Westport Innovations (WPRT, Financial) provides low-emission engine and fuel system technologies utilizing gaseous fuels. The company surprised with an estimate beating first-quarter 2015 results – beating both on top and bottom lines. It had quickly responded to the headwinds of lower crude prices. Let’s take a look at results and the long-term plans of the company.
Estimate beating first quarter 2015
- Westport’s consolidated revenue for the first quarter was $28 million versus $39.9 million in the year-ago quarter. The 30% decline was due to the negative impact of foreign currency, reduced service revenue, and a large U.S. light duty shipment in the first quarter of 2014. However, the top line beat the analysts’ expectations by $1.25 million.
- Consolidated loss ended at $0.27 per share versus $0.38 per share in the year-ago period, beating consensus estimate by $01.0 per share. The improvement in net loss was on the back of increased income in CWI and a significant reduction in other operational expenses.
- Westport is burning less cash. The sequential reduction worked out to 70% –Â $ 9.6 million versus $ $33.4 million in previous quarter.
- Consolidated adjusted EBITDA loss for the quarter was $9.2 million versus $22.1 million in the year-ago quarter, representing and improvement of 58%.
- Total segment’s revenue which includes Cummins Westport, Weichai Westport, Westport Operations and Corporate & Technology investments was $156.9 million
- Cummins Westport revenue came in at $73 million on 2,278 units for the quarter, signifying a decline of 9% year-over-year. The decline was primarily due to a delay in shipment to an Asian customer.
- Weichai Westport’s revenue came in at $55.9 million on 4,385 units for the quarter, signifying a decline of 51% year-over-year. The decline was primarily due to a drop in energy prices; economic uncertainty in China and a pull forward of emissions compliance systems.
Westport was facing headwinds due to lower oil prices and certain uncertainties in China, but it quickly made changes to get back on track and improve bottom line and reduce cash burn. The steep sequential reduction in cash burn is a significant improvement and this should bolster the confidence of investors going forward. Mr. Market’s response to the results has been encouraging and the stock traded with gains of 9.3% just after the results.
Looking ahead
- Westport expects that it will turn into a profitable company by the middle of 2016, when it expects get to consolidated positive adjusted EBITDA.
- On the back of cost cutting initiatives, the company expects to see a 60% year-over-year decline in operating cash flows, going forward.
- In China, Westport is in advanced development phase for the introduction of 5 HPDI engine.
- In the heavy-duty segment the company is seeing a big uptick relative to trucking from the OEM other than Volvo (VOLV A) and Weichai.
- In the light-duty segment, its involvement with Ford (F, Financial) will be a good growth driver.
- Volvo bi-fuel vehicle will also be a good growth driver. The V60 and V70 bi-fuel vehicle includes Westport controllers as well as an array of ATG components.
- There’s a relative uptick in the 2.4-liter engine from industrial consumers. With the impending offer of 3.8-liter engines, the industrial demand should see a further growth.
- In the medium duty market, the GM (GM, Financial) DI product – a dual fuel product – has reached an important milestone in partnership with Tata. The new development contract with Tata is scheduled to be completed by the year end.
- The enhanced spark ignited, or ESI, product continues to progress well, with over 1100 engine hours under its belt.
Wrapping up
Westport delivered an estimate beating first-quarter 2015 results, marked by a steep decline in cash burn. It has done well, despite the crude prices crash. The company is making all the right moves to be profitable after the middle of 2016. Its partnership with Tata and Ford and uptick from industrial consumers will also drive growth in the long-term.
Though the company isn’t profitable as yet, but I would still recommend a buy for long-term gains. Buy and hold for five years.
