6-K - WPRT - Equibles

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 May 2023

Commission File Number: 001-34152

WESTPORT FUEL SYSTEMS INC.

(Translation of registrant's name into English)

1691 West 75th Avenue, Vancouver, British Columbia, Canada, V6P 6P2

(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 MARCH 31, 2023
99.2	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 2023

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/ William E. Larkin
Name:	William E. Larkin
Title:	Chief Financial Officer

Date: May 8, 2023

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 months ended March 31, 2023 provides an update to our annual MD&A dated March 13, 2023 for the fiscal year ended December 31, 2022. 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, 2022 and our unaudited condensed consolidated interim financial statements for the three months ended March 31, 2023. 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 May 8, 2023.

Additional information relating to Westport, including our Annual Information Form (“AIF”) and Form 40-F each for the year ended December 31, 2022, 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, the orders or demand for our products (including from our HPDI 2.0TM fuel systems) supply agreement with Weichai Westport Inc. ("WWI"), the timing for the launch of WWI's engine equipped with Westport's HPDI 2.0 fuel systems, the variation of gross margins from our HPDI 2.0 fuel systems product and causes thereof, and the timing for relief of supply chain issues (including those related to semiconductor supply restrictions), opportunities available to sell and supply our products in North America, consumer confidence levels, the recovery of our revenues and the timing thereof, 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, our capital expenditures, our investments, cash and capital requirements, the intentions of our partners and potential customers, monetization of joint venture intellectual property, 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. 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, 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 Fuel Systems 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

GENERAL DEVELOPMENTS

•In February 2023, Westport announced a plan to invest up to $10.0 million in a global manufacturing facility in Changzhou Hydrogen Valley, China.

•In March 2023, Westport signed a third global heavy-duty OEM collaboration agreement to demonstrate Hydrogen HPDI fuel system on an internal combustion engine platform. This collaboration will be funded by the OEM with work commencing immediately and expected to continue throughout 2023.

•In April 2023, we entered into a settlement agreement with Cartesian Capital Group to terminate the Tranche 1 Financing agreement in exchange for mutual releases and cash consideration, which included the release of the security interest in our HPDI 2.0 fuel system intellectual property. We paid Cartesian Capital Group $8.7 million, which resulted in the derecognition of the long-term royalty payable.

•In April 2023, Westport’s Board of Directors approved a share consolidation of the Company's issued and outstanding common shares on a 10:1 basis. Under the terms of the consolidation, every 10 common shares of the Company’s outstanding shares will be consolidated into 1 common share.

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 variety of alternative fuels in the transportation sector which provide environmental and/or economic advantages as compared to diesel, gasoline, battery 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.

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 2.0TM 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 fuel system products are 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.
Management's Discussion and Analysis
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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 that the global semiconductor supply and raw materials shortages affecting the automotive industry will continue to impact our business for the foreseeable future. Besides shortages, we are experiencing inflationary pressure on production input costs from sourcing semiconductors, raw materials and parts, higher energy costs in operating our factories, and increased labor costs that are impacting margins. The prolonged supply chain disruption continues to have material impacts on production delays and end-customer demand declines. 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 $3.3 million for the three months ended March 31, 2023 compared to $3.0 million for the same period in 2022, with the increase of revenue mainly due to IAM business. We cannot provide assurance that future developments in the Russian-Ukraine conflict will not continue to have an adverse impact on the ongoing operations and financial condition of our business in Russia.

Fuel Prices

Although we have seen a recent decline in LNG and CNG pricing, it remained above historical levels in the first quarter of 2023. This volatility extends to liquid fuels including crude oil, diesel, and gasoline, given uncertainty in supply levels and European geopolitical risk due to the Russia-Ukraine conflict. Higher gaseous fuel price negatively impacts the price differential of gaseous fuels versus diesel and gasoline, which may impact our customers' decisions 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 increased LPG price differential to gasoline in Europe since the end of 2022 continued in first quarter of 2023 and was favourable to customer demand, which supported increased sales in our IAM and our Fuel Storage businesses.

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 months ended March 31, 2023. 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 fuel systems, 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 and

Management's Discussion and Analysis

decreasing end-customer demand. Cash used in operating activities was $8.6 million for the three months ended March 31, 2023. Despite the successful monetization of the Cummins Westport Inc. (“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 cash flows.

As at March 31, 2023, we had cash and cash equivalents of $72.0 million. Although we believe we have sufficient liquidity to continue as a going concern beyond May 2024, 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, we are 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.

