annual consolidated financial statements and management discussion and analysis, when filed. All figures referenced below are in U.S. dollars unless otherwise stated.
"We have made progress to further solidify Westport Fuel Systems' position as the global leader in advanced clean-burning fuel systems and components," said Nancy Gougarty, chief executive officer of Westport Fuel Systems. "The team around the globe has accomplished much in 2016, but we have more to do. Our goals for 2017 are clear: further enhance our liquidity position, drive operating efficiencies and cost reductions, and successfully launch Westport high-pressure direct injection 2.0 (Westport HPDI 2.0), the culmination of many years of work to reach commercialization. Building upon the successes since the merger closed and a good start in 2017, we look forward to announcing more achievements in our plan to make Westport Fuel Systems a profitable company that delivers value to customers, employees and shareholders."
Cash and working capital management
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As of Dec. 31, 2016, the company's cash, cash equivalents and short-term investments totalled $60.9-million, up from $58.7-million at Sept. 30, 2016, and $27.8-million at Dec. 31, 2015. Cash increased from September due to improved operating performance and better working capital management, especially inventory turnover.
- Cash used in operations, excluding changes in working capital, plus dividends received from joint ventures for the fourth quarter were $15.5-million, a sequential increase of $2.2-million from the quarter ended Sept. 30, 2016. This increase in cash used in operations was primarily due to a $2-million reduction in dividends from joint ventures in the fourth quarter compared with the third quarter.
- Cash received from non-core asset sales contributed $5.4-million, and joint venture dividends received totalled $2.6-million in the fourth quarter.
- The company spent $3.6-million in capital expenditures during the fourth quarter, mainly related to the Westport HPDI 2.0 program, which is on track for the commercial release of components to its launch original equipment manufacturer (OEM) partner later this year.
- As of Dec. 31, 2016, inventories were $70.6-million, a reduction of $17-million from $87.6-million as of Sept. 30, 2016, and a reduction of $27.5-million as of June 30, 2016. This improvement was primarily due to the implementation of proven lean principles, embedded within the company's enterprise resource planning system that better aligned sales, production and inventory management.
"We are addressing our financial position head on by reducing expenses, improving our operating efficiencies and through sales of non-core assets," stated Ashoka Achuthan, chief financial officer of Westport Fuel Systems. "We believe we are in the final stages of completing two significant transactions with strategic buyers for non-core assets that will substantially improve our liquidity. Further, we should continue to align our costs with our revenues and have advisers engaged on financing alternatives. These actions will provide us the resources to continue pursuing our longer-term strategies for growth and technical leadership."
Q4 2016 financial highlights (unaudited)
These financial highlights provide an analysis of the former Westport Innovations Inc. (Westport) and former Fuel Systems Solutions Inc. (Fuel Systems) for comparative purposes. The two companies merged on June 1, 2016, to form Westport Fuel Systems.
2016 HIGHLIGHTS
(in millions)
Years ended Dec. 31, Three months ended Dec. 31,
2016 2015 2016 2015
Consolidated revenues $ 224.9 $ 103.3 $ 80.4 $ 25.1
Westport revenues 92.0 103.3 20.3 25.1
Fuel Systems revenues 132.9 - 60.1 -
Consolidated gross margin 48.3 18.1 18.6 3.1
Consolidated gross margin (%) 21.5% 17.5% 23.1% 12.4%
Westport gross margin 18.6 18.1 4.3 3.1
Westport gross margin (%) 20.2% 17.5% 21.2% 12.4%
Fuel Systems gross margin 29.7 - 14.3 -
Fuel Systems gross margin (%) 22.3% - 23.8% -
Consolidated operating expenses 128.6 105.5 33.9 26.7
Consolidated operating expenses (%) 57.1% 102% 42.2% 106%
Westport operating expenses
(research and development, general and
administrative, and sales and marketing) 101.0 105.5 22.2 26.7
Fuel Systems operating expenses 27.6 - 11.7 -
Net (loss) (97.6) (99.2) (43.2) (24.5)
Basic net (loss) per share (1.07) (1.55) (0.43) (0.38)
Cash and short-term investments balance 60.9 27.8 60.9 27.8
Note: The attached table includes the results of Fuel Systems from June 1, 2016. The 2015 comparatives
do not include any impact from Fuel Systems.
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Consolidated revenues for the quarter ended Dec. 31, 2016, were $80.4-million, compared with $25.1-million for the same period last year, mainly due to the acquisition of Fuel Systems on June 1, 2016. Consolidated revenues for the year ended Dec. 31, 2016, were $224.9-million, compared with $103.3-million in the prior-year period, mainly due to acquisition of Fuel Systems.
- Consolidated gross margin for the quarter ended Dec. 31, 2016, was $18.6-million or 23.1 per cent of revenue, compared with $3.1-million or 12.4 per cent of revenue for the same period last year. The increase in consolidated gross margin percentage was mainly due to the merger with Fuel Systems and improved operating performance.
