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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