FIRST QUARTER 2023 RESULTS

Revenues for the three months ended March 31, 2023 increased by 7% to $82.2 million compared to $76.5 million in the same quarter last year, primarily driven by increased sales volumes of our delayed OEM, fuel storage, hydrogen and electronics products, and increased sales volumes of IAM to the North America, Eastern Europe and South America market in the quarter. These were offset by the lower sales volumes to customers in India in the light-duty OEM business, and lower sales of CNG and LNG products due to higher natural gas prices in the European market.

We reported a net loss of $10.6 million for the three months ended March 31, 2023 compared to net income of $7.7 million for the same quarter last year. This change was primarily the result of:

•loss of equity income from the sale of our interest in the CWI joint venture including a $19.1 million gain recorded in the first quarter of 2022;

•increases in research and development expenditures of $1.4 million due to increased testing and engineering resources for our HPDI fuel systems and increased expenses in the hydrogen business;

•increases in our gross margin for the three months ended March 31, 2023 of $3.4 million compared to the same quarter last year due to higher sales volume in delayed OEM, fuel storage, hydrogen and electronics products, which is partially offset by the impact of increasing material, manufacturing labor costs because of global inflation;

•income tax expense of $0.9 million compared to an income tax recovery of $0.1 million in the same quarter last year mainly due to higher taxes from higher profitability of our European operations.

Cash and cash equivalents were $72.0 million at the end of the first quarter 2023. Cash used in operating activities during the was $8.6 million due to operating losses of $9.4 million, and net cash used in working capital of $3.9 million. Investing activities included the purchase of capital assets of $3.0 million. Financing activities were attributed to net debt repayments of $3.5 million in the period.

We reported negative adjusted EBITDA of $4.5 million, (see "Non-GAAP Measures" section in this MD&A) during the first quarter as compared to negative adjusted EBITDA of $6.1 million for the same quarter last year.

Management's Discussion and Analysis

SELECTED FINANCIAL INFORMATION

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

Selected Consolidated Statements of Operations Data


	2023			2022
(in millions of U.S. dollars, except for per share amounts and shares outstanding)
Revenue	$	82.2		$	76.5
Gross margin1	$	13.3		$	9.9
Gross margin %1	16		%	13		%
Income from investments accounted for by the equity method	$	0.1		$	0.3
Net income (loss)	$	(10.6)		$	7.7
Net income (loss) per share - basic	$	(0.06)		$	0.05
Net income (loss) per share - diluted	$	(0.06)		$	0.04
Weighted average basic shares outstanding	171.7			171.2
Weighted average diluted shares outstanding	171.7			174.5
EBIT1	$	(9.3)		$	8.6
EBITDA1	$	(6.3)		$	11.7
Adjusted EBITDA1	$	(4.5)		$	(6.1)

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.

Selected Balance Sheet Data

The following table sets forth a summary of our financial position as at March 31, 2023 and December 31, 2022:

	March 31, 2023		December 31, 2022
(in millions of U.S. dollars, except for per share amounts and shares outstanding)
Cash and cash equivalents	$	72.0	$	86.2
Net working capital1	81.8		77.5
Total assets	399.1		407.5
Short-term debt	9.1		9.1
Long-term debt, including current portion	42.5		43.9
Royalty payable, including current portion2	5.8		5.5
Other non-current liabilities1	33.0		31.3
Total liabilities	203.2		203.5
Shareholders' equity2	195.9		204.0

2Refer to note 21 of the unaudited condensed consolidated interim financial statements for subsequent event information.

Management's Discussion and Analysis

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.

(in millions of U.S. dollars)	Three Months Ended March 31, 2023
	Revenue		Operating Income (Loss)		Depreciation & Amortization		Equity Income (Loss)
OEM	$	56.3	$	(6.0)	$	2.3	$	0.1
IAM	25.9		—		0.6		—
Corporate	—		(3.4)		0.1		—
Total Consolidated	$	82.2	$	(9.4)	$	3.0	$	0.1
(in millions of U.S. dollars)	Three Months Ended March 31, 2022
---	---	---	---	---	---	---	---	---
	Revenue		Operating Income (Loss)		Depreciation & Amortization		Equity Income (Loss)
OEM	$	51.8	$	(6.3)	$	2.1	$	0.3
IAM	24.7		(0.4)		0.9		—
Corporate	—		(4.1)		0.1		—
Total Consolidated	$	76.5	$	(10.8)	$	3.1	$	0.3
Management's Discussion and Analysis
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Revenue for the three months ended March 31, 2023

(in millions of U.S. dollars)	Change
	2023		2022			%
OEM	$	56.3	$	51.8		9	%
IAM	25.9		24.7		1.2	5	%
Total Revenue	$	82.2	$	76.5		7	%

All values are in US Dollars.

