Westport Fuel Systems Inc. Q1 FY2026 Earnings Call

Good day, and thank you for standing by. Welcome to the Westport Q1 26 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ashley Nuell. Please go ahead.

Good morning, everyone. Welcome to Westport's conference call regarding the First Quarter 26 financial and operational results. This call is being held to coincide with the press release containing our financial results that was issued yesterday after market close. On today's call, speaking on behalf of Westport will be our chief executive and director, Daniel Sceli, and our chief financial officer, Elizabeth Owens. Attendance on this call is open to the public but questions will be restricted to the analyst community. You are reminded that certain statements made on the conference call and our responses to certain questions may constitute forward-looking statements within the meaning of 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, Daniel.

Thank you, Ashley, and good morning, everyone. I will turn to our financial results. Our Cespira momentum continues to build with revenue up 33% year over year in the first quarter. That growth is increasingly material to Westport, reflecting stronger volumes, broader market adoption of HPDI, and progress with the second OEM. Importantly, we expect this momentum to continue through 2026 supported by favorable fuel economics, tightening emissions regulations, and growing OEM and fleet interest in practical low-carbon solutions. The significance for our investors is not only top-line growth, but the financial read-through. As our Cespira continues to scale and improve operating performance, we expect our funding requirements for the joint venture to continue to decline. That creates a more direct link between commercial execution at Cespira and improved capital efficiency at Westport. The broader market backdrop also remains supportive. Volvo Trucks recently announced it has delivered more than 10 thousand gas-powered trucks globally, highlighting growing adoption in key European markets. Market research projects the European LNG heavy truck market to grow at a 12.5% compound annual growth rate through 2031. Together, those indicators reinforce our view that Cespira is participating in a market with both near-term momentum and multi-year growth potential. Our high-pressure controls business has also reflected improved results in Q1 26 with a 21% increase in revenue compared with the same period last year. What makes it truly meaningful is how we delivered it. Our brand, GFI Control Systems, provides critical components that make these systems viable, while AFS ensures that the technologies come together as a complete, real-world solution, enabling the performance, reliability, and control our customers expect. Adding to this result, we commenced production at the expanded product development and manufacturing facility in Cambridge, Ontario and GFI's new China Hydrogen Innovation Center and manufacturing facility in Zhengzhou, China. With production underway at all facilities, combined with strong demand from large industrial companies, we remain optimistic about its performance this year building off this strong start. Moving on to some recent excitement at the ACT conference in Las Vegas. I believe it provides some key insights into our experience. Getting this truck to Las Vegas on time, show-ready, and performing was a complex, high-pressure effort, and the fact that we delivered speaks volumes. At ACT, from the moment the show floor opened, we saw strong interest, with other exhibitors, fleets, and OEMs stopping to take a closer look and excited by what they saw. Because this is not a concept; it is a fully integrated platform and a more cost-effective fuel today. That proves we can deliver diesel-like performance with cleaner emissions. A focused team brought this to life. Their success reflects something bigger: our ability to execute, to integrate, and to lead. As we showcased this platform, we demonstrated what sets us apart—not just innovation, but the ability to bring it to market where it matters most. Fleets and OEMs are starting to notice. It was clear from the volume of interactions this year compared to previous years that this is an exciting time for Westport. We are making clear steps forward in expanding our technology reach. We see growing demand for high-performance, lower-emission alternatives. The conference success was a clear signal that we are advancing our high-pressure CNG storage solution into a North American market with real momentum, positioning Westport to capture long-term growth opportunities in the global heavy-duty transportation market. Now I will have Elizabeth run you through some financial details, and then we will come back.

