Westport reports results for first fiscal quarter ending June 30, 2003
VANCOUVER, July 23 -- Westport Innovations Inc. (WPT:TSX) today reported results for its first fiscal quarter ended June 30, 2003 and provided an update on operations.
Westport's net loss for the quarter was $8.3 million ($0.16 per share), compared with a loss of $11.4 million ($0.22 per share) during the same period in fiscal 2003. This is the fourth consecutive quarter of improved loss per share for the Company.
"Westport is pleased to report a strong first quarter performance, with improved revenues, year over year and the lowest net loss reported in nine fiscal quarters," said David Demers, President and CEO of Westport Innovations. "Our focused effort to launch our products and reach profitability is having a positive impact on our results."
Total revenue increased by 19% to $4.4 million from $3.7 million in the same quarter last year. Product revenue grew to $3.5 million from $3.4 million year over year and parts revenue increased to $817,267, from $288,383. Because of a weaker US dollar and change in product and customer mix, product revenue grew by 4% while engine shipments grew 27% to 181 units from 142 units in the same quarter last year. The 181 units represents Cummins Westport best first quarter result since being formed in April 2001.
Decreasing 20% from the previous quarter, expenses excluding cost of product revenue totaled $10.1 million, down from $12.7 million the same quarter last year. Research and development, the largest expense category, was $6.6 million, down 26% from the same quarter last year, primarily attributed to funding awarded by Technology Partnership Canada in March 2003 and other government funding.
Cash, short-term investments and accounts receivable, net of accounts payable, decreased from $26.8M at March 31, 2003 to $18.4M at June 30, 2003. Included in accounts receivables is approximately $8M from TPC, which is expected to be received before the end of the second quarter of fiscal 2004. As part of its commitment to meet its cash objectives for the year, Westport continues to focus on its critical programs, pace spending with funding and pursue government, industry and other support to diversify its sources of cash and revenue streams.
CWI
Despite a slow-down in the Asian economy during the quarter, Cummins Westport Inc. (CWI) increased engine shipments year over year.
In the quarter, CWI launched the B LPG Plus, a new low-emissions LPG (liquid petroleum gas) engine for mid-size truck and bus applications. In June, CWI received its first order of 20 LPG Plus engines from the Ontario International Airport in California.
Shortly after the close of the quarter, CWI announced it had received its first order for the 320-horsepower L Gas Plus natural gas engine. The Metropolitan Transportation Authority of Los Angeles County has ordered 200 buses equipped with the new L Gas Plus, with an option to increase the order to 600 buses. Including the options, this is CWI's largest engine order to date. This new engine is scheduled for commercial launch in mid-2004.
"In the first quarter, our sales efforts were affected by SARS in China, but we have now resumed normal activity levels," said Hugh Foden, President of Cummins Westport. "We have a solid order board from transit agencies in the US, including our major Boston order which will begin its build in the current quarter. With the engine order for the L Gas Plus engine, we are also filling our 2005 backlog with significant orders."
CWI continued to advance its Westport-Cycle(TM) heavy-duty engine programs during the quarter. In late June, Cummins Westport announced a demonstration project of heavy-duty trucks powered by the ISX G engines along Highway 401, Canada's busiest urban corridor. CWI is working with a consortium including Enbridge Gas Distribution Inc. to deploy the first 10 trucks using 15-liter ISX G engines operating on liquefied natural gas in the fall of 2004. CWI plans to employ a similar model in other urban centers to expand the use of LNG-powered heavy-duty trucks.
The Westport-Cycle ISX G (400 horsepower) heavy-duty engine program continued to progress towards its commercial launch in mid-2004. Over 2 million kilometers have been clocked on Norcal's 14 heavy-duty ISX G-powered trucks to date, and CWI will deliver nine more ISX G engines to Norcal, with cooled exhaust gas recirculation, at the end of this year.
CWI's prototype ISX G-powered truck has been selected as a competitor in the 2003 Michelin Challenge Bibendum. This year the event, considered the premier world competition for advanced technology, low-emissions vehicles, will for the first time include a category for heavy-duty vehicles.
