Welcome to the Westport Fuel Systems Q2 2024 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ashley Nuell, VP, Investor Relations. Please go ahead. Thank you. Good morning, everyone. Welcome to Westport Fuel Systems second quarter conference call for 2024. This call is being held to coincide with the press release containing Westport's financial results that was issued yesterday. On today's call, speaking on behalf of Westport is Chief Executive Officer and Director, Dan Sceli, and Chief Financial Officer, Bill Larkin. Attendance on this call is open to the public, but questions will be restricted to the investment community. You are reminded that certain statements made on this call and our responses to certain questions may constitute forward-looking statements within the meaning of the U.S. and applicable Canadian securities laws. As such, forward-looking statements are made based on our current expectations and involve certain risks and uncertainties. With that, I will turn the call over to you, Dan. All right, thanks, Ashley, and good day, everyone. Today, I'll be recapping our progress and results in the second fiscal quarter of 2024, providing updates on our 2024 strategic priorities, including an update on the JV with Volvo, introducing our new reporting segments, and touching on the success of our July 4 event, before turning the call over to Bill to walk us through our Q2 results and new segment reporting structure in more detail. Q2 was a solid quarter, demonstrated by improvements in our margins. Impacting results was the launch of the JV with the Volvo Group. During the quarter, we were excited to close this HPDI JV transaction, which resulted in us recognizing two months of revenue from the heavy-duty business and our results. Beginning in June, the HPDI JV was accounted for under the equity method of accounting for investments. The improvement in our margins and Adjusted EBITDA we saw in the quarter reflects the initiatives we have undertaken to reduce costs and streamline our business, along with initial results from our more recent growth initiatives, such as our LPG fuel system sales to our OEM customer. Our evolving business strategy has long recognized the value of strategic partnerships. $28 million, plus up to an additional $45 million to earn out, subject to performance of the joint venture. We know our partnership with Volvo is just beginning, and we are excited to continue working together. Also, in June, we shared our 2023 ESG report, which highlights our commitment to environmental stewardship, social responsibility, and strong governance. We are dedicated to sustainable operations because we see the value it brings to our customers. Guided by our core values of integrity, respect, and perseverance, we're especially focused on reducing carbon emissions in the transportation, in transportation to help clean the air and build a more sustainable future. We continue to make advancements against our three main priorities for 2024 and beyond. As a reminder, those priorities include, one, driving success via our HPDI joint venture with Volvo. Two, improving operational excellence, and three, reimagining a hybrid-powered future. Regarding our first priority, as I mentioned, we closed our HPDI joint venture in June of 2024. Although closing the JV with Volvo was a significant milestone, the hard work is still ahead of us. We have a lot to accomplish together to ensure that the JV results in the acceleration of the realization and global adoption of the HPDI fuel system technology for long-haul and off-road applications. Thankfully, the work has already begun. As we progress, we actively promote, develop markets for our technologies and sectors that are challenging to decarbonize, thereby expanding the joint venture's reach into the future. As I have said before, our pursuit of profitability and cost cutting is not only our priority, it is essential. In Q2, we closed the amended Westport JV with the restructuring in India. It is expected to transition this initiative to generating positive cash flow. We have a number of things to rightsize the business and cut costs where we can. Many of these changes won't be visible in the financials immediately. However, in Q3 to 2024, we began to see some of our initiatives materialize. Our margins grew from 17% of revenue in Q2 of 2023 to 21% of revenue this quarter. Achieved by implementing tighter cost controls and beginning to see the benefits of our newer growth, growth products supported by strong margins. One of the significant changes in our recast reporting segments is the additional transparency we now offer for growing High Pressure Controls and Systems business. Here we are at the forefront of the clean energy revolution, designing, developing, and producing high-demand components for transportation and industrial applications. This includes fuel containment and fuel pressure management components for Fuel Storage and fuel delivery