Thank you, Daniel, and good morning, everyone. I will highlight a few key milestones that Westport has achieved, the first of which is our strong cash position through 2026. As of March 31, 2026, our cash and cash equivalents position stood at $24.5 million compared to $27.2 million at December 31, 2025. Net cash used in operating activities from continuing operations was $3.4 million for the quarter ended March 31, 2026, compared to $8.6 million in the prior year, an improvement of $5.2 million as a result of changes in working capital. Our capital contributions to the Cespira joint venture decreased from $4.7 million in 2025 to $2.9 million in 2026, reflective of the improvement in Cespira's financial performance. Our total outstanding debt sits at $1.9 million, a reduction of $1 million from the $2.9 million reported at year-end 2025. This debt will be retired in 2026. Our high-pressure controls business segment saw meaningful growth with revenue for Q1 26 increasing 21% to $2.3 million from $1.9 million reported in Q1 25. Higher year-over-year sales volumes drove the revenue increase with gross profit of $0.5 million, consistent with the prior period. As Dan highlighted, Cespira's revenue growth is accelerating as we enter 2026. In Q1 26, total revenue generated was $22.2 million compared to $16.7 million in the same period last year, representing an increase of 33% driven by higher sales volumes. Cespira product revenue of $19.5 million increased 48% compared to $13.2 million in Q1 25. Cespira gross profit improved to $1.6 million compared to $0.4 million one year ago. Gross margin improved in Q1 26 to 7% from 3% in Q1 25. Cespira also significantly improved the bottom line with a net loss in Q1 26 of $2.5 million, a 65% reduction from the $7.1 million net loss reported in the prior year quarter. This progress is supported by strong market adoption, including Volvo reaching the milestone of more than 10 thousand natural gas trucks on the road equipped with Cespira's HPDI fuel system. We are also encouraged by the continued progress of a second OEM that is currently conducting truck trials. We are excited about the opportunities ahead as we target an improvement in capital requirements. With that, I will pass the call back to Daniel.

Thank you, Elizabeth. Our operating momentum continues to strengthen. We are seeing solid year-over-year growth in our Cespira joint venture with Volvo Group, supported by increasing demand for LNG-powered heavy-duty trucks in Europe and other parts of the world and favorable fuel economics that are driving adoption. At the same time, tightening emissions regulations and the need for practical lower-emission solutions are reinforcing the role of technologies like ours in the transition of the heavy-duty sector. Against this backdrop, Westport is well positioned to capitalize on these trends. Cespira's HPDI fuel system takes a little while to deliver diesel-like performance with lower emissions, and we are seeing growing validation through increased volumes with both Volvo and an additional OEM undergoing testing as we speak. The momentum we demonstrated at ACT Expo highlights our ability to bring fully integrated solutions to market. We are now focused on execution, scaling commercial volumes, advancing our high-pressure CNG solutions into North America, and expanding into new regions and applications. Together, these efforts position us to build meaningful scale and capture long-term growth opportunities across the global heavy-duty transportation market. Thank you. That concludes the discussion.

As a reminder, to ask a question, please press *. And our first question will come from the line of Eric Stine of Craig-Hallum Capital Group. Your line is open, Eric.

Good morning, everyone.

Hey. Good morning, Eric.

Maybe just starting with Cespira. So the second truck trial — I know we just connected a couple weeks ago — but it does feel like you are giving a more optimistic tone about that trial. Am I reading that right? With that in mind, can you remind us of next steps for that or the timeline we should look for over the remainder of 2026 and then in 2027?

Sure. Yeah. I do feel more optimistic. The truck trial is going really well. Discussions and negotiations continue for the next phase of this, which is a higher volume. The initial truck trial, I think, was around 200 trucks, but moving on to larger volumes and commercializing this is the discussion that is ongoing right now.

And timeline in terms of when you expected a decision, maybe later this year and then in 2027. Does that still hold?

It does. We do expect a determination on this project before year-end.

And then maybe anything — you gave a lot of detail about Q4 and 2025 in terms of some of the new markets that Volvo and Cespira are seeing momentum. On a global basis, obviously North America is a big focus. Are there any other contributors to Q1 that are worth highlighting as awareness of that product expands?

We do see beachheads opening up in India and Brazil. There are already trucks in Peru and Chile. India and Brazil are two massive markets, and we are seeing strong interest in those markets to move to alternative fuel. So we are very excited about that opportunity coming to us.