Development work on the 60-liter QSK engine for power generation has also continued during the quarter. CWI has completed the installation of field trial units in Anaheim, California and Grande Prairie, Alberta. As stated in Westport's restructuring plan announced in April, CWI's QSK engine program is a robust business opportunity that will be managed within the financial resources available. Given the current available financial resources, CWI has decided to focus on the key research projects for the QSK program and to defer the commercial launch. Westport and Cummins continue to work hard to identify future funding sources, and the program will be accelerated once further funding is secured.
Governments continue to recognize the clean air value of CWI's natural gas engines through support for development programs. In May, CWI was awarded $816,960 in funding from the National Renewable Energy Laboratory (NREL) in the US to advance the development of the 320-horsepower L Gas Plus engine.
Development Projects with Isuzu and MAN
Westport has successfully completed its engine testing for the Isuzu program and finished building a prototype ELF truck for demonstration in Japan.
After completing a 200-hour engine and component durability test program, the 4.5-liter natural gas engine, using Westport's advanced hot surface ignition technology, reached or surpassed Isuzu's key technical milestones for torque, thermal efficiency, and emissions of nitrogen oxides, hydrocarbons and carbon dioxide. Isuzu is satisfied with the test results submitted to them in July and has begun demonstrating the prototype low-emission truck in Japan. Isuzu's prototype ELF truck has been selected to compete in the 2003 Challenge Bibendum competition, being held in Sonoma, California.
Michael Gallagher, Chief Operating Officer for Westport said, "We are very proud to be working together with Isuzu to develop one of the world's cleanest high efficiency medium-duty truck engines and to demonstrate this technology to the world at the Challenge Bibendum."
Westport's development program with MAN is progressing on schedule. During the quarter, Westport received funding of Euro$220,000 from the German Gas Industry, under the leadership of Ruhrgas, to complete the next phase of testing of the prototype MAN engine in a test cell in Germany. The funding also covered costs to commission an independent market study to determine the commercial opportunities for MAN's truck and bus engines equipped with Westport-Cycle technology.
Westport invites its shareholders to attend its Annual Shareholders' Meeting taking place on September 3, 2003 at 2 p.m. Pacific Time at the Morris J. Wosk Centre for Dialogue, 580 West Hastings Street, Vancouver, British Columbia.
Westport Innovations Inc. is the leading developer of gaseous fuel engine technologies. It develops, manufacturers and sells a wide range of engines for commercial transportation applications such as trucks and buses through its joint venture with Cummins, Inc. Technology development alliances are in place with a number of other leading engine manufacturers, including Ford, MAN, Isuzu, and BMW.
Westport has scheduled a public conference call for Wednesday, July 23, 2003 at 8 am (Pacific Time) to discuss the quarterly and year-end results. To access the conference call by telephone, please call 1-888- 295-1311 no later than 7:55 am on July 23. Alternatively, the webcast of the conference call can be accessed through the Westport web site at www.westport.com by following the link on the investor information menu. Replays will be available in streaming audio shortly after the conclusion of the conference call. To view the financials and management's discussion and analysis, please point your browser to the following link: http://www.westport.com/investor/financial.php
Note: This document contains forward-looking statements about Westport's business, operations, technology development or to the environment in which it operates, which are based on Westport's estimates, forecasts and projections. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict, or are beyond Westport's control. Consequently, readers should not place any undue reliance on such forward-looking statements. In addition, these forward-looking statements relate to the date on which they are made. Westport disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
WESTPORT INNOVATIONS INC.
Consolidated Balance Sheets
(Expressed in Canadian dollars)
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June 30, 2003 March 31, 2003
--------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents (note 3) $ 1,279,612 $ 2,981,999
Short-term investments 13,142,397 25,137,389
Accounts receivable 9,368,691 7,080,281
Prepaid expenses 219,095 266,892
--------------------------------
24,009,795 35,466,561
Long-term investments 12,206,286 12,206,286
Equipment, furniture and leasehold
improvements 34,198,081 33,038,443
Accumulated amortization (17,387,920) (15,881,378)
--------------------------------
16,810,161 17,157,065
Intellectual property 3,314,160 3,314,160
Accumulated amortization (1,897,824) (1,746,635)
--------------------------------
1,416,336 1,567,525
$ 54,442,578 $ 66,397,437
--------------------------------
--------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued
liabilities $ 5,391,453 $ 8,316,177
Demand instalment loan 2,083,334 2,500,000
Current portion of capital lease
obligations 369,999 369,999
Current portion of warranty liability 3,703,585 4,186,348
--------------------------------
11,548,371 15,372,524
Capital lease obligations 721,759 832,270
Warranty liability 2,857,099 2,960,881
Shareholders' equity:
Share capital:
Issued: 51,316,053 (2003-51,316,053)
common shares 189,864,603 189,864,603
Other equity instruments (note 5) 3,003,943 2,600,892
Additional paid in capital 51,421 40,664
Deficit (153,604,618) (145,274,397)
--------------------------------
39,315,349 47,231,762
--------------------------------
$ 54,442,578 $ 66,397,437
--------------------------------
--------------------------------
See accompanying notes to consolidated financial statements
WESTPORT INNOVATIONS INC.