systems. We partner with the world's leading OEMs and manufacturers and companies committed to decarbonizing transport, offering versatile solutions that serve a variety of fuel types. While hydrogen is the key to the future decarbonization of transport, our components and solutions are already powering emission-reducing innovation today across a range of gas fuels, including both CNG and hydrogen. With decades of experience, market leading brands, and unmatched engineering expertise, we are leading the market. While we're still small, our strategic position and innovative capabilities is on the cusp of significant growth, ensuring we're the go-to choice for those shaping the future of clean energy today and tomorrow. In supplementary information we provide this quarter, our historical results under the new segments show the business of 2020 and 2023, representing approximately $70 million in additional revenue to be generated in the latter part of the decade. Westport is excited to play a part in an innovative industry in which alternative fuels are seeing increased support in investments. We are poised to deliver now, providing alternative fuel solutions to support transport and industrial applications, and are prepared to capture the growth as hydrogen develops into the fuel source of the future in the mobility sector. On July 4th, Volvo and Westport marked a defining moment in the journey of our newly formed joint venture. The two companies celebrated the official launch of our partnership with an exclusive event at the University of British Columbia, the birthplace of Westport's HPDI Fuel System technology. Leaders from both companies joined in the celebration of this milestone, emphasizing the significance of the partnership in driving forward HPDI's breakthrough technology and tackling the urgent challenges of climate change. By combining Volvo's extensive expertise in commercial vehicle and power system manufacturing with Westport's innovative fuel system technology, we are creating a powerful force for change that can make a meaningful contribution to reduce carbon emissions immediately. With that, I'll hand it over to Bill, who will speak and talk you through results. Good morning, and thank you, Dan. I start off by walking through the segment reporting structure. As Dan mentioned, we refine the way we view and report our business operations. Beginning with this quarter, we're reporting financial results under five new segments. These segments are the HPDI JV, Light-Duty, High Pressure Controls and Systems, Heavy-Duty OEM, and Corporate. Financial results from the HPDI joint venture are being accounted for under the equity method and are also supported by enhanced disclosures in our MD&A, as well as in the notes to the financial statements. Before I go over the quarterly results, I want to delve deeper and walk you through what is included in each of our new segments. First, the HPDI JV represents our recently closed joint venture with Volvo Group. The financial information presented represents one-month activity during the second quarter. Light-Duty segment manufactures LPG and CNG Fuel Storage solutions and supplies Fuel Storage tanks to the aftermarket OEM and other market segments across a wide range of brands. The Light-Duty segment includes the consolidated results from our Delayed OEM and Independent Aftermarket, Light-Duty OEM operations, Fuel Storage, and Electronics businesses. Our High Pressure Controls and Systems segment designs, develops, produces, and sells high-pressure components for the use of hydrogen and CNG fuels in transportation and industrial applications. Finally, our Heavy-Duty OEM segment reflects the results from the HPDI business for the first five months of the year until the formation of the HPDI JV, which occurred on June 3rd, 2024. Going forward, the Heavy-Duty OEM segment will reflect revenue earned from a Transitional Services Agreement in place with the HPDI joint venture. This TSA is intended to support the HPDI joint venture in the short term as the organization transitions to its own operating entity. Therefore, after completing the completion of the activities under the TSA, there will be no additional activity in the segment. So to get a complete picture of the HPDI business presented for the quarter, combine the HPDI JV and the Heavy-Duty OEM segments. As Dan mentioned, the new segments are designed to support Westport's strategic priorities and provide heightened disclosure to simplify in areas of our business where we see outsized future growth. We hope that the additional transparency provides our investors and analysts information to more accurately model and value Westport. To support this, we have included a recast of historical financials and supplementary information of our Q2 press release... Moving on to our second quarter results. In the quarter, we generated $83.4 million in revenue, a 2% decrease compared to the prior period. This is