Maybe last one for me. Because of how things are trending with the joint venture and the expectation that momentum continues, can you just update us on current thoughts on contributions needed to the joint venture going forward?

Yeah. So, obviously, you saw that our contributions are going down simply because volumes are going up at a steady rate. Product revenue alone is up 48%, and as we progress through 2026 and into mid-2027, cash contributions will be reduced a lot more.

You were cutting in and out there, but I will take that and clarify some stuff offline.

Okay. Thank you.

Thanks, Eric.

And our next question will be coming from the line of Christopher Dendrinos of RBC Capital Markets. Your line is open.

Good morning. Thank you. Maybe just to follow up on Cespira a bit. You had a good quarter with some solid gross margin there. How are you thinking about gross margin for the remainder of the year? I am curious because you highlighted some deliveries to the test OEM. What does that volume look like for the rest of the year and how is that playing out in terms of gross margin?

So, as we have been talking about for the last few years, margins are going to continue to grow simply based on volume. We built out this business completely to be a Tier 1 to an automotive OEM like Volvo. You need to have a completely built-out and certified business. That was essentially done about one to two years ago. All disciplines, all departments, full certifications were put in place. The expenses of building up the business have been laid down. We are now starting to cover the fixed costs as volumes increase, and we should be able to continue to improve margins as we scale.

Thanks. And then maybe just as a follow-up: the service segment — I think that project rolls off at the end of this year. Is there anything that would potentially come in and replace that?

That service is really two major projects. One is HPDI 3.0, which is in conjunction with Volvo, launching at the end of this year. It is an advanced HPDI system and an advanced Volvo engine; that first project will be wrapping up. The second is ongoing development work for Volvo's hydrogen project; they have recently announced they are on the road, and we will be doing development work over the next couple of years. So that service work is going to continue. We are also looking at additional engineering and development work on a couple of other projects that we are not allowed to talk about yet.

And we hope that we can talk further down the road. Got it. Thank you very much.

As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. Our next question will be coming from the line of Robert Brown of Lake Street Capital Markets. Your line is open, Robert.

Good morning. Just at a high level, what are the next steps in the North American market? You had a good showing at the ACT Expo and good interest. What are the next steps in North American market development?

Rob, I have got to tell you, it was more than successful. The excitement and interest we got at the ACT Expo were overwhelming. We built out a truck; Volvo provided the truck and engine; we built it out and drove it down from Vancouver to Las Vegas. The funny thing was we had a chase car, and the truck spent $280 on fuel getting there — less than the chase car. The interest is just overwhelming. There is a lot of discussion right now between fleets, dealers, and the OEM on what is next. Certainly, we are planning to do more demos, fleet-to-fleet driven demos. There is planning to be done for EPA certification to launch this. All of that activity is picking up pace because of the interest from multiple, very large fleets. So we are very excited.

Okay. Thank you. Then in the high-pressure controls business, you had a step up in gross margin. I assume that has a lot to do with getting China production running. How is the gross-margin trend in the controls business going forward?

We expect margins to improve as volume increases because it is fundamentally a volume issue. We had to relocate some manufacturing equipment from Italy and move production between Cambridge and China. The China facility was built out to focus on the China market for localized cost advantages and to manage geopolitics. We will be localizing some components. So we expect margins to grow, but we need volume to pick up. There has been a pause in hydrogen, but we are hearing from the Chinese government that initiatives will move forward again. The underlying product is very high quality and can achieve good margins. What we need right now is volume, and that volume is starting to come in this year. One of our customers in that space had their call earlier this week; we are going to be shipping to them. Volume is starting to go up, and as that happens, the margin will improve.

And I am showing no further questions. I would now like to turn the call to Daniel for closing remarks.

Well, thank you for your time today. We are very excited about where we are headed. There are lots of positive trends, and we continue to emphasize both HPDI and our hydrogen product. We look forward to the next quarter.

And this concludes today's conference. Thank you for participating. You may now disconnect.