- Consolidated operating expenses were $33.9-million for the quarter ended Dec. 31, 2016, an increase of $7.2-million from $26.7-million in the same period last year, primarily driven by the addition of Fuel Systems operating expenses.
- Net loss for the quarter ended Dec. 31, 2016, was $43.2-million or a loss of 43 cents per share, compared with a loss of $24.5-million or a loss of 38 cents per share in the same period last year. Net loss for the year ended Dec. 31, 2016, was $97.6-million or a loss of $1.07 per share, compared with a loss of $99.2-million or a loss of $1.55 per share in the same period last year.
Cummins Westport Inc. highlights (unaudited)
CUMMINS WESTPORT HIGHLIGHTS
(in millions, except units)
Years ended Dec. 31, Three months ended Dec. 31,
2016 2015 2016 2015
Units 7,232 9,940 1,881 2,372
Revenue $ 276.5 $ 331.9 $ 70.4 $ 83.4
Gross margin 77.1 101.4 17.6 23.1
Gross margin (%) 27.9% 30.6% 25.0% 27.7%
Operating expenses 61.0 53.7 13.0 15.1
Segment operating income 16.2 47.7 4.6 8.0
Westport Fuel Systems' 50-per-cent interest 5.6 16.3 1.2 3.1
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Cummins Westport revenue for the year ended Dec. 31, 2016, decreased $55.4-million, or 17 per cent. The decline in revenues is primarily attributed to weak market demand caused by commodity price levels and lower international engine sales, partially offset by higher parts revenue for the year ended Dec. 31, which was primarily attributed to a higher engine population in service. During the fourth quarter of 2016, Cummins Westport changed its accounting policy for determining its warranty liability.
- Cummins Westport's gross margin decreased $24.3-million to $77.1-million, due mainly to the decline in engines sold during the period.
- In 2016, Cummins Westport began production of the ISL G near-zero natural gas engine, North America's first commercially available near-zero NOx mid-range engine with exhaust emissions 90 per cent lower than the current EPA (Environmental Protection Agency) and CARB (California Air Resources Board) NOx limit. OEMs such as New Flyer, Peterbilt and Kenworth have announced that this engine will be available to their customers in certain models.
- The ISB6.7 G, a factory-built natural gas engine, was launched in Q2 2016, and is now fully available for school bus, shuttle bus, medium-duty truck and vocational applications in North America. The ISB6.7 G can be fuelled by compressed natural gas, liquefied natural gas or renewable natural gas.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per-share amounts)
Years ended Dec. 31,
2016 2015 2014
Product revenue $ 220,488 $ 97,844 $ 118,015
Service and other revenue 4,407 5,460 12,554
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224,895 103,304 130,569
Cost of revenue and expenses ------- ------- -------
Cost of product revenue 176,550 85,232 101,053
Research and development 59,413 52,777 76,580
General and administrative 48,204 35,201 40,319
Sales and marketing 20,949 17,496 25,489
Restructuring, termination and other exit costs 19,000 - -
Foreign-exchange (gain) loss 6,408 (11,601) (3,433)
Depreciation and amortization 11,308 11,736 15,536
Impairments on long-lived assets, net 4,843 22,722 29,604
Provision for inventory purchase commitments - - 4,106
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346,675 213,563 289,254
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(Loss) from operations (121,780) (110,259) (158,685)
Income from investments accounted for by the equity method 5,838 17,551 15,863
Interest on long-term debt and amortization of discount (10,773) (5,529) (5,849)
Bargain purchase gain from acquisition 35,808 - -
Interest and other income (expense), net of bank charges (1,656) (186) 114
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(Loss) before income taxes (92,563) (98,423) (148,557)
------ ------ -------
Income tax expense (recovery)
Current 2,002 1,245 606
Deferred 3,008 (514) (1,185)
----- --- -----
5,010 731 (579)
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Net (loss) for the year (97,573) (99,154) (147,978)
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Other comprehensive income (loss)
Cumulative translation adjustment 1,295 (16,889) (15,201)
Comprehensive (loss) (96,278) (116,043) (163,179)
(Loss) per share
Basic and diluted (1.07) (1.55) (2.34)
Conference call presentation
Westport Fuel Systems is providing a conference call presentation as a guide to its financial information in a quick reference format, and it should be read in conjunction with Westport Fuel Systems' audited consolidated financial statements for the year ended Dec. 31, 2016, when available.
Live conference call and webcast
Westport Fuel Systems has scheduled a conference call for Monday, March 27, 2017, at 2 p.m. PT (5 p.m. ET) to discuss these results. The public is invited to listen to the conference call in real time by telephone or webcast. To access the conference call by telephone, please dial 1-800-319-4610 (Canada and United States toll-free) or 604-638-5340. The live webcast of the conference call can be accessed through the Westport Fuel Systems website.
Replay conference call and webcast
To access the conference call replay, please dial 1-855-669-9658 (Canada and United States toll-free) or 604-674-8052 using the passcode 1135. The replay will be available until April 3, 2017. Shortly after the conference call, the webcast will be archived on the Westport Fuel Systems website, and replay will be available in streaming audio and a downloadable MP3 file.
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