primarily driven by decreased sales lines in our Delayed OEM and Fuel Storage businesses. This is partially offset by increased sales volume to electronics, High Pressure Controls and Systems, Light- Duty OEM, and Heavy-D uty OEM revenues in the quarter. Reminder, this is the first quarter with the HPDI joint venture, which impacted our Q2 revenue, as Q2 reflects two months of HPDI sales activity in our financials, with June activity being accounted for under the equity method of accounting for investments. Gross margin increased to $17.1 million, or 21% of revenue in the quarter. This is up from $14.4 million or 17% of revenue, Q2 of 2023. This is largely driven by increases in sales to our European customers and a reduction in sales to developing regions in our Light-D uty business, in addition to seeing the initial results from our cost-cutting initiatives. We continue to demonstrate improvement in our Adjusted EBITDA. This quarter record a loss of $2 million, which was an improvement by $2 million as compared to the same quarterly period last year. The improvements in this margin drove positive improvements in our Adjusted EBITDA. However, these improvements were partially offset by higher G&A costs in the second quarter, which included $2 million in consulting and legal fees related to finalizing the HPDI joint venture. Light-D uty revenues for Q2 of 2024 was $69.5 million, as compared to $73.7 million for Q2 of 2023. This decrease was driven by lower sales in our Delayed OEM, Independent Aftermarket and Fuel Storage businesses. It was partially offset by increased sales in our Light-Duty OEM and Electronics businesses. As expected, our Delayed OEM business continued to see a lower revenue in the quarter as a key customer continued to work through their existing inventory. However, we began seeing sales to the key customers progressively increase through the quarter. Gross margin in Light-Duty business increased in the quarter to $15.1 million or 22% of revenue, as compared to $12.7 million or 17% of revenue in Q2 of 2023. This is primarily driven by a change in sales mix, with an increase in sales to European customers and a reduction in sales to developing regions. This includes a full quarter of deliveries of Euro 6 LP fuel systems to our global OEM partner. High Pressure Controls and Systems revenue for Q2 of 2024 was $3.4 million, which was an increase of $600,000, as compared to $2.8 million for Q2 of 2023. This was primarily driven by increased sales volumes and product and service revenue. Gross margin increased slightly in the quarter to $700,000 or 21% of revenue, compared to $600,000 or 21% of revenue in Q2 of 2023. The Heavy-Duty OEM revenue for second quarter of 2024 was $10.5 million. This is up $2 million compared to the prior year. The revenue increase was driven by an increase in product sales and engineering services for the two months in the quarter when the company wholly owned the HPDI business. Additionally, we recorded one month of inventory sales from the company to the HPDI for $500,000 under our Transitional Services Agreement. Gross margin dollars in our Heavy-Duty OEM business in the second quarter of 2024 is up slightly to $1.3 million or 12% revenue, compared to $1.1 million or 13% of revenue in Q2 of 2023. Regarding liquidity, our cash and cash equivalents at June 30, 2024 was $41.5 million. This decreased $2.4 million as compared to the end of Q1 of 2024. With respect to our cash balance, there's $8.4 million related to the closing of the HPDI joint venture that was received in July. Therefore, this amount is not reflected in our cash balance at the end of the quarter. Net cash provided by operating activities was $1.5 million. This is an improvement of $2.1 million over Q2 of last year. This improvement was achieved through continued reductions in net working capital. Net cash provided by investing activities was $5.8 million. Now, this included the proceeds from the sale of our investments of $20.4 million, related to partial sales of our ownership interest in the HPDI JV and the Weichai Westport JV. This is partially offset by capital contributions to the HPDI JV of $9.9 million and capital expenditures of $5.4 million. In the quarter, net cash used in financing activities was $8.9 million. During the quarter, we reduced our use of the revolving credit facility by $5.2 million and made $3.7 million of principal payments. As a reminder, in Q2 of 2023, we were paid $8.7 million to settle our long-term royalty obligation with Cartesian. Going forward, we'll continue to do what is necessary to ensure we are adequately and fully capitalized. We remain focused on our project pipeline, designed to enhance our liquidity as we continue to prioritize solidifying our balance sheets. We've been actively implementing cost initiatives, and we're already seeing positive results. With that, thank you, and I will turn it back to Dan. Dan? Dan? ... Commitment to advancing decarbonization