6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of November 2022

Commission File Number: 001-34152

WESTPORT FUEL SYSTEMS INC.

(Translation of registrant's name into English)

1750 West 75th Avenue, Suite 101, Vancouver, British Columbia, Canada, V6P 6G2

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

£    Form 20-F    S     Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

EXHIBIT INDEX

Exhibit	Description
99.1	MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE PERIOD ENDED SEPTEMBER 30, 2022
99.2	CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 2022

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

WESTPORT FUEL SYSTEMS INC.
By:	/s/ Richard Orazietti
Name:	Richard Orazietti
Title:	Chief Financial Officer

Date: November 7, 2022

Document

Management's Discussion and Analysis

BASIS OF PRESENTATION

This Management’s Discussion and Analysis (“MD&A”) for Westport Fuel Systems Inc. (“Westport”, the “Company”, “we”, “us”, “our”) for the three and nine months ended September 30, 2022 provides an update to our annual MD&A dated March 14, 2022 for the fiscal year ended December 31, 2021. This information is intended to assist readers in analyzing our financial results and should be read in conjunction with the audited consolidated financial statements, including the accompanying notes, for the fiscal year ended December 31, 2021 and our unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2022. Our unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The Company’s reporting currency is the United States dollar ("U.S. dollar"). This MD&A is dated as of November 7, 2022.

Additional information relating to Westport, including our Annual Information Form (“AIF”) and Form 40-F each for the year ended December 31, 2021, is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov, respectively. All financial information is reported in U.S. dollars unless otherwise noted.

FORWARD-LOOKING STATEMENTS

This MD&A contains forward-looking statements that are based on the beliefs of management and reflects our current expectations as contemplated under the safe harbor provisions of Section 21E of the United States Securities Act of 1934, as amended. Such forward-looking statements include, but are not limited to, statements regarding the orders or demand for our products (including from our HPDI 2.0TM fuel systems), including in China and under our supply agreement with Weichai Westport Inc. ("WWI"), the timing for the launch of WWI's HPDI 2.0 fuel systems engine, the variation of gross margins from our HPDI 2.0 fuel systems product and causes thereof, margin pressure in 2022 and the timing for amelioration of supply chain issues (including those related to semiconductor supply restrictions), stabilization in gaseous fuel prices relative to petroleum and diesel, opportunities available to sell and supply our products in North America, our ability to strengthen our liquidity, growth in our heavy-duty business and improvements in our light-duty original equipment manufacturer ("OEM") business and timing thereof, improved aftermarket revenues, the impact of the Russia-Ukraine conflict on our business, our capital expenditures, our investments, cash and capital requirements, the intentions of our partners and potential customers, the performance of our products, our future market opportunities, our ability to continue our business as a going concern and generate sufficient cash flows to fund operations, the availability of funding and funding requirements, our future cash flows, our estimates and assumptions used in our accounting policies, our accruals, including warranty accruals, our financial condition, the timing of when we will adopt or meet certain accounting and regulatory standards and the alignment of our business segments.

These forward-looking statements are neither promises nor guarantees but involve known and unknown risks and uncertainties that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed in or implied by these forward-looking statements. These risks include risks related to revenue growth, operating results, liquidity, our industry and products, the general economy, conditions of the capital and debt markets, government or accounting policies and regulations, regulatory investigations, climate change legislation or regulations, technology innovations, as well as other factors discussed below and elsewhere in this report, including the risk factors contained in the Company’s most recent AIF filed on SEDAR at www.sedar.com. In addition, the impacts of the COVID-19 pandemic could cause actual results to differ materially from the forward-looking statements contained in this MD&A. The forward-looking statements contained in this MD&A are based upon a number of material factors and assumptions which include, without limitation, market acceptance of our products, product development delays in contractual commitments, the ability to attract and retain business partners, competition from other technologies, the impact of the COVID-19 pandemic, the impact of the Russia-Ukraine conflict conditions or events affecting cash flows or our ability to continue as a going concern, price differential between compressed natural gas, liquefied natural gas, and liquefied petroleum gas relative to petroleum-based fuels, unforeseen claims, exposure to factors beyond our control as well as the additional factors referenced in our AIF. Readers should not place undue reliance on any such forward-looking statements, which are pertinent only as of the date they were made.

The forward-looking statements contained in this document speak only as of the date of this MD&A. Except as required by applicable legislation, Westport does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after this MD&A, including the occurrence of unanticipated events. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement.

Management's Discussion and Analysis

THIRD QUARTER 2022 HIGHLIGHTS

•Total revenues decreased 4% to $71.2 million, compared to $74.3 million in the same period in 2021 primarily driven by weakening of the Euro against the U.S. dollar. Excluding foreign currency translation total revenues would have increased by 10%.

•Higher sales volumes for the independent aftermarket ("IAM") business unit in Eastern Europe, Algeria, and Peru, partially offset by lower sales volume to Russian customers.

•Revenues from OEM business unit customers were comparable to the same period 2021, including increased sales of hydrogen, electronics and fuel storage products, and offset by lower sales of CNG and LNG products due to higher natural gas prices in the European market.

•Net loss was $11.9 million for the quarter ended September 30, 2022, compared to net loss of $5.8 million for the same quarter last year. The decrease in earnings was driven by the loss of equity income from the termination and sale of the Cummins Westport Inc. ("CWI") joint venture and foreign exchange loss.

•Cash and cash equivalents were $86.5 million at the end of the third quarter 2022. Cash used in operating activities during the quarter was $8.6 million, due to operating losses of $10.9 million and debt repayment of $3.6 million, partially offset by net changes to working capital.

•Adjusted EBITDA reported was negative $4.5 million compared to negative $1.4 million for the same period in 2021.

•Announced impressive hydrogen HPDI test results from the demonstration program with Scania. Applying Westport’s HPDI technology fueled with hydrogen to Scania's 13-Litre CBE1 platform, demonstrated a peak Brake Thermal Efficiency of 51.5% complemented by 48.7% at road load conditions, with engine-out NOx similar to the base diesel engine.

BUSINESS OVERVIEW

Westport is a global company focused on engineering, manufacturing, and supplying alternative fuel systems and components for transportation applications. Our diverse product offerings, sold under a wide range of established global brands, enable the use of a number of alternative fuels in the transportation sector which provide environmental and/or economic advantages as compared to diesel, gasoline, batteries or fuel cell powered vehicles. The Company's fuel systems and associated components control the pressure and flow of these alternative fuels, including LPG, compressed natural gas ("CNG"), liquified natural gas ("LNG"), renewable natural gas ("RNG") or biomethane, and hydrogen. We supply our products in more than 70 countries through a network of distributors, service providers for the aftermarket and directly to OEMs and Tier 1 and Tier 2 OEM suppliers. We also provide delayed OEM (“DOEM”) offerings and engineering services to our customers and partners globally. Today, our products and services are available for passenger car and light-, medium- and heavy-duty truck and off-road applications.

Management's Discussion and Analysis

The majority of our revenues are generated through the following IAM and OEM businesses:

Independent Aftermarket	We sell systems and components across a wide range of brands, primarily through a global network of distributors that consumers can purchase and have installed onto their vehicles to use LPG or CNG fuels, in addition to gasoline.
OEM Businesses
Heavy-duty OEM	We sell systems and components, including HPDI 2.0 fuel system products, to engine OEMs and commercial vehicle OEMs. Our fully integrated HPDI 2.0 fuel systems, enables diesel engines using primarily natural gas fuel to match the power, torque, and fuel economy benefits found in traditional compression ignition engines, resulting in reduced greenhouse gas emissions and the capability to cost-effectively run on renewable fuels.<br><br><br><br>Our HPDI technology is in the early stage of commercialization with our initial OEM launch partner, primarily in Europe. We anticipate additional growth in the sales volumes in China, the largest market for natural gas powered commercial vehicles..
Delayed OEM	We directly or indirectly convert new passenger cars for OEMs or importers, to address local market needs when a global LPG or CNG bi-fuel vehicle platform is not available directly from the OEM.
Light-duty OEM	We sell systems and components to OEMs that are used to manufacture new, direct off the assembly line LPG or CNG-fueled vehicles.
Electronics	We design, industrialize and assemble electronic control modules.
Hydrogen	We design, develop, produce and sell hydrogen components for transportation and industrial applications. Also, we are adapting our HPDI fuel systems to use hydrogen or hydrogen/natural gas blends in internal combustion engines.
Fuel storage	We manufacture LPG fuel storage solutions and supply fuel storage tanks to the aftermarket, OEM, and other market segments.

RISKS, LONG-TERM PROFITABILITY & LIQUIDITY

Global Supply Chain Challenges and Inflationary Environment

We continue to experience supply chain challenges to source semiconductors and other inputs to production due to supply shortages plaguing the automotive industry.. While demand for more climate-friendly vehicles with favorable fuel price economics is growing, the global shortage of semiconductors and raw materials is impacting automotive manufacturing and creating bottlenecks. We expect the global semiconductor supply and raw materials shortage affecting the automotive industry will continue to impact our business for the foreseeable future. Besides shortages, we are incurring inflationary pressure on production input costs from sourcing semiconductors, raw materials and parts and higher energy costs in operating our factories that are impacting margins. The prolonged supply chain disruption continues to have material impacts on production delays and end-customer demand declines. We have continued to maintain our inventory levels as at September 30, 2022, especially for electronic components including semiconductors, and a timing issue of aftermarket tenders. We are closely monitoring and making efforts to mitigate the impact of the global shortage of semiconductors, raw materials and parts on our businesses, however, we do not expect this shortage to impact our long-term growth.

Russia-Ukraine conflict

We conduct a portion of our light-duty OEM and IAM businesses in Russia by selling our products to numerous OEMs and other IAM customers. Our Russian business has been a growing and important market for gaseous fuel systems and components. Due to the Russian invasion of Ukraine in late February 2022, the United States, European Union, Canada and other Western countries and organizations have announced and enacted numerous sanctions against Russia to impose severe economic pressure on the Russian economy and government. The sanctions have had a significant impact on our ability to conduct business with our Russian customers due to restrictions caused by ownership and the ability of some Russian customers to pay for goods because of banking restrictions. In addition, recent limitations and restrictions imposed on the export of Russian natural gas have had a significant impact on the price of natural gas (See "Fuel Prices" below). While the full impact of the commercial and economic consequences of the conflict are uncertain at this time, revenues generated in the Russian market were $9.6 million less in the nine months ended September 30, 2022 compared to same period in 2021. We cannot provide

Management's Discussion and Analysis

assurance that future developments in the Russian-Ukraine conflict would not continue to have an adverse impact on the ongoing operations and financial condition of our business in Russia.