OEM

Revenue for the three months ended March 31, 2023 was $56.3 million compared with $51.8 million for the three months ended March 31, 2022.

OEM revenue increased by $4.5 million in the first quarter of 2023 compared to the prior year period and was primarily driven by the increase in sales from delayed OEM, fuel storage, hydrogen and electronics businesses, which was partially offset by decreased light-duty OEM sales volumes in India. Sales volume from heavy-duty OEM decreased in the first quarter compared to the prior year period mainly due to the unfavorable fuel price differential between LNG and diesel in Europe.

IAM

Revenue for the three months ended March 31, 2023 was $25.9 million compared with $24.7 million for the three months ended March 31, 2022.

The increase in revenue for the three months ended March 31, 2023 compared to the prior year period was primarily driven by increased sales to North America, Eastern Europe and South America. This was partially offset by lower sales volumes in Middle East and Africa.

Gross Margin for the three months ended March 31, 2023

(in millions of U.S. dollars)	Three months ended March 31,		% of		Three months ended March 31,		% of		Change
	2023		Revenue		2022		Revenue			%
OEM	$	8.1	14	%	$	5.0	10	%		62	%
IAM	5.2		20	%	4.9		20	%	0.3	6	%
Total gross margin	$	13.3	16	%	$	9.9	13	%		34	%

All values are in US Dollars.

OEM

Gross margin for the three months ended March 31, 2023 increased by $3.1 million to $8.1 million, or 14% of revenue, compared to $5.0 million, or 10% of revenue, for the same prior year period.

The increase in gross margin for the three months ended March 31, 2023 was driven primarily by the increased sales volumes in

delayed OEM, fuel storage, hydrogen and electronics businesses, and higher unit pricing on HPDI system sales as well as engineering services. This was partially offset by higher production input costs stemming from global supply chain challenges and inflation in logistics, utilities, labor and other costs, which we have only partially been able to pass on to our OEM customers.

IAM

Gross margin for the three months ended March 31, 2023 increased by $0.3 million to $5.2 million, or 20% of revenue, compared to $4.9 million, or 20% of revenue, for the same prior year period.

The increase in gross margin for the three months ended March 31, 2023 was primarily driven by higher sales volumes in Eastern Europe and South America. This was partially offset by the lower sales volume in Middle East and Africa and higher production input costs incurred in materials, transportation, and energy costs.

Management's Discussion and Analysis

Research and Development Expenses ("R&D")

(in millions of U.S. dollars)	Change
	2023		2022			%
OEM	$	6.3	$	4.8		31	%
IAM	1.0		1.1		(0.1)	(9)	%
Total R&D expenses	$	7.3	$	5.9		24	%

All values are in US Dollars.

OEM

R&D expenses for the three months ended March 31, 2023 were $6.3 million compared to $4.8 million for the same prior year period. R&D expense for the three months ended March 31, 2023 increased by $1.5 million due to increased testing and engineering resources for our HPDI fuel systems and higher expenses in our hydrogen business.

IAM

R&D expenses for the three months ended March 31, 2023 were $1.0 million compared to $1.1 million for the same prior year period.

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

(in millions of U.S. dollars)	Change
	2023		2022			%
OEM	$	6.1	$	5.7		7	%
IAM	3.9		3.8		0.1	3	%
Corporate	3.4		3.3		0.1	3	%
Total SG&A expenses	$	13.4	$	12.8		5	%

All values are in US Dollars.

OEM

SG&A expenses for the three months ended March 31, 2023 were $6.1 million, compared with $5.7 million for the same prior year period. The increase of $0.4 million was primarily driven by higher compensation costs and external services.

IAM

SG&A expenses for the three months ended March 31, 2023 were $3.9 million, compared with $3.8 million for the same year prior year period.

Corporate

SG&A expenses for the three months ended March 31, 2023 were $3.4 million, compared with $3.3 million for the same prior year period.

Management's Discussion and Analysis

Other significant expense and income items for the three months ended March 31, 2023

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 months ended March 31, 2023, we recognized a foreign exchange loss of $1.1 million, compared to a foreign exchange loss of $0.8 million for the three months ended March 31, 2022. The loss recognized in the current period primarily relates to unrealized foreign exchange loss that resulted from the translation of U.S. dollar cash balances partially offset by the translation of the U.S. dollar denominated debt in our Canadian legal entities.