across the mobility sector remains steadfast. ...As we look forward, we are invigorated by the possibilities that the future holds and are resolute in our pursuit of innovation and sustainability. I want to take a moment to thank everyone for being here, and with that, I'll turn it over to the operator to open the call for questions. Thank you. A reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Just to remind everyone, there will be a recording available after the call if you had difficulties hearing. Please stand by while we compile the Q&A roster. Our first question comes from Colin Rusch of Oppenheimer. Hey, Colin. One moment. Good morning. Oh, Colin, is your line open now? Oh, one moment. We're having an issue with him. Mm-hmm. Our first question... I apologize. We're having an issue with his line. Okay. Our first question comes from Eric Stine of Craig-Hallum. Your line is open. Morning, Eric. Hi, Dan. Hi, Bill. Good morning. Can you hear me? I know there is some- Yeah. There's some weird stuff going on on this call, but, audio wise. Sure. Okay, good. Well, I know early days for the joint venture. You've had it, or it's been in place for what, two months. You know, just curious if you could kind of rank the priorities as you see them now. You know, have they changed at all? And could you give us an update, you know, on just thoughts of a new OEM, since I know that that was one of the objectives from the start? Sure, sure. You know, in terms of priorities, we've, we've you know, launched this joint venture, and, you know, our goals immediately are to get it to functioning as a standalone business. So, you know, putting in place the, you know, the business systems, the ERP, all of those things are, are you know, being put in place so that we can operate it separate from Westport. Management team was already organized around a separate entity. You know, there's about a nine-month rollout of, you know, actions that make all those things happen to standalone. So, you know, immediate priority is getting it functioning and running. But running parallel, equal in priority, is bringing on a second OEM, and that activity continues. It's been ongoing for some time. It was ongoing before actually we closed the joint venture, and it continues to be ongoing. And we, you know, we're hoping that we'll be able to announce something as we continue to work towards, you know, winning that second OEM, which is a priority for both Westport and Volvo. Got it. And then, you know, I have heard some, some talk in the market, interest in HPDI in North America. And, you know, so I'm just curious, you know, maybe this hasn't changed, from when it was, part of Westport, but now that you are combined with Volvo in the joint venture, you know, maybe how those plans are coming together. You know, does this help in that endeavor to get it to North America, and what that might look like? Sure. So HPDI North America is one of those equal priorities, you know, whether it's bringing on a second OEM or bringing the technology to North America through Volvo. You know, we continue to work through engineering and development to build a system that, you know, can cross all the continents, but specifically in North America, we see the market is more CNG-focused. And so we're working on a plan to fill that need and talk to other OEMs in North America. So our commercial activities will continue to move forward in building this business out. Got it. I will, I guess I'll stay tuned on that. And maybe my last one, just more bookkeeping. So when we think about OpEx and just the moving pieces of Westport going forward, so you said you had $2 million that was... that, that should not repeat. Was I correct in hearing that related to this formation of the joint venture? Yeah, that's correct. Okay, so $2 million. Yeah. And then it looks like roughly $5-$6 million of the Heavy-Duty OEM business, that would be roughly the OpEx level that also comes out. I mean, is this kind of an all-in OpEx, $15 million type of number per quarter? We're continuing to look at that. You know, as Dan mentioned, we still have quite a few cost reduction initiatives that we're working on, and so, you know, that's across our business. You know, $15 million is about right for the current run rate, but we're gonna continue to evaluate that. Okay. Thank you very much. Thank you. Thanks, Eric. Take care. Thank you. Our next question comes from Chris Dendrinos of RBC Capital Markets. Your line is open. Yeah, good morning, Morning, Chris. Morning. I wanted to ask about—there was a comment, I think it was in either the financial disclosure or the MDA, and it looked like you all exited the JV with Weichai. So if you could just speak to that and what maybe the strategy shift was there, and I guess thoughts going forward with them. Thanks. Well, I mean, it's really two separate things. That, you know, this is the JV that was formed a long time ago, and then, you know, more