Fuel Prices

To date, there have been significant increases and continued global gaseous price fluctuations including LNG and CNG but also for liquid fuels including crude oil, diesel, and gasoline, which continue to persist given uncertainty in supply levels and European geopolitical risk due to the Russia-Ukraine conflict. Fuel price increases of gaseous fuels that negatively impact the price differential of gaseous fuels versus diesel and gasoline, may impact our customers' decision to adopt such gaseous fuels as a transportation energy solution in the short-term. We continue to observe softness in demand in our heavy-duty and light-duty OEM sales volumes caused by the uncertainty over the elevated prices of CNG and LNG relative to diesel and gasoline in Europe. Despite pressure on CNG and LNG prices, the LPG price differential to gasoline has continued to improve and be favourable to customer demand, which supported increased sales in our IAM business.

Long-term Profitability and Liquidity

We continue to observe high inflationary pressures, global supply chain disruptions, higher interest rates and volatile fuel prices which negatively affect customer demand going forward and have an adverse impact on our production and cost structure.

We believe that we have considered all possible impacts of known events arising from the risks discussed above related to inflation, supply chain, fuel prices, and the Russian-Ukraine conflict in the preparation of the unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2022. However, changes in circumstances due to the aforementioned risks could affect our judgments and estimates associated with our liquidity and other critical accounting assessments.

We continue to generate operating losses and negative cash flows from operating activities primarily due to the lack of scale in our heavy-duty OEM business. Despite customer interest in HPDI 2.0, sales of our HPDI 2.0 fuel systems to our OEM launch partner continue to be adversely affected by the impact of the continued volatility in natural gas prices, decreasing end-customer demand. Cash used in operating activities was $42.0 million for the nine months ended September 30, 2022. Despite the successful monetization of the CWI joint venture's intellectual property and the sale of CWI in the first quarter of 2022, the loss of income from the equity interest in the former CWI business had a significant impact on our annual cash flows.

As at September 30, 2022, we had cash and cash equivalents of $86.5 million. Although we believe we have sufficient liquidity to continue as a going concern beyond November 2023, the long-term financial sustainability of the Company will depend on our ability to generate sufficient positive cash flows from all of our operations specifically through profitable, sustainable growth and on the ability to finance our long-term strategic objectives and operations. In addition to new customer announcements and entering new markets, the Company is focused on improving profitability through growth in our heavy-duty OEM business driving economies of scale and improvements in our light-duty OEM and IAM businesses, including pricing measures and manufacturing strategies driving margin expansion. If, as a result of future events, we were to determine we were no longer able to continue as a going concern, significant adjustments would be required to the carrying value of assets and liabilities in the accompanying unaudited condensed consolidated interim financial statements and the adjustments could be material.

Management's Discussion and Analysis

THIRD QUARTER 2022 RESULTS

Revenues for the three months ended September 30, 2022 decreased 4% year-over-year to $71.2 million primarily driven by the weakening of the Euro against the U.S. dollar's significant impact on the translation of the financial results to U.S. dollars, lower sales volumes to our initial OEM launch partner and contractual decrease in sales price year over year. This was partially offset by increased sales volumes in our IAM, fuel storage, hydrogen, and electronics businesses, despite lower sales volumes to the Russian market resulting from the impact of sanctions from the ongoing Russian-Ukraine conflict, and softness in demand in our light-duty OEM business in Europe from higher relative CNG fuel prices in Europe.

We reported a net loss of $11.9 million for the three months ended September 30, 2022 compared to net loss of $5.8 million for the same quarter last year. The decrease in earnings was driven by the loss of equity income from the termination and sale of the CWI joint venture and foreign exchange loss. The prior year quarter had an additional $4.1 million in equity income primarily from CWI. This was partially offset by higher year-over-year gross margins of $1.2 million.

We reported negative $4.5 million Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA", see "Non-GAAP Measures" section in this MD&A) during the third quarter as compared to negative $1.4 million Adjusted EBITDA for the same period in 2021.

SELECTED FINANCIAL INFORMATION

The following table sets forth a summary of our financial results:

Selected Consolidated Statements of Operations Data

	Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021
(expressed in millions of U.S. dollars, except for per share amounts)
Revenue	$	71.2		$	74.3		$	227.7		$	229.8
Gross margin1	$	11.3		$	10.1		$	31.7		$	38.9
Gross margin %1	16		%	14		%	14		%	17		%
Income from investments accounted for by the equity method	$	0.2		$	4.1		$	1.0		$	18.7
Net income (loss)	$	(11.9)		$	(5.8)		$	(15.8)		$	8.3
Net income (loss) per share - basic and diluted	$	(0.07)		$	(0.03)		$	(0.09)		$	0.05
Weighted average basic shares outstanding	171.2			169.5			171.2			156.7
Weighted average diluted shares outstanding	171.2			169.5			171.2			158.5
EBIT1	$	(10.8)		$	(4.5)		$	(13.0)		$	4.1
EBITDA1	$	(8.0)		$	(1.2)		$	(4.0)		$	14.6
Adjusted EBITDA1	$	(4.5)		$	(1.4)		$	(14.9)		$	7.5

1These financial measures or ratios are non-GAAP financial measures or ratios. See the section 'Non-GAAP Financial Measures' for explanations and discussions of these non-GAAP financial measures or ratios.

Management's Discussion and Analysis

Selected Balance Sheet Data

The following table sets forth a summary of our financial position as at September 30, 2022 and December 31, 2021:

	September 30, 2022		December 31, 2021
(expressed in millions of United States dollars)
Cash and cash equivalents	$	86.5	$	124.9
Net working capital1	87.9		96.7
Total assets	392.9		471.3
Short-term debt	8.7		13.7
Long-term debt, including current portion	43.5		55.7
Royalty payable, including current portion	5.6		9.9
Other non-current liabilities1	28.0		38.6
Total liabilities	180.5		234.9
Shareholders' equity	212.4		236.4

1These financial measures or ratios are non-GAAP financial measures or ratios. See the section 'Non-GAAP Financial Measures' for explanations and discussions of these non-GAAP financial measures or ratios.

RESULTS FROM OPERATIONS

OPERATING SEGMENTS

We manage and report the results of our business through three segments: OEM, IAM, and Corporate as described in the Business Overview. The Corporate business segment is responsible for public company activities, corporate oversight, financing, capital allocation and general administrative duties, such as securing our intellectual property.

	Three Months Ended September 30, 2022
	Revenue		Operating Income (Loss)		Depreciation & Amortization		Equity Income
OEM	$	44.1	$	(7.3)	$	2.1	$	0.2
IAM	27.1		2.2		0.7		—
Corporate	—		(5.8)		0.1		—
Total Consolidated	$	71.2	$	(10.9)	$	2.9	$	0.2
	Three Months Ended September 30, 2021
---	---	---	---	---	---	---	---	---
	Revenue		Operating Income (Loss)		Depreciation & Amortization		Equity Income
OEM	$	48.0	$	(7.4)	$	2.4	$	0.3
IAM	26.3		0.7		0.8		—
Corporate	—		(1.9)		0.1		3.8
Total Consolidated	$	74.3	$	(8.6)	$	3.3	$	4.1
Management's Discussion and Analysis
---

Revenue for the three and nine months ended September 30, 2022

OEM

Revenue for the three and nine months ended September 30, 2022 was $44.1 million and $150.2 million, respectively, compared with $48.0 million and $138.2 million for the three and nine months ended September 30, 2021.

The decrease in revenue for the three months ended was primarily driven by the 16% decrease in the average Euro rate versus the U.S. dollar for the third quarter which offset the higher sales volumes of our fuel storage, DOEM, hydrogen, and electronics businesses period over period. Our heavy-duty OEM sales volumes decreased 16% year-over-year mainly due to the unfavorable fuel price differential between LNG and diesel in Europe caused by the shortage of LNG supply.

The increase in revenue for the nine months ended was primarily driven by the additional revenues from increased sales volumes to OEMs in India of our light-duty CNG products where we continue to see strong government support and policies in place for the significant expansion of CNG vehicles, increased sales volumes of our electronics, fuel storage, hydrogen and DOEM products. This was partially offset by lower sales volumes in Western Europe for our light-duty OEM products, lower revenues year over year in our heavy-duty OEM business, and the foreign exchange impact of the depreciation of the Euro.

IAM

Revenue for the three and nine months ended September 30, 2022 was $27.1 million and $77.5 million, respectively, compared with $26.3 million and $91.6 million for the three and nine months ended September 30, 2021.

The increase in revenue for the three months ended was primarily driven by increased sales to Eastern Europe, Algeria and Peru. This was partially offset by the aforementioned foreign exchange impact of the Euro versus U.S. dollars.

The decrease in revenue for the nine months ended was primarily driven by lower sales volumes to the Russian market due to the ongoing Russia-Ukraine conflict, lower sales volumes to Eastern Europe and Egypt, and the aforementioned foreign exchange impact. The prior year included a large one-time infrastructure project of $5.3 million in Tanzania to build fueling infrastructure to enable the sale and operation of gaseous fueled vehicles.

(expressed in millions of U.S. dollars)

	Three months ended September 30,				Change			Nine months ended September 30,				Change
	2022		2021			%		2022		2021			%
OEM	$	44.1	$	48.0		(8)	%	$	150.2	$	138.2		9	%
IAM	27.1		26.3		0.8	3	%	77.5		91.6		(14.1)	(15)	%
Total Revenue	$	71.2	$	74.3		(4)	%	$	227.7	$	229.8		(1)	%

All values are in US Dollars.

Gross Margin for the three months ended September 30, 2022

OEM

Gross margin increased by $1.6 million to $4.7 million, or 11% of revenue, for the three months ended September 30, 2022 compared to $3.1 million, or 6% of revenue, for the three months ended September 30, 2021.

Gross margin increased for the three months ended September 30, 2022 was driven primarily by the increased sales volumes in multiple OEM businesses, improved sales mix of heavy-duty OEM's system parts, partially offset by the annual contractual price reduction year over year to our initial OEM launch partner, and decrease in gross margin in our light-duty OEM business due to increase in sales volumes to emerging markets with lower gross margins. Partially offsetting the positive growth in sales volume, we continue to incur higher production input costs from supply chain challenges and inflation in logistics, utilities and other costs, which we have only partially been able to pass on to our OEM customers.

