will westport innovations inc. sink or swim?
TRANSCRIPT
Will Westport Innovations Inc. Sink or Swim?
Source: Westport Innovations
Westport Innovations announced its fourth quarter
and financial year 2015 numbers on March 29, 2016.
The highlights 2015 revenue: $25.1 million, down from $27.4
million in 2014 Q4 loss: $0.35 a share. Missed analyst estimates of
$0.26 loss per share Full-year loss per share: $1.53 compared to $2.37
in 2014No guidance for 2016. Westport will provide it
after closing its merger with Fuel Systems Solutions in April.
So with revenues declining and profitability nowhere in
sight, is Westport Innovations going under?
Risks and threats
Lower oil prices Westport faced “significant headwinds” in
its Ford business in 2015 as lower oil prices hit demand for alternative-fuel vehicles.
Partnership with Ford is considered to be Westport’s trump card to gaining foothold in the North American market.
Cash burn
Westport continues to burn cash at an alarming rate: It held cash, cash equivalents, and short-term investments worth only $27.8 million as of December 31, 2015, down 70% from December 31, 2014.
Slowdown in China Revenue from Westport’s joint venture
with Weichai Power slumped 70% in 2015.
Westport earned only $1 million in operating income from the venture last year, compared to $6 million in 2014.
However, all may not be lost for Westport
yet.
Strengths and opportunities
Falling costs, shrinking losses Westport reduced its operating expenses
by 26% in 2015.It ended the year with consolidated
adjusted EBITDA* losses of $39 million compared to $83.9 million in 2014.
Westport appears to be on track to turn consolidated adjusted EBITDA positive this year.*earnings before interest, taxes, amortization, depreciation, unrealized foreign exchange
gain or loss.
Key joint venture doing well Revenue from Cummins-
Westport declined only about 2% in 2015 despite a slowdown in global trucking markets.
Westport’s income from the venture jumped more than twofold to $17.1 million in 2015.
Cummins-Westport ISB6.7 G engine. Source: Cummins-Westport website
Fresh infusion of capital In January, Westport received $17.5 million in
“non-dilutive capital” from Cartesian Capital Group. It can raise another $53.8 million subject to fulfillment of milestones as per the financing agreement.
Merger with Fuel Systems should further strengthen Westport’s balance sheet as the latter is a debt free, cash-flow positive company.
Primary program on track Westport has delivered HPDI 2.0
components to OEMs for testing as scheduled. Once customers validate, Westport can begin commercial production.
The company is currently collaborating with four OEMs on HPDI 2.0 technology.
Partnership with Ford on a new level In 2015, Westport unveiled a dedicated liquid
propane system for the 2016 Ford F-150 pickups.
It also launched dedicated and bi-fuel CNG systems for the F-150.
As the F-150 is among North America’s top-selling vehicles, Westport’s tie-up with Ford could be a game changer.
Westport’s turnaround depends a great deal on Ford
Westport WiNG Ford F-150 powered by LPG. Source: Westport
Other milestones from 2015 Launch of low pressure pump systems --
Westport’s first product outside its joint venture in China
Delivery of the first 2016 Volvo V60 bi-fuel cars to Sunfleet, Sweden
Certification of Cummins-Westport ISL G Near Zero natural-gas engine with 90% lower emissions
Launch of Cummins-Westport ISB 6.7 G nat-gas engine for school buses
Foolish takeawayWhile Westport’s fortunes depend largely on
the pace of adoption of natural gas as a fuel, its focus on cash preservation, cost reduction, and
efficiency improvement should buy the company some more time.
Furthermore, its strong partnerships and merger with Fuel Systems could steer Westport to profitability. WPRT may struggle to grow, but
it isn’t sinking just yet.
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