Depreciation and amortization for the three months ended March 31, 2023 and March 31, 2022 were $3.0 million and $3.1 million respectively. The amounts included in cost of revenue for the same periods were $2.0 million and $1.9 million, respectively.

Interest on long-term debt and amortization of discount

(in millions of U.S. dollars)
	2023		2022
Interest expense on long-term debt	$	0.6	$	0.8
Royalty payable accretion expense	0.2		0.3
Total interest on long-term debt and accretion on royalty payable	$	0.8	$	1.1

The interest expense on long-term debt for the three months ended March 31, 2023 compared to prior year period decreased as we continued to make scheduled principal payments.

Income tax expense was $0.9 million for the three months ended March 31, 2023 compared to European income tax recovery of $0.1 million for the prior year period. The increase was mainly due to higher taxes from higher profitability of our European operations.

Management's Discussion and Analysis

CAPITAL REQUIREMENTS, RESOURCES AND LIQUIDITY

Our cash and cash equivalents position decreased by $14.2 million during the first quarter of 2023 to $72.0 million from $86.2 million at December 31, 2022. The decrease was primarily driven by the net cash used in our operating activities, purchases of fixed assets and net debt repayments.

Cash Flow from Operating Activities

The Russia-Ukraine conflict, higher natural gas prices, especially in Europe, global supply chain disruptions and high inflation continue to challenge the automotive industry with rising manufacturer costs, this is causing pressure on gross margin in the near-term. We are responding with pricing and productivity countermeasures to manage our profitability. For further discussion, see the "Russia-Ukraine Conflict" and "Long-term Profitability, and Liquidity" sections in this MD&A. These conditions continue to persist. Consequently, the duration and severity of the impact on future quarters is currently uncertain.

For the three months ended March 31, 2023, net cash used in operating activities was $8.6 million compared to $16.9 million in the three months ended March 31, 2022, a $8.3 million decrease in net cash used in operating activities. The decrease in cash used in operating activities was primarily driven by changes in working capital, specifically in inventories, accounts payable and accrued liabilities and accounts receivable. We had built up inventory to manage against supply chain risk against shortages of raw materials and components. We continue to take actions to monetize the existing inventory and optimize our inventory levels. Net cash outflows from accounts receivable resulted from higher customer account balances from an increase in our revenue for the three months ended March 31, 2023 and other receivables as compared to the prior year, which was offset by net cash inflows in accounts payable and accrued liabilities due to higher accruals compared to the prior year.

Cash Flow from Investing Activities

For the three months ended March 31, 2023, our net cash flows used in investing activities were $2.9 million compared to net cash inflows of $29.2 million for the three months ended March 31, 2022. The decrease in net cash flows from investing activities compared to the prior year quarter was primarily driven by the proceeds for the sale of the CWI joint venture in the first quarter 2022.

Cash Flow from Financing Activities

For the three months ended March 31, 2023, our net cash flows used in financing activities was $3.5 million compared to net cash flows used in financing activities of $7.9 million for the three months ended March 31, 2022. Net payments on our operating lines of credit and long-term facilities decreased to $11.7 million for the three months ended March 31, 2023 compared to $23.2 million in the prior year period mainly due to lower repayment of the revolving financing facility compared to prior year period.

Management's Discussion and Analysis

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

	Carrying amount		Contractual cash flows		< 1 year		1 - 3 years		4-5 years		> 5 years
Accounts payable and accrued liabilities	$	99.3	$	99.3	$	99.3	$	—	$	—	$	—
Short-term debt (1)	9.1		9.1		9.1		—		—		—
Long-term debt, principal, (2)	42.5		40.3		11.2		22.7		6.0		0.4
Long-term debt, interest (2)	—		8.1		3.5		4.1		0.5		—
Long-term royalty payable (3)	5.8		7.9		1.2		3.9		2.8		—
Operating lease obligations (4)	24.9		28.4		3.5		6.0		2.6		16.3
	$	181.6	$	193.1	$	127.8	$	36.7	$	11.9	$	16.7

Notes

(1) For details of our short-term debt, see note 12 in the unaudited condensed consolidated interim financial statements.

(2) For details of our long-term debt, principal and interest, see note 13 in the unaudited condensed consolidated interim financial statements.

(3) For additional information on the long-term royalty payable, see note 14 of the unaudited condensed consolidated interim financial statements.

(4) For additional information on operating lease obligations, see note 11 of the unaudited condensed consolidated interim financial statements.