Management's Discussion and Analysis

IAM

Gross margin decreased by $0.4 million to $6.6 million, or 24% of revenue, for the three months ended September 30, 2022 compared to $7.0 million, or 27% of revenue, for the three months ended September 30, 2021.

The decrease in gross margin and gross margin percentage was primarily driven by higher production input costs incurred in materials, transportation, and energy costs caused by the global supply chain shortage, inflation, and European energy supply shortage. The loss of higher margin sales volumes to the Russian market contributed $1.1 million to the decrease in margins.

(expressed in millions of U.S. dollars)

	Three months ended September 30,		% of		Three months ended September 30,		% of		Change
	2022		Revenue		2021		Revenue			%
OEM	$	4.7	11	%	$	3.1	6	%		52	%
IAM	6.6		24	%	7.0		27	%	(0.4)	(6)	%
Total gross margin	$	11.3	16	%	$	10.1	14	%		12	%

All values are in US Dollars.

Gross Margin for the nine months ended September 30, 2022

OEM

Gross margin decreased by $0.9 million to $14.4 million, or 10% of revenue, for the nine months ended September 30, 2022 compared to $15.3 million, or 11% of revenue, for the nine months ended September 30, 2021.

Gross margin and gross margin percentage from our HPDI 2.0 fuel systems product will vary based on production and sales volumes, levels of development work, successful implementation of initiatives to reduce the cost input materials, and foreign exchange rates. Margin pressure is expected to continue through 2022 as production costs and contracted price discounts with the existing OEM customers are only partially offset by cost reductions of materials until higher scale is achieved. Despite headwinds from higher relative LNG fuel prices to diesel, sales volumes to our initial OEM launch partner for the nine months ended were comparable year-over-year. Higher LNG prices are decreasing the demand for LNG trucks and until LNG prices fall relative to diesel prices, we expect that HPDI 2.0 fuel system sales growth to our initial OEM launch partner slowed. Partially offsetting the decrease in gross margin includes the increased gross margins from our fuel storage, hydrogen, electronics and DOEM businesses.

IAM

Gross margin decreased by $6.3 million to $17.3 million, or 22% of revenue, for the nine months ended September 30, 2022 compared to $23.6 million, or 26% of revenue, for the nine months ended September 30, 2021.

The decrease in gross margin and gross margin percentage was primarily driven by lower sales volumes to higher margin Western European customers, higher production input costs incurred in materials, transportation, and energy costs caused by the global supply chain shortage, inflation, and European energy supply shortage.

(expressed in millions of U.S. dollars)

	Nine months ended September 30, 2022		% of Revenue		Nine months ended September 30, 2021					Change
									%
OEM	$	14.4	10	%	$	15.3		%		$	(0.9)	(6)	%
IAM	17.3		22	%	23.6			%		(6.3)		(27)	%
Total gross margin	$	31.7	14	%	$	38.9		%		$	(7.2)	(19)	%

All values are in US Dollars.

Management's Discussion and Analysis

Research and Development Expenses ("R&D")

Our OEM R&D activities continue to focus on the development of next generation HPDI fuel systems technology and demonstrations with potential OEM customers on our HPDI fuel system's hydrogen and natural gas applications. We also continue to direct our R&D investments towards development and improvements to our broad range of gaseous fuel components and fuel systems for OEM and aftermarket applications using LPG, natural gas and hydrogen, including capturing new OEM customer business in Europe, evolving our engine management systems to meet pending updates to emission regulations globally, and continually improving the features, cost and quality of our components and systems.

(expressed in millions of U.S. dollars)

	Three months ended September 30,				Change			Nine months ended September 30,				Change
	2022		2021			%		2022		2021			%
OEM	$	5.7	$	4.9		16	%	$	14.6	$	16.2		(10)	%
IAM	0.8		1.3		(0.5)	(38)	%	3.1		4.2		(1.1)	(26)	%
Total R&D expenses	$	6.5	$	6.2		5	%	$	17.7	$	20.4		(13)	%

All values are in US Dollars.

Selling, General and Administrative Expenses ("SG&A")

OEM

SG&A expenses for the three and nine months ended September 30, 2022 were $6.0 million and $17.4 million, respectively, compared with $5.1 million and $14.4 million for the three and nine months ended September 30, 2021, respectively. The increases of SG&A expenses were primarily driven by additional expenses from our fuel storage business acquired in June 2021, higher sales volumes in multiple OEM businesses, higher compensation costs and travel-related costs, partially offset by the aforementioned foreign exchange impact.

IAM

SG&A expenses for the three and nine months ended September 30, 2022 were $2.9 million and $11.1 million, respectively, compared with $4.1 million and $13.7 million for the three and nine months ended September 30, 2021, respectively. The decreases of SG&A expenses were primarily driven by the decrease in the average Euro rate to the U.S. dollar period over period.

Corporate

SG&A expenses for the three and nine months ended September 30, 2022 were $3.1 million and $9.3 million, respectively, compared with $3.0 million and $9.3 million for the three and nine months ended September 30, 2021.

(expressed in millions of U.S. dollars)

	Three months ended September 30,				Change			Nine months ended September 30,				Change
	2022		2021			%		2022		2021			%
OEM	$	6.0	$	5.1		18	%	$	17.4	$	14.4		21	%
IAM	2.9		4.1		(1.2)	(29)	%	11.1		13.7		(2.6)	(19)	%
Corporate	3.1		3.0		0.1	3	%	9.3		9.3		—	—	%
Total SG&A expenses	$	12.0	$	12.2		(2)	%	$	37.8	$	37.4		1	%

All values are in US Dollars.

Management's Discussion and Analysis

Other significant expense and income items for the three and nine months ended September 30, 2022

Foreign exchange gains and losses reflect net realized gains and losses on foreign currency transactions and net unrealized gains and losses on our net U.S. dollar denominated monetary assets and liabilities in our Canadian operations that were mainly comprised of cash and cash equivalents, accounts receivable and accounts payable. In addition, we have foreign exchange exposure on Euro denominated monetary assets and liabilities where the functional currency of the subsidiary is not the Euro. For the three and nine months ended September 30, 2022, we recognized foreign exchange losses of $2.6 million and $6.0 million, respectively, compared to foreign exchange gains of $0.9 million and $2.5 million for the three and nine months ended September 30, 2021, respectively. The foreign exchange losses recognized in the current quarter were primarily driven by unrealized foreign exchange losses that resulted from the translation of U.S. dollar denominated debt in our Canadian legal entities. The Canadian dollar decreased by 6% against the U.S. dollar in the third quarter of 2022 compared to the second quarter. Compared to December 31, 2021, the Euro and Canadian foreign exchange rate against the U.S. dollar for September 30, 2022 has decreased by 8% and 16%, respectively. As a result, our working capital balances have shown a decrease on our balance sheet reported in U.S. dollars, despite it remaining consistent period over period in its functional currency.

Depreciation and amortization for the three and nine months ended September 30, 2022 was $2.9 million and $9.0 million, compared to $3.3 million and $10.5 million for the three and nine months ended September 30, 2021, respectively. The amounts included in cost of revenue for the three and nine months ended September 30, 2022 were $1.8 million and $5.7 million, respectively, compared with $2.1 million and $6.3 million for the three and nine months ended September 30, 2021.

Interest on long-term debt and amortization of discount

(expressed in millions of U.S. dollars)

	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Interest expense on long-term debt	$	0.6	$	0.9	$	1.9	$	2.9
Royalty payable accretion expense	0.2		0.5		0.8		1.5
Total interest on long-term debt and accretion on royalty payable	$	0.8	$	1.4	$	2.7	$	4.4

The decreases in interest expense on long-term debt for the three months ended September 30, 2022 compared to the prior year period were primarily due to the final conversion of the convertible notes held by Cartesian in the third quarter of 2021. The royalty payable accretion expense has decreased as we continued to make repayments as scheduled.

Income tax expense was $1.0 million and $0.9 million for the three and nine months ended September 30, 2022 compared to income tax expense of $0.3 million and recovery of $7.4 million for the three and nine months ended September 30, 2021. The increase in income tax expense during the three and nine months ended September 30, 2022 compared to the same periods in 2021 was primarily driven by an increase in income before taxes in our subsidiary in Italy and the recognition of the tax benefits related to a step up in the tax basis of certain of our Italian assets in the prior year.

Management's Discussion and Analysis

CAPITAL REQUIREMENTS, RESOURCES AND LIQUIDITY

Our cash and cash equivalents position decreased by $11.7 million during the third quarter of 2022 to $86.5 million from $98.2 million at June 30, 2022 and decreased by $38.4 million during the nine months of 2022 from $124.9 million at December 31, 2021. The decrease in cash during the three months ended September 30, 2022 was primarily driven by the net cash used in our operating activities, and repayment of debt.

Cash Flow from Operating Activities

The Russia-Ukraine conflict, higher natural gas prices, especially in Europe, global supply chain disruptions, high inflation, and higher interest rates had a negative impact on customer demand and materially impacted our business in the nine months of 2022. As supply chain disruptions and high inflation continue to challenge the automotive industry with rising manufacturer costs causing pressure on gross margin in the near term as we respond with pricing and productivity countermeasures to manage our profitability. See the "Russia-Ukraine Conflict" and "Risk, Long-term Profitability, and Liquidity" sections in this MD&A for further discussion. These conditions continue to persist. Consequently, the duration and severity of the impact on future quarters is currently uncertain.

For the three months ended September 30, 2022, net cash flows used in operating activities were $8.6 million, a decrease of $5.8 million from net cash used of $14.4 million in the three months ended September 30, 2021. The decrease in cash used in operating activities was primarily driven by the net changes in working capital, specifically in inventory. We had built up inventory in the third quarter of 2021 to manage against supply chain risk against shortages of raw materials and components. Further, our inventory levels have remained consistent since the second quarter of 2022 due to lower than expected sales volumes to Russia and other markets and our growing electronics business. We continue to take actions to monetize the existing inventory and optimize our inventory levels.

Cash Flow from Investing Activities

For the three months ended September 30, 2022, our net cash used in investing activities was $2.5 million compared to $2.1 million net cash flows for the three months ended September 30, 2021. The increase in net cash used in investing activities compared to the prior year quarter was primarily driven by the loss of dividends received from joint ventures in 2022. In the prior year, we received dividends of $7.2 million. Partially offsetting this, we have decreased capital investments from $2.5 million in the three months ended September 30, 2022 compared to $5.1 million in the three months ended September 30, 2021.