Consolidated Statements of Operations and Deficit
(Expressed in Canadian dollars)
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Three Months Ended
June 30, 2003 June 30, 2002
--------------------------------
(unaudited) (unaudited)
Product revenue $ 3,540,227 $ 3,419,469
Parts revenue 817,267 288,383
--------------------------------
4,357,494 3,707,852
Cost of revenue and expenses:
Cost of product revenue 2,805,661 2,678,988
Research and development
(notes 5 and 6) 6,623,841 8,967,128
General and administrative (note 5) 1,218,059 1,198,481
Sales and marketing (note 5) 1,390,269 1,126,634
Foreign exchange gain (905,854) (217,898)
Amortization 1,657,731 1,555,893
Bank charges and interest on
capital leases 102,480 74,591
--------------------------------
12,892,187 15,383,817
Loss before undernoted 8,534,693 11,675,965
Interest and investment income (204,472) (507,505)
Loss from investment accounted for by
the equity method - 213,052
--------------------------------
Loss for the period 8,330,221 11,381,512
Deficit, beginning of period 145,274,397 96,764,581
--------------------------------
Deficit, end of period $ 153,604,618 $ 108,146,093
--------------------------------
--------------------------------
Basic and diluted loss per share $ 0.16 $ 0.22
--------------------------------
Weighted average common shares
outstanding 51,316,053 50,714,878
--------------------------------
--------------------------------
See accompanying notes to consolidated financial statements
WESTPORT INNOVATIONS INC.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
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Three Months Ended
June 30, 2003 June 30, 2002
--------------------------------
(unaudited) (unaudited)
Cash flows from operating activities:
Loss for the period $ (8,330,221) $ (11,381,512)
Items not involving cash:
Amortization 1,657,731 1,555,893
Stock-based compensation expense 128,095 382,946
Accretion of TPC warrants (note 5 b)) 285,713 -
Loss from investment accounted for
by the equity method - 213,052
Changes in non-cash operating working
capital:
Accounts receivable (2,288,410) (774,921)
Prepaid expenses 47,797 (56,503)
Accounts payable and accrued
liabilities (2,924,724) 538,423
Warranty liability (586,545) 86,199
--------------------------------
(12,010,564) (9,436,423)
Cash flows from investing activities:
Purchase of equipment, furniture and
leasehold improvements (1,159,638) (774,035)
Sale of short-term investments 11,994,992 10,325,886
--------------------------------
10,835,354 9,551,851
Cash flows from financing activities:
Repayment of demand instalment loan (416,666) (416,667)
Repayment of capital lease obligation (110,511) (92,518)
Issue of common shares, net of
issuance costs - 433,774
--------------------------------
(527,177) (75,411)
--------------------------------
Increase (decrease) in cash and cash
equivalents (1,702,387) 40,017
Cash and cash equivalents, beginning
of period 2,981,999 860,554
--------------------------------
Cash and cash equivalents, end of
period $ 1,279,612 $ 900,571
--------------------------------
--------------------------------
Supplementary information:
Interest paid $ 98,647 $ 56,557
Non-cash transactions:
Shares issued on exercise of
performance share units - 140,000
See accompanying notes to consolidated financial statements
WESTPORT INNOVATIONS INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
(Unaudited)
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1. Basis of Presentation
The unaudited consolidated balance sheet and the statements of operations
and deficit and cash flows have been prepared in accordance with Canadian
generally accepted accounting principles for interim financial
statements. The accompanying unaudited consolidated financial statements
do not include all information and footnote disclosures required under
Canadian generally accepted accounting principles for annual financial
statements. These financial statements have been prepared, except as
disclosed in note 2, on a basis consistent with, and should be read in
conjunction with, the consolidated financial statements and notes thereto
for the fiscal year ended March 31, 2003.