SHARES OUTSTANDING

During the three months ended March 31, 2023, and March 31, 2022, the weighted average number of shares used in calculating the diluted income per share was 171,690,032 and 174,516,905, 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:

	March 31, 2023	May 8, 2023
	Number	Number
Common Shares outstanding	171,719,337		171,719,337
Share Units
Outstanding	5,430,499		5,430,499
Exercisable	—		—

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, 2022, filed on March 13, 2023. Actual amounts may vary significantly from estimates used. There have been no significant changes in accounting policies applied to the March 31, 2023 unaudited condensed consolidated interim financial statements, and we do not expect to adopt any significant changes at this time.

Management's Discussion and Analysis

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

During the three months ended March 31, 2023, there were no changes to our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

SUMMARY OF QUARTERLY RESULTS

Our revenues and operating results can vary significantly from quarter to quarter depending on factors such as the timing of product deliveries, product mix, product launch dates, R&D project cycles, timing of related government funding, 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	30-Jun-21		30-Sep-21		31-Dec-21		31-Mar-22		30-Jun-22		30-Sep-22		31-Dec-22		31-Mar-23
(in millions of United States dollars except for per share amounts)	(1)						(2)
Total revenue	$	79.0	$	74.3	$	82.7	$	76.5	$	80.0	$	71.2	$	78.0	$	82.2
Cost of product and parts revenue	$	63.3	$	64.2	$	73.4	$	66.6	$	69.5	$	59.9	$	73.5	$	68.9
Gross margin	$	15.7	$	10.1	$	9.3	$	9.9	$	10.5	$	11.3	$	4.5	$	13.3
Gross margin percentage	19.9%		13.6%		11.2%		12.9%		13.1%		15.9%		5.8%		16.2%
Net income (loss)	$	17.2	$	(5.8)	$	5.4	$	7.7	$	(11.6)	$	(11.9)	$	(16.9)	$	(10.6)
EBITDA (3)	$	13.9	$	(1.2)	$	8.4	$	11.7	$	(7.7)	$	(8.0)	$	(13.5)	$	(6.3)
Adjusted EBITDA (3)	$	6.2	$	(1.4)	$	10.0	$	(6.1)	$	(4.3)	$	(4.5)	$	(12.9)	$	(4.5)
U.S. dollar to Euro average exchange rate	0.83		0.85		0.87		0.89		0.94		0.99		0.98		0.93
U.S. dollar to Canadian dollar average exchange rate	1.23		1.26		1.26		1.27		1.28		1.31		1.36		1.35
Earnings (loss) per share
Basic	$	0.11	$	(0.03)	$	0.04	$	0.05	$	(0.07)	$	(0.07)	$	(0.10)	$	(0.06)
Diluted	$	0.11	$	(0.03)	$	0.03	$	0.04	$	(0.06)	$	(0.07)	$	(0.10)	$	(0.06)

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 the Company. 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 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 that 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-22			30-Jun-22			30-Sep-22			31-Dec-22			31-Mar-23
Revenue	$	76.5		$	80.0		$	71.2		$	78.0		$	82.2
Less: Cost of revenue	66.6			69.5			59.9			73.5			68.9
Gross margin	$	9.9		10.5			11.3			4.5			13.3
Gross margin %	12.9		%	13.1		%	15.9		%	5.8		%	16.2		%
	March 31, 2023	December 31, 2022
---	---	---	---	---	---
(in millions of U.S. dollars)
Accounts receivable		$	102.5	$	101.6
Inventories		82.8		81.6
Prepaid expenses		9.3		7.8
Accounts payable and accrued liabilities		(99.3)		(98.8)
Current portion of operating lease liabilities		(3.5)		(3.4)
Current portion of warranty liability		(10.0)		(11.3)
Net working capital		$	81.8	$	77.5
Management's Discussion and Analysis
---			March 31, 2023	December 31, 2022
---	---	---	---	---	---
(in millions of U.S. dollars)
Total liabilities		$	203.2	$	203.5
Less:
Total current liabilities		135.6		135.5
Long-term debt		30.0		32.2
Long-term royalty payable		4.6		4.4
Non-current liabilities		$	33.0	$	31.4