Cash Flow from Financing Activities

For the three months ended September 30, 2022, our net cash used in financing activities was $3.6 million compared to net cash from financing activities of $3.2 million for the three months ended September 30, 2021 as we pay down our debt on a quarterly basis.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

	Carrying amount		Contractual cash flows		< 1 year		1 - 3 years		4-5 years		> 5 years
Accounts payable and accrued liabilities	$	82.4	$	82.4	$	82.4	$	—	$	—	$	—
Short-term debt (1)	8.7		8.7		8.7		—		—		—
Long-term debt, principal, (2)	43.4		41.8		10.1		21.4		10.2		—
Long-term debt, interest (2)	—		8.0		3.1		4.1		0.8		—
Long-term royalty payable (3)	5.6		8.3		1.3		4.1		2.9		—
Operating lease obligations (4)	21.9		25.5		3.5		4.9		2.6		14.6
	$	162.0	$	174.7	$	109.1	$	34.5	$	16.5	$	14.6

Notes

(1) For details of our short-term debt, see note 11 in the unaudited condensed consolidated interim financial statements.

Management's Discussion and Analysis

(2) For details of our long-term debt, principal and interest, see note 12 in the unaudited condensed consolidated interim financial statements.

(3) For additional information on the long-term royalty payable, see note 13 of the unaudited condensed consolidated interim financial statements.

(4) For additional information on operating lease obligations, see note 10 of the unaudited condensed consolidated interim financial statements.

SHARES OUTSTANDING

For the three months ended September 30, 2022 and September 30, 2021, the weighted average number of shares used in calculating the basic income (loss) per share was 171,246,067 and 169,500,461, respectively. For the three months ended September 30, 2022 and September 30, 2021, the weighted average number of shares used in calculating the diluted income per share was 171,246,067 and 169,500,461, respectively. The Common Shares and Share Units (comprising of performance share units and restricted share units) outstanding and exercisable as at the following dates are shown below:

	September 30, 2022	November 7, 2022
	Number	Number
Common Shares outstanding	171,296,279		171,296,279
Share Units
Outstanding	3,868,417		3,868,417
Exercisable	1,117		1,117

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our unaudited condensed consolidated interim financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements. We have identified several policies as critical to our business operations and in understanding our results of operations. These policies, which require the use of judgment, estimates and assumptions in determining their reported amounts, include the assessment of liquidity and going concern, warranty liability, revenue recognition, inventories and property, plant and equipment. The application of these and other accounting policies are described in note 3 of our annual consolidated financial statements and our MD&A, for the year ended December 31, 2021, filed on March 14, 2022. Actual amounts may vary significantly from estimates used. There have been no significant changes in accounting policies applied to the September 30, 2022 unaudited condensed consolidated interim financial statements and we do not expect to adopt any significant changes at this time.

We believe that we have taken into account all the possible impacts of known events arising from the COVID-19 pandemic in the preparation of our consolidated financial statements. However, changes in circumstances due to the COVID-19 pandemic could impact our judgments and estimates associated with our liquidity and going concern assessment, and other critical accounting assessments.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

As discussed in the annual MD&A, we limited the scope of the design of our disclosure controls and procedures and internal controls over financial reporting evaluation to exclude Stako for 2021. While we believe the existing controls in place at Stako are sufficient to detect and prevent a material misstatement, we are in the process of implementing new controls and improving existing controls at Stako to conform with the operating controls in other subsidiaries.

Management's Discussion and Analysis

SUMMARY OF QUARTERLY RESULTS

Our revenues and operating results can vary significantly from quarter to quarter depending on the timing of product deliveries, product mix, product launch dates, research and development project cycles, timing of related government funding, gain or loss from acquisitions, impairment charges, restructuring charges, stock-based compensation awards and foreign exchange impacts. Net income (loss) has and can vary significantly from one quarter to another depending on operating results, gains and losses from investing activities, recognition of tax benefits and other similar events.

The following table provides summary unaudited consolidated financial data for the past year as comparison :

Selected Consolidated Quarterly Operations Data

	Three months ended					FY	Three months ended			YTD
Three months ended	31-Dec-20	31-Mar-21	30-Jun-21	30-Sep-21	31-Dec-21	FY 21	31-Mar-22	30-Jun-22	30-Sep-22	30-Sep-22
(expressed in millions of United States dollars except for per share amounts)			(1)				(2)
Total revenue	$83.9	$76.4	$79.0	$74.3	$82.7	$312.4	$76.5	$80.0	$71.2	227.7
Cost of revenue	$70.9	$63.4	$63.3	$64.2	$73.4	$264.3	$66.6	$69.5	$59.9	196.0
Gross margin3	$13.0	$13.0	$15.7	$10.1	$9.3	$48.1	$9.9	$10.5	$11.3	31.7
Gross margin percentage3	15.5%	17.0%	19.9%	13.6%	11.2%	15.4%	12.9%	13.1%	15.9%	13.9%
Income from investments accounted for by the equity method	$9.9	$6.6	$8.1	$4.1	$14.9	$33.7	$0.3	$0.5	$0.2	1.0
Net income (loss)	$4.1	$(3.1)	$17.2	$(5.8)	$5.4	$13.7	$7.7	$(11.6)	$(11.9)	(15.8)
EBITDA3	$13.1	$1.9	$13.9	$(1.2)	$8.4	$23.0	$11.7	$(7.7)	$(8.0)	(4.0)
Adjusted EBITDA3	$8.1	$2.7	$6.2	$(1.4)	$10.0	$17.5	$(6.1)	$(4.3)	$(4.5)	(14.9)
U.S. dollar to Euro average exchange rate	0.84	0.83	0.83	0.85	0.87	0.85	0.89	0.94	0.99	0.94
U.S. dollar to Canadian dollar average exchange rate	1.30	1.27	1.23	1.26	1.26	1.25	1.27	1.28	1.31	1.28
Earnings (loss) per share
Basic	$0.03	$(0.02)	$0.11	$(0.03)	$0.03	$0.09	$0.05	$(0.07)	$(0.07)	(0.09)
Diluted	$0.03	$(0.02)	$0.11	$(0.03)	$0.02	$0.08	$0.04	$(0.06)	$(0.07)	(0.09)

Notes

(1) During the second quarter of 2021, we recorded a $5.9 million bargain purchase gain from the acquisition of Stako.

(2) During the first quarter of 2022, we recorded a $19.1 million gain on sale of investment from the sale of our interest in CWI and the monetization of the related intellectual property.

(3) These financial measures or ratios are non-GAAP financial measures or ratios. See the section 'Non-GAAP Financial Measures' for explanations and discussion of these non-GAAP financial measures or ratios.

Management's Discussion and Analysis

Non-GAAP Financial Measures:

In addition to the results presented in accordance with U.S. GAAP, we used EBIT, EBITDA, Adjusted EBITDA, gross margin, gross margin as a percentage of revenue, net working capital, and non-current liabilities (collectively, the “Non-GAAP Measures") throughout this MD&A. We believe these non-GAAP measures provide additional information that is useful to stakeholders in understanding our underlying performance and trends through the same financial measures employed by our management. We believe that EBIT, EBITDA, and Adjusted EBITDA are useful to both management and investors in their analysis of our ability to generate liquidity by producing operating cash flow to fund working capital needs, service debt obligations and fund capital expenditures. Management also uses these non-GAAP measures in its review and evaluation of the financial performance of Westport. EBITDA is also frequently used by stakeholders for valuation purposes whereby EBITDA is multiplied by a factor or "EBITDA multiple" that is based on an observed or inferred relationship between EBITDA and market values to determine the approximate total enterprise value of a company. We believe that these non-GAAP financial measures also provide additional insight to stakeholders as supplemental information to our U.S. GAAP results and as a basis to compare our financial performance period-over-period and to compare our financial performance with that of other companies. We believe that these non-GAAP financial measures facilitate comparisons of our core operating results from period to period and to other companies by, in the case of EBITDA, removing the effects of our capital structure (net interest income on cash deposits, interest expense on outstanding debt and debt facilities), asset base (depreciation and amortization) and tax consequences. Adjusted EBITDA provides this same indicator of Westport's EBITDA from operations and removing such effects of our capital structure, asset base and tax consequences, but additionally excludes any unrealized foreign exchange gains or losses, stock-based compensation charges and other one-time impairments and costs which are not expected to be repeated in order to provide greater insight into the cash flow being produced from our operating business, without the influence of extraneous events. Readers should be aware that non-GAAP measures have no standardized meaning under U.S. GAAP and accordingly may not be comparable to the calculation of similar measures by other companies. Non-GAAP measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP.

Three months ended	31-Mar-21			30-Jun-21			30-Sep-21			31-Dec-21			31-Mar-22			30-Jun-22			30-Sep-22
Revenue	$	76.4		$	79.0		$	74.3		$	82.7		$	76.5		$	80.0		$	71.2
Less: Cost of revenue	63.4			63.3			64.2			73.4			66.6			69.5			59.9
Gross margin	13.0			15.7			10.1			9.3			9.9			10.5			11.3
Gross margin %	17.0		%	19.9		%	13.6		%	11.2		%	12.9		%	13.1		%	15.9		%
	September 30, 2022	December 31, 2021
---	---	---	---	---	---
(expressed in millions of U.S. dollars)
Accounts receivable		$	90.9	$	101.5
Inventories		82.9		83.1
Prepaid expenses		9.0		7.0
Assets held for sale		—		22.0
Accounts payable and accrued liabilities		(82.4)		(99.2)
Current portion of operating lease liabilities		(3.5)		(4.2)
Current portion of warranty liability		(9.0)		(13.5)
Net working capital		$	87.9	$	96.7
Management's Discussion and Analysis
---			September 30, 2022	December 31, 2021
---	---	---	---	---	---
(expressed in millions of U.S. dollars)
Total liabilities		$	180.5	$	234.9
Less:
Total current liabilities		115.4		146.5
Long-term debt		32.9		45.1
Long-term royalty payable		4.3		4.7
Other non-current liabilities		$	27.9	$	38.6
Three months ended	31-Mar-21		30-Jun-21		30-Sep-21		31-Dec-21		31-Mar-22		30-Jun-22		30-Sep-22
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Income (loss) before income taxes	$	(2.8)	$	9.1	$	(5.4)	$	4.6	$	7.6	$	(11.5)	$	(11.0)
Interest expense, net (1)	1.2		1.1		0.9		0.3		1.0		0.7		0.2
EBIT	(1.6)		10.2		(4.5)		4.9		8.6		(10.8)		(10.8)
Depreciation and amortization	3.5		3.7		3.3		3.5		3.1		3.1		2.8
EBITDA	$	1.9	$	13.9	$	(1.2)	$	8.4	$	11.7	$	(7.7)	$	(8.0)

Notes

(1) Interest expense, net is calculated as interest and other income, net of bank charges and interest on long-term debt and accretion of royalty payables.