recently, we had, you know, a small ownership percentage, and, you know, they finally, you know, exited totally, you know, from the joint venture. However, you know, that doesn't change our relationship with, you know, Weichai, and we continue to, you know, support their development activities. Got it. Thank you. And then, maybe, maybe just on the, on the light-D uty segment. So, you know, it sounded like the mix of, Light-D uty OEM was more heavily weighted to Europe, and you noted a reduction in sales in some of those developing regions. Is there any sort of, sort of, strategic shift going on with the, I guess maybe that, that business line and maybe where you're focused, internationally and, how that impacts your growth going forward? Thanks. Sure, sure. So the light-duty business impacts this year, so Q1, Q2, and will flow through for a bit. The primary one was the OEM that imports vehicles and installs our systems. And, you know, they tripled the size of their business and they're launching 14 new models in the middle of all this. And, so the issue there was they were uncontrolled, sitting on a pile of inventory that they didn't realize they had, so they're bleeding that off. So the big hit we're taking there is just them bleeding off that inventory. We expect those volumes to come back. We're waiting to see exactly when they're gonna come back later this year, but we do expect them to come back. The other piece was the slower launch on the Euro 6 with our OEM over there, and that has actually picked up and will be gaining volume. So we're actually, you know, fairly upbeat about the volume projections for Europe, but we're waiting to see specific numbers from the marketplace on that. So, we don't see a major shift in, you know, the piece of that world that we play in. In fact, we see it getting a little bit stronger. Thank you. Our next question comes from Colin Rusch of Oppenheimer and Company. Colin, your line is open. Thank you. Hey, Colin. Give this another go. Thanks so much for getting me in. So guys, can you talk a little bit about what's going on with the vehicle customers for hydrogen on the off-road opportunity? It seems to me that as the mining industry starts to work towards zero emissions, and the hydrogen industry starts to look at some, you know, dedicated facilities, that there might be a meaningful opportunity for you guys. So just want to understand how that's developing. Yeah, sure. So, so we have been exploring opportunities in the off-road. Off-road is a growth segment, both inside the joint venture for HPDI and within our high-pressure components and systems world, because there's a play there for that technology. We do see some interesting opportunities coming together and have been in some discussions with some customers on how to help the mining industry, you know, transform their technologies. So it's early days for us on that, but it is an important priority for us, and we are starting to build out the commercial plan of how to pull it off. Thanks so much. And just on the Light-D uty side, you know, it seems to me that there's an opportunity around potentially licensing some of the IP that you guys have and ending up with a little bit leaner model. Can you talk a little bit about that opportunity and if that's a real thing that you guys are thinking about? Hmm, about licensing. Okay. So, you know, we're currently building out the capitalization of Euro 6, Euro 7 technology that's gonna be ramping up over the next 2 years, 2 to 3 years, and that's been our primary focus. In terms of licensing, I'm not sure who or what you're specifically referring to, but you know, our goal is to expand that technology across multiple OEMs. We do see a pendulum swing back the other way, you know, as I think the world sees the hydrogen ecosystem maybe a little further out than we all want. In the middle of that, we have solutions, whether it's, you know, propane gas, natural gas groups, et cetera. You know, we're trying to position ourselves to be that bridge in between and bring solutions. So we're gonna continue to try and commercialize that across Europe and, of course, in our aftermarket around the world. ... thanks so much. I've got a couple follow-ups, so I'll take them offline. Thanks, guys. Yep, okay. Okay. Thank you. Thank you. As a reminder, if you have a question, please press star one one. One moment. Our next question comes from Rob Brown of Lake Street Capital Markets. Your line is open. Hey, Rob. Good morning. Good morning. Good morning. First question's on the sort of demand environment in the European HPDI market. I think that's been sort of coming back, but what's sort of your sense on how that looks over the next twelve months and some of the macro drivers there? Yeah, I think, you know, obviously, I mentioned just a moment ago, the view of where hydrogen is gonna be coming in in terms of the ecosystem, the entire ecosystem. I think the European market is starting to adjust