EBIT and EBITDA

Three months ended	30-Jun-21		30-Sep-21		31-Dec-21		31-Mar-22		30-Jun-22		30-Sep-22		31-Dec-22		31-Mar-23
Income (loss) before income taxes	$	9.1	$	(5.4)	$	4.6	$	7.6	$	(11.5)	$	(11.0)	$	(16.4)	$	(9.7)
Interest expense, net (1)	1.1		0.9		0.3		1.0		0.7		0.2		0.1		0.4
EBIT	10.2		(4.5)		4.9		8.6		(10.8)		(10.8)		(16.3)		(9.3)
Depreciation and amortization	3.7		3.3		3.5		3.1		3.1		2.8		2.8		3.0
EBITDA	$	13.9	$	(1.2)	$	8.4	$	11.7	$	(7.7)	$	(8.0)	$	(13.5)	$	(6.3)

Notes

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

Adjusted EBITDA

Three months ended	30-Jun-21		30-Sep-21		31-Dec-21		31-Mar-22		30-Jun-22		30-Sep-22		31-Dec-22		31-Mar-23
EBITDA	$	13.9	$	(1.2)	$	8.4	$	11.7	$	(7.7)	$	(8.0)	$	(13.5)	$	(6.3)
Stock based compensation	0.5		0.7		0.6		0.5		0.9		0.8		0.2		0.7
Unrealized foreign exchange (gain) loss	(2.3)		(0.9)		0.5		0.8		2.5		2.7		0.4		1.1
Asset impairment	—		—		0.5		—		—		—		—		—
Bargain purchase gain	(5.9)		—		—		—		—		—		—		—
Gain on sale of investment	—		—		—		(19.1)		—		—		—		—
Adjusted EBITDA	$	6.2	$	(1.4)	$	10.0	$	(6.1)	$	(4.3)	$	(4.5)	$	(12.9)	$	(4.5)

Document

Condensed Consolidated Interim Financial Statements (unaudited)

(Expressed in thousands of United States dollars)

WESTPORT FUEL SYSTEMS INC.

For the three months ended March 31, 2023 and 2022

WESTPORT FUEL SYSTEMS INC.
Condensed Consolidated Interim Balance Sheets (unaudited)
(Expressed in thousands of United States dollars, except share amounts)
March 31, 2023 and December 31, 2022			March 31, 2023		December 31, 2022
---	---	---	---	---
Assets
Current assets:
Cash and cash equivalents (including restricted cash)	$	71,963	$	86,184
Accounts receivable (note 4)	102,485		101,640
Inventories (note 5)	82,798		81,635
Prepaid expenses	9,254		7,760
Total current assets	266,500		277,219
Long-term investments (note 7)	4,808		4,629
Property, plant and equipment (note 8)	63,215		62,641
Operating lease right-of-use assets	25,151		23,727
Intangible assets (note 9)	7,623		7,817
Deferred income tax assets	10,671		10,430
Goodwill	3,010		2,958
Other long-term assets	18,149		18,030
Total assets	$	399,127	$	407,451
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued liabilities (note 10)	$	99,281	$	98,863
Current portion of operating lease liabilities (note 11)	3,473		3,379
Short-term debt (note 12)	9,129		9,102
Current portion of long-term debt (note 13)	12,562		11,698
Current portion of long-term royalty payable (note 14)	1,162		1,162
Current portion of warranty liability (note 15)	9,973		11,315
Total current liabilities	135,580		135,519
Long-term operating lease liabilities (note 11)	21,376		20,080
Long-term debt (note 13)	29,982		32,164
Long-term royalty payable (note 14)	4,625		4,376
Warranty liability (note 15)	3,028		2,984
Deferred income tax liabilities	3,447		3,282
Other long-term liabilities	5,148		5,080
Total liabilities	203,186		203,485
Shareholders’ equity:
Share capital (note 16):
Unlimited common and preferred shares, no par value
171,719,337 (2022 - 171,303,165) common shares issued and outstanding	1,244,507		1,243,272
Other equity instruments	8,610		9,212
Additional paid in capital	11,516		11,516
Accumulated deficit	(1,035,344)		(1,024,716)
Accumulated other comprehensive loss	(33,348)		(35,318)
Total shareholders' equity	195,941		203,966
Total liabilities and shareholders' equity	$	399,127	$	407,451
Commitments and contingencies (note 18)
Subsequent event (note 21)