Three months ended	31-Mar-21		30-Jun-21		30-Sep-21		31-Dec-21		31-Mar-22		30-Jun-22		30-Sep-22
EBITDA	$	1.9	$	13.9	$	(1.2)	$	8.4	$	11.7	$	(7.7)	$	(8.0)
Stock based compensation	0.1		0.5		0.7		0.6		0.5		0.9		0.8
Unrealized foreign exchange (gain) loss	0.7		(2.3)		(0.9)		0.5		0.8		2.5		2.7
Asset impairment	—		—		—		0.5		—		—		—
Bargain purchase gain	—		(5.9)		—		—		—		—		—
(Gain) loss on sale of investment	—		—		—		—		(19.1)		—		—
Adjusted EBITDA	$	2.7	$	6.2	$	(1.4)	$	10.0	$	(6.1)	$	(4.3)	$	(4.5)

15

Document

Condensed Consolidated Interim Financial Statements (unaudited)

(Expressed in thousands of United States dollars)

WESTPORT FUEL SYSTEMS INC.

For the three and nine months ended September 30, 2022 and 2021

WESTPORT FUEL SYSTEMS INC.
Condensed Consolidated Interim Balance Sheets (unaudited)
(Expressed in thousands of United States dollars, except share amounts)
September 30, 2022 and December 31, 2021			September 30, 2022		December 31, 2021
---	---	---	---	---
Assets
Current assets:
Cash and cash equivalents (including restricted cash)	$	86,501	$	124,892
Accounts receivable (note 4)	90,882		101,508
Inventories (note 5)	82,854		83,128
Prepaid expenses	8,952		6,997
Assets held for sale	—		22,039
Total current assets	269,189		338,564
Long-term investments	4,441		3,824
Property, plant and equipment (note 7)	56,900		64,420
Operating lease right-of-use assets	22,123		28,830
Intangible assets (note 8)	7,531		9,286
Deferred income tax assets	9,136		11,653
Goodwill	2,707		3,121
Other long-term assets	20,940		11,615
Total assets	$	392,967	$	471,313
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued liabilities (note 9)	$	82,369	$	99,238
Current portion of operating lease liabilities (note 10)	3,460		4,190
Short-term debt (note 11)	8,702		13,652
Current portion of long-term debt (note 12)	10,582		10,590
Current portion of long-term royalty payable (note 13)	1,320		5,200
Current portion of warranty liability (note 14)	8,960		13,577
Total current liabilities	115,393		146,447
Long-term operating lease liabilities (note 10)	18,432		24,362
Long-term debt (note 12)	32,850		45,125
Long-term royalty payable (note 13)	4,250		4,747
Warranty liability (note 14)	1,615		5,214
Deferred income tax liabilities	3,182		3,392
Other long-term liabilities	4,809		5,607
Total liabilities	180,531		234,894
Shareholders’ equity:
Share capital (note 15):
Unlimited common and preferred shares, no par value
171,296,279 (2021 - 170,799,325) common shares issued and outstanding	1,243,250		1,242,006
Other equity instruments	9,140		8,412
Additional paid in capital	11,516		11,516
Accumulated deficit	(1,007,817)		(992,021)
Accumulated other comprehensive loss	(43,653)		(33,494)
Total shareholders' equity	212,436		236,419
Total liabilities and shareholders' equity	$	392,967	$	471,313
Commitments and contingencies (note 17)

See accompanying notes to condensed consolidated interim financial statements.

Approved on behalf of the Board:	Anthony Guglielmin	Director	Brenda J. Eprile	Director
WESTPORT FUEL SYSTEMS INC.
---
Condensed Consolidated Interim Statements of Operations and Comprehensive Income (Loss) (unaudited)
(Expressed in thousands of United States dollars, except share and per share amounts)
Three and nine months ended September 30, 2022 and 2021
	Three months ended September 30,				Nine months ended September 30,
---	---	---	---	---	---	---	---	---
	2022		2021		2022		2021
Revenue	$	71,182	$	74,343	$	227,690	$	229,794
Cost of revenue and expenses:
Cost of revenue	59,910		64,214		195,986		190,905
Research and development	6,473		6,207		17,661		20,419
General and administrative	8,649		9,058		26,853		27,581
Sales and marketing	3,351		3,176		10,914		9,828
Foreign exchange (gain) loss	2,648		(893)		5,985		(2,495)
Depreciation and amortization	1,074		1,224		3,342		4,188
Gain on sale of assets	—		—		—		(146)
	82,105		82,986		260,741		250,280
Loss from operations	(10,923)		(8,643)		(33,051)		(20,486)
Income from investments accounted for by the equity method	202		4,098		953		18,738
Gain on sale of investment (note 6)	—		—		19,119		—
Interest on long-term debt and accretion on royalty payable	(796)		(1,380)		(2,695)		(4,437)
Bargain purchase gain from acquisition	—		—		—		5,856
Interest and other income, net of bank charges	555		482		793		1,212
Income (loss) before income taxes	(10,962)		(5,443)		(14,881)		883
Income tax expense (recovery)	965		325		915		(7,438)
Net income (loss) for the period	(11,927)		(5,768)		(15,796)		8,321
Other comprehensive income (loss):
Cumulative translation adjustment	(5,514)		(4,067)		(10,159)		(7,864)
Comprehensive income (loss)	$	(17,441)	$	(9,835)	$	(25,955)	$	457
Income (loss) per share:
Net income (loss) per share - basic and diluted	$	(0.07)	$	(0.03)	$	(0.09)	$	0.05
Weighted average common shares outstanding:
Basic	171,246,067		169,500,461		171,200,403		156,673,290
Diluted	171,246,067		169,500,461		171,200,403		158,533,077

See accompanying notes to condensed consolidated interim financial statements.

WESTPORT FUEL SYSTEMS INC.
Condensed Consolidated Interim Statements of Shareholders' Equity (unaudited)
(Expressed in thousands of United States dollars, except share amounts)
Three and nine months ended September 30, 2022 and 2021			Common Shares Outstanding	Share capital		Other equity instruments		Additional paid in capital		Accumulated deficit		Accumulated other comprehensive loss		Total shareholders' equity
---	---	---	---	---	---	---	---	---	---	---	---	---	---
	Three months ended September 30, 2021
July 1, 2021	168,801,162	$	1,238,856	$	7,773	$	11,516	$	(991,590)	$	(28,338)	$	238,217
Issuance of common shares on exercise of share units	116,173	389		(389)		—		—		—		—
Issuance of common shares on conversion of<br>convertible debt	1,836,750	2,609		—		—		—		—		2,609
Stock-based compensation	—	—		599		—		—		—		599
Net loss for the period	—	—		—		—		(5,768)		—		(5,768)
Other comprehensive loss	—	—		—		—		—		(4,067)		(4,067)
September 30, 2021	170,754,085	$	1,241,854	$	7,983	$	11,516	$	(997,358)	$	(32,405)	$	231,590
	Nine months ended September 30, 2021
January 1, 2021	144,069,972	$	1,115,092	$	7,671	$	11,516	$	(1,005,679)	$	(24,541)	$	104,059
Issuance of common shares on exercise of share units	282,534	849		(849)		—		—		—		—
Issuance of common shares on conversion of<br>convertible debt	3,651,867	5,186		—		—		—		—		5,186
Issuance of common shares on at-the-market<br>public offering, net of costs incurred	1,819,712	12,806		—		—		—		—		12,806
Issue of common shares on public offering, net of<br>costs incurred	20,930,000	107,921		—		—		—		—		107,921
Stock-based compensation	—	—		1,161		—		—		—		1,161
Net income for the period	—	—		—		—		8,321		—		8,321
Other comprehensive loss	—	—		—		—		—		(7,864)		(7,864)
September 30, 2021	170,754,085	$	1,241,854	$	7,983	$	11,516	$	(997,358)	$	(32,405)	$	231,590
	Three months ended September 30, 2022
July 1, 2022	171,219,038	$	1,243,143	$	8,516	$	11,516	$	(995,890)	$	(38,139)	$	229,146
Issuance of common shares on exercise of share units	77,241	107		(107)		—		—		—		—
Stock-based compensation	—	—		731		—		—		—		731
Net loss for the period	—	—		—		—		(11,927)		—		(11,927)
Other comprehensive loss	—	—		—		—		—		(5,514)		(5,514)
September 30, 2022	171,296,279	$	1,243,250	$	9,140	$	11,516	$	(1,007,817)	$	(43,653)	$	212,436
	Nine months ended September 30, 2022
January 1, 2022	170,799,325	$	1,242,006	$	8,412	$	11,516	$	(992,021)	$	(33,494)	$	236,419
Issuance of common shares on exercise of share units	496,954	1,244		(1,244)		—		—		—		—
Stock-based compensation	—	—		1,972		—		—		—		1,972
Net loss for the period	—	—		—		—		(15,796)		—		(15,796)
Other comprehensive loss	—	—		—		—		—		(10,159)		(10,159)
September 30, 2022	171,296,279	$	1,243,250	$	9,140	$	11,516	$	(1,007,817)	$	(43,653)	$	212,436

See accompanying notes to condensed consolidated interim financial statements.