These consolidated financial statements have been presented on a going
concern basis, which assumes the realization of assets and the settlement
of liabilities in the normal course of operations. To date, the Company
has financed its operations primarily by equity financing and margins on
the sale of products and parts. If, the Company does not have sufficient
funding from internal or external sources, it may be required to delay,
reduce or eliminate certain research and development programs, and forego
acquisition of certain equipment. The future operations of the Company
are dependent upon its ability to produce, distribute and sell an
economically viable product to attain profitable operations.
In the opinion of management, all adjustments (consisting solely of
normal recurring accruals) considered necessary for a fair presentation
of the financial position, results of operations and cash flows as at
June 30, 2003 and for all periods presented, have been included.
2. Accounting Policies
Effective for the Company's fiscal year beginning April 1, 2003, the
Company adopted the recommendations in CICA Handbook Section 3063 -
"Impairment of Long-Lived Assets". Under this section the Company reviews
for impairment long-lived assets to be held and used whenever events or
changes in circumstances indicate that the carrying amount of the assets
may not be recoverable. If the sum of the undiscounted expected future
cash flows expected to result from the use and eventual disposition of an
asset is less than its carrying amount, it is considered to be impaired.
An impairment loss is measured at the amount by which the carrying amount
of the asset exceeds its fair value. When quoted market prices are not
available, the Company uses the expected future cash flows discounted at
a rate commensurate with the risks associated with the recovery of the
asset as an estimate of fair value. To June 30, 2003, the Company does
not consider that an impairment in long-lived assets has occurred.
3. Cash and Cash Equivalents
A total of $ 646,315 in cash has been set aside as security for certain
capital lease obligations. This amount will be reduced as the principal
amounts owing on these obligations are paid down.
4. Share Purchase Options
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Three months ended Three months ended
June 30, 2003 June 30, 2002
----------------------------------------------------
Share Weighted Share Weighted
options average options average
exercise exercise
price price
-------------------------------------------------------------------------
Outstanding,
March 31, 2003 3,811,909 $ 4.61 3,543,933 $ 4.50
Granted 404,631 1.50 107,818 8.25
Exercised - - (164,852) (2.91)
Cancelled (207,497) (15.76) (18,916) (4.16)
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Outstanding,
June 30, 2003 4,009,043 $ 3.72 3,467,983 $ 4.70
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Options exercisable,
June 30, 2003 3,644,320 $ 3.58 2,484,581 $ 3.96
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During the three months ended June 30, 2003 the Company recognized
$10,757 (2002- $22,946) of stock-based compensation related to options
granted to non-employees based on their fair value at the grant date. The
Company recognizes stock-based compensation for employees using the
intrinsic value method. Had compensation cost for employee share options
been determined based on fair value at the grant dates of the share
options and charged to operations over the vesting period of the options
consistent with the recommendations in CICA Handbook Section 3870, net
loss and net loss per share would be as follows:
Three months ended Three months ended
June 30, 2003 June 30, 2002
As reported Pro-forma As reported Pro-forma
-------------------------------------------------------------------------
Net loss $ 8,330,221 $ 8,741,088 $ 11,381,512 $ 11,953,030
Net loss per
share
Basic and
diluted $ 0.16 $ 0.17 $ 0.22 $ 0.24
Stock based
compensation $ 128,095 $ 538,962 $ 382,946 $ 954,464
The fair value of these options has been determined using the Black-
Scholes option pricing formula using the following weighted average
assumptions: expected dividend yield - nil%; expected stock price
volatility - 96.18% (2002 - 95%); risk free interest rate - 2.57% (2002 -
4.47%); expected life of options - 4 years (2002 - 4 years). The average
fair value of options granted for the three months ending June 30, 2003
was $1.02 (2002 - $5.74).