to that future being a little further off. Therefore, they're turning back to the alternative fuels. Aside from the fuel cells and the battery electric solutions, clearly, alternative fuel ICE engines are gonna be gaining some momentum and some market share in Europe. And we're excited about that. We're also, you know, working to figure out how to get it in North America, how to commercialize it with different OEMs in North America, including Volvo. But I think the current HPDI system on LNG has a very strong future here in Europe. Okay, thank you. And then on the cost reduction efforts, you talked a little bit about some progress, but could you give us a sense of how, sort of how far you are into that and how much is yet to go? Yeah, we've been digging in pretty aggressively across the company, both at a corporate level for corporate costs, and which Bill can talk a bit about, and then operationally, you know, across the various segments, whether it's the light-duty business or even the joint venture. We're trying to make ourselves a much more right-sized and efficient business across the board. And you know, one of the challenges is, I think we've talked about in previous calls, is the timing of making change in operations. So for instance, in Europe, you know, a lot of the cost savings that we want to initiate there take capital and take time. You can't just hit a switch and, you know, take costs out of a business in Europe like we could here, for instance. So, you know, are we a third of the way into it? Probably. I'd say we're a third of the way into it. And it's also a balance, right? A balance between where we're cost-cutting, where we're investing for the future to, you know, take advantage of growth opportunities. So it's a bit of both. Okay, great. Thank you. I'll turn it over. Okay. One moment. The next question comes from Jeff Osborne of TD Cowen. Your line is open. Hey, Jeff. Thank you. Good morning. Thank you. Two questions. One is, do you have a sense of, on, on the kits that are in inventory at your partner in Europe, you know, what you've sold in versus the sell-through of those vehicles and how long that pressure will be there? Is that something that'll be resolved this calendar year or no? Yeah, go ahead, Bill. I can answer. So yeah, it's heavily impacted our first quarter. It did—we did have some impact in the second quarter early in the second quarter, and we actually started seeing the volumes start ramping up throughout the quarter. And those will continue to increase throughout the third quarter, you know, as we work closely with our customer. You know, as Dan mentioned, they've just grown rapidly, and they haven't put the controls and processes in place to manage their inventory. So we've gotten more actively engaged with our customer to be able to manage that and have better foresight for their needs, their production needs, inventory needs. You know, that business, it has been recovering during the quarter and will continue in the third quarter. Perfect. And then my last question is just: How to think—I think Eric asked questions on OpEx and how to think about that- Yeah ... and how you're aiming to reduce that. But how should we think about CapEx for the second half? It's unclear to me. Maybe it's buried in one of the documents, but what- Yeah, I- historically has been the split of CapEx for Yeah, you know, we- -associated with the JV? Well, I think, you know, a big chunk of the CapEx investment this year, you know, historically, we've been in call it the, you know, $13 million-$15 million. It's gonna run a little higher this year because we've been, you know, investing in CapEx to support the, you know, our OEM customer for LPG components for Euro 6. So we've been investing heavily in new CapEx. You know, I think, you know, for the back half of the year, it would just be slightly lower than, you know, what we spent in the first half of the year. And then, you know, I think that'll be the bulk of the CapEx spending that we need to do, to support our OEM customer for delivering Euro 6 components. And then, you know, as we go through this, you know, we, we'll have to recast. And we've you know, our CapEx run going forward, you know, now that all the HPDI activities are in the JV, that'll decline as well. Is it feasible that that number could be less than $10 million next year? It could be. But we're actually just kicking off our annual budget process. And as part of that process, we do a deep dive, you know, in what our CapEx needs, what are the various programs, and so we're going through that right now. Perfect. That's all I have. Thank you. Okay. Thank you. I'm showing no further questions at this time. I would like to turn it back to Dan Sceli for closing remarks. I'd like to thank everybody for joining us today, and I hope we answered all your questions. I look forward to the further calls throughout the day. That's all. Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.