WESTPORT FUEL SYSTEMS INC.
Condensed Consolidated Interim Statements of Cash Flows (unaudited)
(Expressed in thousands of United States dollars)
Three and nine months ended September 30, 2022 and 2021
	Three months ended September 30,				Nine months ended September 30,
---	---	---	---	---	---	---	---	---
	2022		2021		2022		2021
Cash flows from (used in) operating activities:
Net income (loss) for the period	$	(11,927)	$	(5,768)	$	(15,796)	$	8,321
Items not involving cash:
Depreciation and amortization	2,900		3,309		9,040		10,485
Stock-based compensation expense	815		629		2,210		1,252
Unrealized foreign exchange (gain) loss	2,648		(893)		5,985		(2,495)
Deferred income tax	531		69		—		(9,606)
Income from investments accounted for by the equity method	(202)		(4,098)		(953)		(18,738)
Interest on long-term debt and accretion on royalty payable	796		1,380		2,695		4,437
Change in inventory write-downs to net realizable value	476		87		1,025		409
Bargain purchase gain from acquisition	—		—		—		(5,856)
Change in bad debt expense	219		178		278		152
Gain on sale of assets	—		—		—		(146)
Gain on sale of investment	—		—		(19,119)		—
Net cash used before working capital changes	(3,744)		(5,107)		(14,635)		(11,785)
Changes in non-cash operating working capital:
Accounts receivable	3,342		7,574		5,813		2,532
Inventories	(387)		(11,851)		(12,270)		(23,794)
Prepaid expenses	(2,555)		(1,717)		(3,743)		4,639
Accounts payable and accrued liabilities	(3,055)		(2,154)		(10,489)		4,134
Warranty liability	(2,192)		(1,136)		(6,671)		(1,423)
Net changes in non-cash operating working capital	(4,847)		(9,284)		(27,360)		(13,912)
Net cash used in operating activities	(8,591)		(14,391)		(41,995)		(25,697)
Cash flows from (used in) investing activities:
Purchase of property, plant and equipment and other assets	(2,467)		(5,084)		(8,450)		(7,946)
Sale of investments, net	—		—		—		600
Purchase of intangible assets	(78)		—		(374)		—
Acquisition, net of acquired cash	—		—		—		(5,948)
Proceeds on sale of investments and assets	—		—		31,949		—
Dividends received from joint ventures	—		7,229		—		21,502
Net cash from (used in) investing activities	(2,545)		2,145		23,125		8,208
Cash flows from (used in) financing activities:
Repayments of short and long-term facilities	(13,353)		(17,191)		(49,952)		(56,606)
Drawings on operating lines of credit and long-term facilities	9,707		13,987		35,099		39,985
Payment of royalty payable	—		—		(5,200)		(7,451)
Proceeds from share issuance, net	—		—		—		120,727
Net cash from (used in) financing activities	(3,646)		(3,204)		(20,053)		96,655
Effect of foreign exchange on cash and cash equivalents	3,109		(3,362)		532		(1,529)
Increase (decrease) in cash and cash equivalents	(11,673)		(18,812)		(38,391)		77,637
Cash and cash equivalents, beginning of period (including restricted cash)	98,174		160,711		124,892		64,262
Cash and cash equivalents, end of period (including restricted cash)	$	86,501	$	141,899	$	86,501	$	141,899
WESTPORT FUEL SYSTEMS INC.
---
Condensed Consolidated Interim Statements of Cash Flows (unaudited)
(Expressed in thousands of United States dollars)
Three and nine months ended September 30, 2022 and 2021
	Three months ended September 30,				Nine months ended September 30,
---	---	---	---	---	---	---	---	---
	2022		2021		2022		2021
Supplementary information:
Interest paid	$	578	$	625	$	2,212	$	2,987
Taxes paid, net of refunds	406		1,880		1,245		2,554

See accompanying notes to condensed consolidated interim financial statements.

WESTPORT FUEL SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
(Expressed in thousands of United States dollars, except share and per share amounts)
Three and nine months ended September 30, 2022 and 2021

1.      Company organization and operations:
   

Westport Fuel Systems Inc. (the “Company”) was incorporated under the Business Corporations Act (Alberta) on March 20, 1995. Westport Fuel Systems is a global company focused on engineering, manufacturing, and supplying alternative fuel systems and components for transportation applications. The Company’s diverse product offerings sold under a wide range of established global brands enable the use of a number of alternative fuels in the transportation sector which provide environmental and/or economic advantages as compared to diesel, gasoline, batteries or fuel cell powered vehicles. The Company's fuel systems and associated components control the pressure and flow of these alternative fuels, including liquid petroleum gas ("LPG"), compressed natural gas ("CNG"), liquified natural gas ("LNG"), renewable natural gas ("RNG") or biomethane, and hydrogen. The Company supplies its products in more than 70 countries through a network of distributors, service providers for the aftermarket and directly to original equipment manufacturers (“OEMs”) and Tier 1 and Tier 2 OEM suppliers. The Company’s products and services are available for passenger car and light-, medium- and heavy-duty truck and off-road applications.

2.      Liquidity,  global supply chain challenges and inflationary environment:
   

The Company is closely monitoring and making efforts to mitigate the impact on the business from global supply chain shortages of semiconductors, raw materials and other parts. Besides shortages, the Company is incurring inflationary pressure on production input costs from sourcing semiconductors, raw materials, and parts, and higher energy costs in operating the Company's factories that are impacting margins. Like other automotive manufacturers or suppliers, the Company sources components globally and has been impacted along with its customers by global supply chain disruptions and inflation.

The Company believes that it has considered all possible impacts of known events arising from inflation and supply chain disruptions in the preparation of the condensed consolidated interim financial statements ("interim financial statements"); however, changes in circumstances due to COVID-19 could impact management's judgments and estimates associated with the liquidity and going concern assessment, and other critical accounting assessments.

The Company continues to sustain operating losses and negative cash flows from operating activities. As at September 30, 2022, the Company has cash and cash equivalents of $86,501 and used cash in operating activities for the three months ended September 30, 2022 of $8,591 primarily driven by the operating losses of $10,923 and the net changes in working capital. The ability to continue as a going concern beyond November 2023 will depend on the Company's ability to generate sufficient positive cash flows from all its operations, specifically through profitable, sustainable growth, and on the Company's ability to finance its long-term strategic objectives and operations.

3.      Basis of preparation:
   

(a)    Basis of presentation:

These interim financial statements have been prepared in accordance with U.S. GAAP.

These interim financial statements do not include all note disclosures required on an annual basis, and therefore, should be read in conjunction with the annual audited consolidated financial statements for the year ended December 31, 2021, filed with the appropriate securities regulatory authorities. The Company followed the same policies and procedures as in the annual audited consolidated financial statements for the year ended December 31, 2021.

In the opinion of management, all adjustments, which include reclassifications and normal recurring adjustments necessary to present fairly the condensed consolidated interim balance sheets, condensed consolidated interim results of operations and comprehensive income and loss, condensed consolidated interim statements of shareholders' equity and condensed consolidated interim cash flows as at September 30, 2022 and for all periods presented, have been recorded. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results for the Company's full year.

WESTPORT FUEL SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
(Expressed in thousands of United States dollars, except share and per share amounts)
Three and nine months ended September 30, 2022 and 2021

3.      Basis of preparation \(continued\):
   

(b)    Foreign currency translation:

The Company’s functional currency is the Canadian dollar and its reporting currency for its consolidated financial statement presentation is the United States Dollar (“U.S. Dollar”). The functional currencies for the Company's subsidiaries include the following: U.S. Dollar, Canadian dollar, Euro, Argentina Peso, Chinese Renminbi (“RMB”), Swedish Krona, Indian Rupee, and Polish Zloty. The Company translates assets and liabilities of non-U.S. dollar functional currency operations using the period end exchange rates, shareholders’ equity balances using the weighted average of historical exchange rates, and revenues and expenses using the monthly average rate for the period, with the resulting exchange differences recognized in other comprehensive income.

Transactions that are denominated in currencies other than the functional currencies of the Company’s or its subsidiaries' operations are translated at the rates in effect on the date of the transaction. Foreign currency denominated monetary assets and liabilities are translated to the applicable functional currency at the exchange rates in effect on the balance sheet date. Non-monetary assets and liabilities are translated at the historical exchange rate. All foreign exchange gains and losses are recognized in the statement of operations, except for the translation gains and losses arising from available-for-sale instruments, which are recorded through other comprehensive income until realized through disposal or impairment.

Except as otherwise noted, all amounts in these interim financial statements are presented in thousands of U.S. dollars. For the periods presented, the Company used the following exchange rates:

	Period ended		Average for the three months ended		Average for the nine months ended
	September 30, 2022	December 31, 2021	September 30, 2022	September 30, 2021	September 30, 2022	September 30, 2021
Canadian Dollar	1.37	1.27	1.31	1.26	1.28	1.25
Euro	1.02	0.88	0.99	0.85	0.94	0.84
RMB	7.13	6.35	6.85	6.47	6.60	6.47
Polish Zloty	4.95	4.04	4.71	3.88	4.38	3.84
Swedish Krona	11.22	9.05	10.55	8.65	9.88	8.48
Indian Rupee	81.64	74.45	79.79	74.08	77.35	73.59
Argentina Peso	146.83	102.54	135.30	97.26	118.67	105.35

4.      Accounts receivable:
   

	September 30, 2022		December 31, 2021
Customer trade receivables	$	75,223	$	90,324
Other receivables	16,511		14,504
Income tax receivable	797		872
Due from related parties (note 16)	2,598		1,651
Allowance for expected credit losses	(4,247)		(5,843)
	$	90,882	$	101,508
WESTPORT FUEL SYSTEMS INC.
---
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
(Expressed in thousands of United States dollars except share and per share amounts)
Three and nine months ended September 30, 2022 and 2021

5.      Inventories:
   

	September 30, 2022		December 31, 2021
Purchased parts	$	58,536	$	62,896
Work-in-process	3,228		3,681
Finished goods	21,090		16,551
	$	82,854	$	83,128

During the three and nine months ended September 30, 2022, the Company recorded write-downs to net realizable value of approximately $476 and $1,025, respectively (three and nine months ended September 30, 2021 - $87 and $409, respectively).

6.      Sale of investment: :
   

	September 30, 2022		December 31, 2021
Cummins Westport Inc.	$	—	$	22,039

On February 7, 2022, the Company sold 100% of its shares in Cummins Westport Inc. ("CWI") to Cummins Inc. ("Cummins") for proceeds of $22,200, with Cummins continuing to operate the business as the sole owner. As part of the agreement, Cummins agreed to purchase the Company's interest in the intellectual property with proceeds to the Company of $20,000. The Company received proceeds of $31,445, net of a $10,800 holdback, after the closing date. The holdback will be retained by Cummins for a term of three years to satisfy any extended warranty obligations in excess of the recorded extended warranty obligation. Any unused amounts will be repaid to the Company at the end of three-year term and, in the event that the holdback is not sufficient to cover the extended warranty obligations, the Company may also be required to supplement this holdback amount to cover valid extended warranty claims.

	September 30, 2022
Proceeds from sale of investment	$	31,445
Holdback receivable1	9,713
Carrying value of investment	(22,039)
Gain on sale of investment	$	19,119

1Holdback receivable is included in Other long-term assets in the condensed consolidated interim balance sheet.