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 Statements of Operations and Comprehensive Income (Loss) (unaudited)
(Expressed in thousands of United States dollars, except share and per share amounts)
Three months ended March 31, 2023 and 2022
	Three months ended March 31,
---	---	---	---
		2023		2022
Revenue		$	82,240	$	76,544
Cost of revenue and expenses:
Cost of revenue		68,879		66,619
Research and development		7,263		5,934
General and administrative		9,768		9,191
Sales and marketing		3,649		3,649
Foreign exchange loss		1,076		771
Depreciation and amortization		1,037		1,183
		91,672		87,347
Loss from operations		(9,432)		(10,803)
Income from investments accounted for by the equity method		129		293
Gain on sale of investment (note 6)		—		19,119
Interest on long-term debt and accretion on royalty payable		(847)		(1,060)
Interest and other income, net of bank charges		466		41
Income (loss) before income taxes		(9,684)		7,590
Income tax expense (recovery)		944		(120)
Net income (loss) for the period		(10,628)		7,710
Other comprehensive income (loss):
Cumulative translation adjustment		1,970		(331)
Comprehensive income (loss)		$	(8,658)	$	7,379
Income (loss) per share:
Net income (loss) per share - basic		$	(0.06)	$	0.05
Net income (loss) per share - diluted		$	(0.06)	$	0.04
Weighted average common shares outstanding:
Basic		171,690,032		171,155,206
Diluted		171,690,032		174,516,905

See accompanying notes to condensed consolidated interim financial statements.

WESTPORT FUEL SYSTEMS INC.
Condensed Consolidated Statements of Shareholders' Equity (unaudited)
(Expressed in thousands of United States dollars, except share amounts)
Three months ended March 31, 2023 and 2022			Common Shares Outstanding	Share capital		Other equity instruments		Additional paid in capital		Accumulated deficit		Accumulated other comprehensive loss		Total shareholders' equity
---	---	---	---	---	---	---	---	---	---	---	---	---	---
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	380,731	1,071		(1,071)		—		—		—		—
Stock-based compensation	—	—		472		—		—		—		472
Net income for the period	—	—		—		—		7,710		—		7,710
Other comprehensive loss	—	—		—		—		—		(331)		(331)
March 31, 2022	171,180,056	$	1,243,077	$	7,813	$	11,516	$	(984,311)	$	(33,825)	$	244,270
	Common Shares Outstanding	Share capital		Other equity instruments		Additional paid in capital		Accumulated deficit		Accumulated other comprehensive loss		Total shareholders' equity
January 1, 2023	171,303,165	$	1,243,272	$	9,212	$	11,516	$	(1,024,716)	$	(35,318)	$	203,966
Issuance of common shares on exercise of share units	416,172	1,235		(1,235)		—		—		—		—
Stock-based compensation	—	—		633		—		—		—		633
Net loss for the period	—	—		—		—		(10,628)		—		(10,628)
Other comprehensive gain	—	—		—		—		—		1,970		1,970
March 31, 2023	171,719,337	$	1,244,507	$	8,610	$	11,516	$	(1,035,344)	$	(33,348)	$	195,941

See accompanying notes to condensed consolidated interim financial statements.

WESTPORT FUEL SYSTEMS INC.
Condensed Consolidated Statements of Cash Flows (unaudited)
(Expressed in thousands of United States dollars)
Three months ended March 31, 2023 and 2022
	Three months ended March 31,
---	---	---	---
		2023		2022
Operating activities:
Net income (loss) for the period		$	(10,628)	$	7,710
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		3,027		3,089
Stock-based compensation expense		633		531
Unrealized foreign exchange loss		1,076		771
Deferred income tax		(148)		(435)
Income from investments accounted for by the equity method		(129)		(293)
Interest on long-term debt and accretion on royalty payable		847		1,060
Change in inventory write-downs		586		(243)
Change in bad debt expense		84		91
Net gain on sale of investment		—		(19,119)
Changes in operating assets and liabilities:
Accounts receivable		(1,041)		6,028
Inventories		(591)		(8,384)
Prepaid expenses		(1,684)		(2,270)
Accounts payable and accrued liabilities		763		(3,569)
Warranty liability		(1,382)		(1,856)
Net cash used in operating activities		(8,587)		(16,889)
Investing activities:
Purchase of property, plant and equipment		(3,007)		(2,798)
Proceeds on sale of assets		98		—
Proceeds on sale of investments		—		31,949
Net cash (used in) provided by investing activities		(2,909)		29,151
Financing activities:
Repayments of operating lines of credit and long-term facilities		(11,736)		(23,193)
Drawings on operating lines of credit and long-term facilities		8,251		15,306
Net cash used in financing activities		(3,485)		(7,887)
Effect of foreign exchange on cash and cash equivalents		760		(1,703)
Net (decrease) increase in cash and cash equivalents		(14,221)		2,672
Cash and cash equivalents, beginning of period (including restricted cash)		86,184		124,892
Cash and cash equivalents, end of period (including restricted cash)		$	71,963	$	127,564
WESTPORT FUEL SYSTEMS INC.
---
Condensed Consolidated Statements of Cash Flows (unaudited)
(Expressed in thousands of United States dollars)
Three months ended March 31, 2023 and 2022
	Three months ended March 31,
---	---	---	---
		2023		2022
Supplementary information:
Interest paid		$	742	$	912
Taxes paid, net of refunds		506		298

See accompanying notes to condensed consolidated interim financial statements.