5. Other Equity Instruments
June 30, 2003 March 31, 2003
--------------------------------
Value assigned to performance share
units (a) $ 2,718,230 $ 2,600,892
Value assigned to TPC warrants (b) 285,713 -
--------------------------------
$ 3,003,943 $ 2,600,892
--------------------------------
--------------------------------
a) Performance share units:
In the three months ended June 30, 2003, the Company granted 78,225
performance share units having a value of $117,337 (2002-nil), which are
exercisable into common shares for no additional consideration. No
performance share units were exercised during the three months ended June
30, 2003 and as at June 30, 2003 there are 930,000 performance share
units outstanding. Stock-based compensation associated with the
performance share unit plan and the share option plan, discussed in note
4, is included in operating expenses as follows:
Three months ended
June 30, 2003 June 30, 2002
--------------------------------
Research and development expenses 5,484 112,946
General and administrative expenses 122,611 180,000
Sales and marketing - 90,000
--------------------------------
$ 128,095 $ 382,946
--------------------------------
--------------------------------
b) TPC warrants:
Under the terms of the agreement with Technology Partnerships Canada
("TPC"), warrants with a fair value of $4,000,000 based on the Black-
Scholes pricing model will be issued on September 30, 2006. The value of
the warrants is being accreted on a straight-line basis to September 30,
2006. For the three months ended June 30, 2003, accretion totalling
$285,713 (2002 - nil) has been included in research and development
expenses.
6. Research and Development Expenses
Research and development expenses are recorded net of program funding
received or receivable. For the three months ended June 30, 2003 and
2002, the following research and development expenses had been incurred
and program funding received or receivable:
Three months ended
June 30, 2003 June 30, 2002
--------------------------------
Research and development expenses 9,632,143 9,112,868
Program funding (3,008,302) (145,740)
--------------------------------
Total research and development expense $ 6,623,841 $ 8,967,128
--------------------------------
--------------------------------
In the three month period ended June 30, 2003, program funding is
comprised mainly of funding from TPC, which was used to fund research
projects including the adaptation of the Company's technology to diesel
engines. In the three month period ended June 30, 2002 the program
funding is comprised mainly of funding from the US Department of Energy
for work performed on high horsepower natural gas engines. At June 30,
2003, $8,463,315 of funding earned by the Company based on the terms of
various funding agreements has not yet been received and accordingly is
included in accounts receivable.
7. Investment in Joint Venture
The consolidated financial statements include the Company's 100% share of
the revenues, expenses, assets and liabilities of the joint venture,
Cummins Westport Inc., as follows:
June 30, 2003 March 31, 2003
--------------- ---------------
Current assets:
Cash and cash equivalents $ 16,795 $ 644,842
Accounts receivable 2,602,567 337,716
--------------- ---------------
$ 2,619,362 $ 982,558
--------------- ---------------
--------------- ---------------
Equipment, furniture and leasehold
improvements, net $ 1,359,154 $ 1,002,113
--------------- ---------------
--------------- ---------------
Current liabilities:
Accounts payable and accrued
liabilities $ 3,319,687 $ 3,598,066
Current portion of warranty liability 3,703,585 4,186,348
--------------- ---------------
$ 7,023,272 $ 7,784,414
--------------- ---------------
--------------- ---------------
Long term liabilities:
Warranty liability $ 2,857,099 $ 2,960,881
--------------- ---------------
--------------- ---------------
Three Months Three Months
Ended Ended
June 30, 2003 June 30, 2002
--------------------------------
Product revenue $ 3,404,647 $ 3,319,470
Parts revenue 817,267 288,383
--------------------------------
4,221,914 3,607,853
Cost of revenue and expenses:
Cost of product revenue 2,649,028 2,507,045
Research and development 5,864,439 7,162,925
General and administrative 141,815 142,047
Sales & Marketing 1,004,540 621,765
--------------------------------
9,659,822 10,433,782
--------------------------------
Loss for the period $ 5,437,908 $ 6,825,929
--------------------------------
--------------------------------
8. Segmented Information
The Company currently operates in one operating segment which involves
the research and development and related commercialization of engines and
fuel systems operating on gaseous fuels. The majority of the Company's
equipment, furniture and leasehold improvements are located in Canada.
For the three month period ended June 30, 2003, 78% (2002 - 88%) of the
Company's revenue was from sales in the United States and 22% (2002 -
12%) from sales outside of North America.