7.      Property, plant and equipment:
   

			Accumulated		Net book
September 30, 2022	Cost		depreciation		value
Land and buildings	$	7,819	$	1,959	$	5,860
Computer equipment and software	8,748		6,578		2,170
Furniture and fixtures	6,597		5,596		1,001
Machinery and equipment	109,139		64,205		44,934
Leasehold improvements	13,014		10,079		2,935
	$	145,317	$	88,417	$	56,900
WESTPORT FUEL SYSTEMS INC.
---
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
(Expressed in thousands of United States dollars except share and per share amounts)
Three and nine months ended September 30, 2022 and 2021

7.      Property, plant and equipment \(continued\):
   

			Accumulated		Net book
December 31, 2021	Cost		depreciation		value
Land and buildings	$	8,843	$	1,883	$	6,960
Computer equipment and software	7,965		6,054		1,911
Furniture and fixtures	6,223		5,149		1,074
Machinery and equipment	113,479		62,320		51,159
Leasehold improvements	13,502		10,186		3,316
	$	150,012	$	85,592	$	64,420

8.      Intangible assets:
   

			Accumulated		Net book
September 30, 2022	Cost		amortization		value
Brands, patents and trademarks	$	18,259	$	10,936	$	7,323
Technology	3,614		3,406		208
Customer contracts	$	10,282	$	10,282	$	—
	$	32,155	$	24,624	$	7,531
			Accumulated		Net book
---	---	---	---	---	---	---
December 31, 2021	Cost		amortization		value
Brands, patents and trademarks	$	20,748	$	11,823	$	8,925
Technology	4,202		3,894		308
Customer contracts	$	11,954	$	11,901	$	53
	$	36,904	$	27,618	$	9,286

9.      Accounts payable and accrued liabilities:
   

	September 30, 2022		December 31, 2021
Trade accounts payable	$	59,423	$	73,388
Accrued payroll	15,140		16,591
Taxes payable	4,071		4,621
Deferred revenue	3,735		3,503
Other payables	—		1,135
	$	82,369	$	99,238

10.      Operating leases right-of-use assets and lease liabilities:
    

The Company has entered into various non-cancellable operating lease agreements primarily for its manufacturing facilities and offices. The Company's leases have lease terms expiring between 2023 and 2038. Many leases include one or more options to renew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. The average remaining lease term is approximately five years and the present value of the outstanding operating lease liability was determined applying a weighted average discount rate of 3.0% based on incremental borrowing rates applicable in each location.

WESTPORT FUEL SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
(Expressed in thousands of United States dollars except share and per share amounts)
Three and nine months ended September 30, 2022 and 2021

10.      Operating leases right-of-use assets and lease liabilities \(continued\):
    

The components of lease cost are as follows:

	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Operating lease cost:
Amortization of right-of-use assets	$	833	$	850	$	2,705	$	2,491
Interest	170		197		556		621
Total lease cost	$	1,003	$	1,047	$	3,261	$	3,112

The maturities of lease liabilities as at September 30, 2022 are as follows:

The remainder of 2022	$	1,139
2023	3,095
2024	2,514
2025	2,152
2026	2,082
Thereafter	14,576
Total undiscounted cash flows	25,558
Less: imputed interest	(3,666)
Present value of operating lease liabilities	21,892
Less: current portion	(3,460)
Long term operating lease	$	18,432

11.      Short-term debt:
    

	September 30, 2022		December 31, 2021
Revolving financing facilities	$	8,702	$	13,652

(a)    The Company has a revolving financing facility with HSBC, which is secured by certain receivables of the Company and the maximum draw amount is $20,000, based on the receivables outstanding. As the Company collects these secured receivables, the facility is repaid. On December 22, 2021, the Company and HSBC amended the interest rates for the revolving financing facility's advances denominated in U.S. Dollars and Euros to the secured overnight financing rate plus 2.66% per annum and the Euro short-term rate plus 2.5%, respectively. As at September 30, 2022, the amount outstanding for this loan was $7,714 (December 31, 2021 - $12,965).

The Company has a revolving financing facility with Santander. The maximum draw amount is $1,010 (zł5,000 Polish Zloty). The interest rates for the revolving financing facility's advances denominated in Polish Zloty and Euros are the Warsaw interbank offered rate plus 1.3% per annum and the Euro interbank offered rate plus 1.3%, respectively. As at September 30, 2022, the amount outstanding for this loan was nil (December 31, 2021 - $687).

The Company has a revolving financing facility with ING. The maximum draw amount is $1,212 (zł6,000 Polish Zloty). The interest rate for the revolving financing facility's advance denominated in Polish Zloty is the Warsaw interbank offered rate plus 1.2% per annum. As at September 30, 2022, the amount outstanding for this loan was $988 (December 31, 2021 - nil).

WESTPORT FUEL SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
(Expressed in thousands of United States dollars except share and per share amounts)
Three and nine months ended September 30, 2022 and 2021

12.      Long-term debt:
    

	September 30, 2022		December 31, 2021
Term loan facilities, net of debt issuance costs (a)	$	41,849	$	53,516
Other bank financing (b)	469		544
Capital lease obligations (c)	1,114		1,655
Balance, end of period	43,432		55,715
Current portion	(10,582)		(10,590)
Long-term portion	$	32,850	$	45,125

(a)    On December 13, 2021, the credit facility and non-revolving term facility with Export Development Canada ("EDC") were refinanced into one $20,000 term loan. The refinanced term loan provides an extension of the maturity of the indebtedness to EDC to September 15, 2026 and reduced the interest rate to U.S. Prime Rate plus 2.01% per annum, both principal and interest repayments are quarterly. The Company incurred costs of $300 related to this amendment, which are being amortized over the remainder of the loan term from the debt modification date using the effective interest rate method. As at September 30, 2022, the amount outstanding for this loan was $15,672, net of transaction costs, compared to $18,583, net of transaction costs, as at December 31, 2021. The loan is secured by share pledges over Westport Fuel Systems Canada Inc., Fuel Systems Solutions, Inc., Westport Luxembourg S.a.r.l and by certain of the Company's property, plant and equipment.

On October 9, 2018, and November 28, 2019, the Company entered into two Euro denominated loan agreements with UniCredit S.p.A. (“UniCredit”). On April 29, 2021, the Company and UniCredit amended the terms of the above Euro denominated loan agreements to combine the facilities into one $8,803 loan facility. This loan matures on March 31, 2027, bears interest at an annual rate of 1.65% and interest is paid quarterly. The cash pledge as security was removed after the amendment. As at September 30, 2022, the amount outstanding for this loan was $7,338 compared to $8,470 as at December 31, 2021.

On May 20, 2020, the Company entered into a third Euro denominated loan agreement with UniCredit. The effective interest rate of this loan is 1.82% with a maturity date of May 31, 2025. As at September 30, 2022, the amount outstanding for this loan was $2,710 compared to $4,000 as at December 31, 2021. There is no security on the loan as it was made as part of the Italian government's COVID-19 Decreto Liquidità to help Italian companies to secure liquidity to continue operating while mitigating some of the impact of COVID-19.

On July 17, 2020, the Company entered into a fourth Euro denominated loan agreement with UniCredit. The effective interest rate of this loan is 1.75% with a maturity date of July 31, 2026. As at September 30, 2022, the amount outstanding for this loan was $11,015 compared to $15,335 as at December 31, 2021. There is no security on the loan as it was made as part of the Italian government’s COVID-19 Decreto Liquidità.

On August 11, 2020, the Company entered into a Euro denominated loan agreement with Deutsche Bank. The effective interest rate of this loan is 1.7% with a maturity date of August 31, 2026. As at September 30, 2022, the amount outstanding for this loan was $5,114 compared to $7,128 as at December 31, 2021. There is no security on the loan as it was made as part of the Italian government’s COVID-19 Decreto Liquidità.

(b)    Other bank financing consists of an unsecured bank financing arrangements with interest rate of 0.55% and matures in 2027.

(c)    The Company has capital lease obligations with terms of two to five years at interest rates ranging from 1.3% to 5.7%.

Throughout the term of certain of these financing arrangements, the Company is required to meet certain financial and non-financial covenants. As of September 30, 2022, the Company is in compliance with all covenants under the financing arrangements.

WESTPORT FUEL SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
(Expressed in thousands of United States dollars except share and per share amounts)
Three and nine months ended September 30, 2022 and 2021

12.      Long-term debt \(continued\):
    

The principal repayment schedule of long-term debt is as follows as at September 30, 2022:

	Term loan facilities		Other bank financing		Capital lease obligations		Total
Remainder of 2022	$	2,227	$	—	$	105	$	2,332
2023	10,584		—		417		11,001
2024	11,077		117		378		11,572
2025	10,549		117		186		10,852
2026 and thereafter	7,412		235		28		7,675
	$	41,849	$	469	$	1,114	$	43,432

13.      Long-term royalty payable:
    

	September 30, 2022		December 31, 2021
Balance, beginning of period	$	9,947	$	16,042
Accretion expense	823		1,356
Repayment	(5,200)		(7,451)
Balance, end of period	5,570		9,947
Current portion	(1,320)		(5,200)
Long-term portion	$	4,250	$	4,747

On January 11, 2016, the Company entered into a financing agreement with Cartesian to support the Company's global growth initiatives. The financing agreement immediately provided $17,500 in cash (the “Tranche 1 Financing”). In consideration for the funds provided to the Company, Cartesian is entitled to royalty payments based on the greater of (i) a percentage of amounts received by the Company on select HPDI systems and CWI joint venture income through 2025 and (ii) stated fixed amounts per annum (subject to adjustment for asset sales). The carrying value is being accreted to the expected redemption value using the effective interest method, which is approximately 23% per annum. Pursuant to the sale of CWI, amounts due to Cartesian are solely secured by an interest in the Company's HPDI 2.0 fuel systems intellectual property.

In January 2017, the Company and Cartesian signed a Consent Agreement which allows the Company to sell certain assets in exchange for prepayment of the Cartesian royalty. Cartesian was paid 15% of the net proceeds from these asset sales to a maximum of $15,000, with this payment being allocated on a non-discounted basis to future years' minimum payments.

As at September 30, 2022, the total royalty prepayments paid to Cartesian as a result of the Consent Agreement was $11,912.

The repayments including interest are as follows, for the twelve months ended September 30:

2023	1,320
2024	1,848
2025	2,270
2026	2,851
	$	8,289
WESTPORT FUEL SYSTEMS INC.
---
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
(Expressed in thousands of United States dollars except share and per share amounts)
Three and nine months ended September 30, 2022 and 2021

14.      Warranty liability:
    

A continuity of the warranty liability is as follows:

	September 30, 2022		December 31, 2021
Balance, beginning of period	$	18,791	$	18,936
Warranty claims and expenditures	(8,893)		(5,322)
Warranty accruals	3,058		7,025
Change in estimate	(3)		(337)
Impact of foreign exchange	(2,378)		(1,511)
Balance, end of period	10,575		18,791
Less: current portion	(8,960)		(13,577)
Long-term portion	$	1,615	$	5,214

15.      Share capital, stock options and other stock-based plans:
    

During the three and nine months ended September 30, 2022, the Company issued 77,241 and 496,954 common shares, respectively, net of cancellations, upon exercises of share units (three and nine months ended September 30, 2021 – 116,173 and 282,534 common shares, respectively). The Company issues shares from treasury to satisfy share unit exercises.

(a)    Share Units (“Units”):

The value assigned to issued Units and the amounts accrued are recorded as other equity instruments. As Units are exercised or vest and the underlying shares are issued from treasury of the Company, the value is reclassified to share capital.

During the three and nine months ended September 30, 2022, the Company recognized $807 and $2,202, respectively (three and nine months ended September 30, 2021 - $629 and $1,252, respectively) of stock-based compensation associated with the Westport Omnibus Plan.

A continuity of the Units issued under the Westport Omnibus Plan as at September 30, 2022 and September 30, 2021 are as follows:

	Nine months ended September 30, 2022		Nine months ended September 30, 2021
	Number of<br>units	Weightedaveragegrantdate fairvalue(CDN )	Number of<br>units	Weightedaveragegrantdate fairvalue(CDN )
Outstanding, beginning of period	1,866,433		1,452,378
Granted	2,541,098	1.83	814,617	5.02
Exercised	(496,954)	3.18	(282,534)	3.79
Forfeited/expired	(42,160)	2.84	(124,674)	1.55
Outstanding, end of period	3,868,417		1,859,787
Units outstanding and exercisable, end of period	1,117		—

All values are in US Dollars.

WESTPORT FUEL SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
(Expressed in thousands of United States dollars except share and per share amounts)
Three and nine months ended September 30, 2022 and 2021

15.      Share capital, stock options and other stock-based plans \(continued\):
    

During the nine months ended September 30, 2022, 2,541,098 share units were granted to certain employees and directors (2021 - 814,617). This included 1,319,700 restricted share units (“RSUs”) (2021 - 814,617) and 1,221,398 performance share units (“PSUs”) (2021 - nil). Values of RSU awards are generally determined based on the fair market value of the underlying common shares on the date of grant. RSUs typically vest over a three-year period so the actual value received by the individual depends on the share price on the day such RSUs are settled for common shares, not the date of grant. PSU awards do not have a certain number of common shares that will issue over time, but are based on future performance and other conditions tied to the payout of the PSU.

As at September 30, 2022, $4,688 of compensation cost related to Units awarded has yet to be recognized in results from operations and will be recognized ratably over two years.

(b)    Aggregate intrinsic values:

The aggregate intrinsic value of the Company’s share units at September 30, 2022 as follows:

	September 30, 2022
	(CDN )
Share units:
Outstanding
Exercisable	7

All values are in US Dollars.

(c)    Stock-based compensation:

Stock-based compensation associated with the Unit plans is included in operating expenses as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Cost of revenue	$	63	$	26	$	160	$	49
Research and development	110		80		291		135
General and administrative	558		494		1,558		994
Sales and marketing	76		29		193		74
	$	807	$	629	$	2,202	$	1,252

16.      Related party transactions:
    

The Company enters into related party transactions with Minda Westport Technologies Limited and recognized $2,588 of accounts receivable as at September 30, 2022 (December 31, 2021 - $1,593). During the three and nine months ended September 30, 2022, the Company sold inventory to Minda Westport Technologies Limited for $310 and $2,891, respectively (three and nine months ended September 30, 2021 - nil and nil, respectively).

WESTPORT FUEL SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
(Expressed in thousands of United States dollars except share and per share amounts)
Three and nine months ended September 30, 2022 and 2021

17.      Commitments and contingencies:
    

(a)    Contractual commitments

The Company is a party to a variety of agreements in the ordinary course of business under which it is obligated to indemnify a third party with respect to certain matters. Typically, these obligations arise as a result of contracts for sale of the Company’s product to customers where the Company provides indemnification against losses arising from matters such as product liabilities. The potential impact on the Company’s financial results is not subject to reasonable estimation because considerable uncertainty exists as to whether claims will be made and the final outcome of potential claims. To date, the Company has not incurred significant costs related to these types of indemnifications.

(b)     Contingencies

The Company is engaged in certain legal actions and tax audits in the ordinary course of business and believes that, based on the information currently available, the ultimate outcome of these actions will not have a material adverse effect on our operating results, liquidity or financial position.

18.      Segment information:
    

The Company manages and reports the results of its business through three segments: OEM, Independent Aftermarket (“IAM”), and Corporate. This reflects the manner in which operating decisions and assessing business performance is currently managed by the Chief Operating Decision Maker (“CODM”).

As discussed in note 6 of these interim financial statements, the Company's 50% share in the CWI joint venture was sold on February 7, 2022. The Company recorded the gain on sale of investment during the three months ended March 31, 2022 and no longer considered it as an operating segment, however the income from the investment in the CWI joint venture remained as the Corporate equity income in 2021. The comparative segment information below was adjusted.

Financial information by business segment as follows:

	Three months ended September 30, 2022
	Revenue		Operating income (loss)		Depreciation & amortization		Equity income
OEM	$	44,142	$	(7,265)	$	2,073	$	202
IAM	27,040		2,145		713		—
Corporate	—		(5,803)		114		—
Total Consolidated	$	71,182	$	(10,923)	$	2,900	$	202
	Three months ended September 30, 2021
---	---	---	---	---	---	---	---	---
	Revenue		Operating income (loss)		Depreciation & amortization		Equity income
OEM	$	48,033	$	(7,385)	$	2,431	$	267
IAM	26,310		633		802		—
Corporate	—		(1,891)		67		3,831
Total Consolidated	$	74,343	$	(8,643)	$	3,300	$	4,098
WESTPORT FUEL SYSTEMS INC.
---
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
(Expressed in thousands of United States dollars except share and per share amounts)
Three and nine months ended September 30, 2022 and 2021

18.      Segment information \(continued\):
    

	Nine months ended September 30, 2022
	Revenue		Operating income (loss)		Depreciation & amortization		Equity income
OEM	$	150,243	$	(19,179)	$	6,367	$	953
IAM	77,447		1,778		2,371		—
Corporate	—		(15,650)		302		—
Total Consolidated	$	227,690	$	(33,051)	$	9,040	$	953			Nine months ended September 30, 2021
---	---	---	---	---	---	---	---	---
	Revenue		Operating income (loss)		Depreciation & amortization		Equity income
OEM	$	138,198	$	(17,268)	$	6,538	$	516
IAM	91,596		3,377		3,756		—
Corporate	—		(6,595)		182		18,222
Total Consolidated	$	229,794	$	(20,486)	$	10,476	$	18,738

Revenues are attributable to geographical regions based on the location of the Company’s customers and are presented as a percentage of the Company's revenues, as follows:

	% of total revenue
	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Europe	61	%	67	%	65	%	66	%
Asia	15	%	12	%	15	%	11	%
Americas	15	%	12	%	12	%	12	%
Africa	5	%	4	%	4	%	7	%
Other	4	%	5	%	4	%	4	%

Total assets are allocated as follows:

	September 30, 2022		December 31, 2021
OEM	$	218,341	$	193,928
IAM	131,273		148,745
Corporate	43,353		128,640
Total consolidated assets	$	392,967	$	471,313
WESTPORT FUEL SYSTEMS INC.
---
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
(Expressed in thousands of United States dollars except share and per share amounts)
Three and nine months ended September 30, 2022 and 2021

19.      Financial instruments:
    

(a)    Financial management risk

The Company has exposure to liquidity risk, credit risk, foreign currency risk and interest rate risk.

(b)    Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they are due.  The Company has a history of operating losses and negative cash flows from operations. At September 30, 2022, the Company had $86,501 of cash and cash equivalents.

The following are the contractual maturities of financial obligations as at September 30, 2022:

	Carrying<br>amount		Contractual<br>cash flows		< 1 year		1-3 years		4-5 years		>5 years
Accounts payable and accrued liabilities	$	82,369	$	82,369	$	82,369	$	—	$	—	$	—
Short-term debt (note 11)	8,702		8,702		8,702		—		—		—
Term loan facilities (note 12 (a))	41,849		48,169		12,765		24,676		10,728		—
Other bank financing (note 12 (b))	469		475		—		240		235		—
Long-term royalty payable (note 13)	5,570		8,289		1,320		4,118		2,851		—
Capital lease obligations (note 12 (c))	1,114		1,138		442		622		74		—
Operating lease obligations (note 10)	21,892		25,542		3,460		4,901		2,620		14,561
	$	161,965	$	174,684	$	109,058	$	34,557	$	16,508	$	14,561

(c)    Fair value of financial instruments:

The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short-term period to maturity of these instruments.

The long-term investments represent the Company's interests in Minda Westport Technologies Limited, Weichai Westport Inc. ("WWI") and other investments. Minda Westport Technologies Limited is the most significant of the investments and is accounted for using the equity method. WWI and other investments are accounted for at fair value.

The carrying values reported in the consolidated balance sheet for obligations under capital and operating leases, which are based upon discounted cash flows, approximate their fair values.

The carrying values of the term loan facilities, and other bank financing included in the long-term debt (note 12) do not materially differ from their fair value as at September 30, 2022.

WESTPORT FUEL SYSTEMS INC.
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
(Expressed in thousands of United States dollars except share and per share amounts)
Three and nine months ended September 30, 2022 and 2021

19.      Financial Instruments \(continued\):
    

The Company categorizes its fair value measurements for items measured at fair value on a recurring basis into three categories as follows:

Level 1 –	Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 –	Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 –	Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

When available, the Company uses quoted market prices to determine fair value and classify such items in Level 1.  When necessary, Level 2 valuations are performed based on quoted market prices for similar instruments in active markets and/or model–derived valuations with inputs that are observable in active markets.  Level 3 valuations are undertaken in the absence of reliable Level 1 or Level 2 information.

As at September 30, 2022, cash and cash equivalents are measured at fair value on a recurring basis and are included in Level 1.

18