WESTPORT FUEL SYSTEMS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(Expressed in thousands of United States dollars, except share and per share amounts)
Three months ended March 31, 2023 and 2022

     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 that 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.

```
     Liquidity and Going Concern:
```

In connection with preparing consolidated financial statements for each annual and interim reporting period, the Company is required to evaluate whether there are conditions or events, considered in aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. Substantial doubt exists when conditions and events, considered in aggregate, indicate that it is probable that a company will be unable to meet its obligations as they become due within one year after the date that the consolidated financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans and actions that have not been fully implemented as of the date that the financial statements are issued. When substantial doubt exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both: (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued; and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.

Management's evaluation has concluded that there are no known or currently foreseeable conditions or events that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date these condensed consolidated interim financial statements ("interim financial statements") are issued. These interim financial statements have therefore been prepared on the basis that the Company will continue as a going concern.

The assessment of the liquidity and going concern requires the Company to make judgments about the existence of conditions or events that raise substantial doubt about the ability to continue as a going concern within one year after the date that the interim financial statements are issued. This includes judgments about the Company's future activities and the timing thereof and estimates of future cash flows. Significant assumptions used in the Company's forecasted model of liquidity include forecasted sales, including forecasted increases in sales of the heavy-duty OEM business, forecasted costs and capital expenditures, amongst others. Changes in the assumptions could have a material impact on the forecasted liquidity and going concern assessment.

The Company continues to sustain operating losses and negative cash flows from operating activities. As at March 31, 2023, the Company has cash and cash equivalents of $71,963 and during the three months ended March 31, 2023, the Company used cash in operating activities of $8,587. The ability to continue as a going concern beyond May 2024 will depend on the Company's ability to generate sufficient positive cash flows from all its operations, specifically through profitable, sustainable growth.

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, higher energy costs in operating the Company's factories and increased labor costs that are impacting margins. The Company sources components globally and is exposed to price risk and inflation risk, which may affect the Company's liquidity.

WESTPORT FUEL SYSTEMS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(Expressed in thousands of United States dollars, except share and per share amounts)
Three months ended March 31, 2023 and 2022

```
     Basis of preparation:
```

(a) Basis of presentation:

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company and do not include all of the information and disclosures required by accounting principles generally accepted in the United States ("GAAP"). In the opinion of management, all normal recurring accruals and adjustments considered necessary for a fair presentation have been included. The results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements for the year ended December 31, 2022.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

(b) Foreign currency translation:

The Company’s functional currency is the Canadian dollar and its reporting currency for its interim 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 (loss).

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 condensed consolidated interim statements of operations, except for the translation gains and losses arising from available-for-sale instruments, which are recorded through other comprehensive income (loss) 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
	March 31, 2023	December 31, 2022	March 31, 2023	March 31, 2022
Canadian Dollar	1.35	1.35	1.35	1.27
Euro	0.92	0.94	0.93	0.89
RMB	6.87	6.90	6.84	6.35
Polish Zloty	4.30	4.39	4.39	4.12
Swedish Krona	10.36	10.42	10.44	9.33
Indian Rupee	82.17	82.69	82.21	75.20
Argentina Peso	208.81	176.79	191.65	106.42
WESTPORT FUEL SYSTEMS INC.
---
Notes to Condensed Consolidated Financial Statements (unaudited)
(Expressed in thousands of United States dollars, except share and per share amounts)
Three months ended March 31, 2023 and 2022

```
     Accounts receivable:
```

	March 31, 2023		December 31, 2022
Customer trade receivables	$	85,873	$	82,533
Other receivables	19,372		19,355
Income tax receivable	110		818
Due from related parties (note 17)	2,117		3,974
Allowance for credit losses	(4,987)		(5,040)
	$	102,485	$	101,640

```
     Inventories:
```

	March 31, 2023		December 31, 2022
Purchased parts and materials	$	61,501	$	61,213
Work-in-progress	2,853		2,423
Finished goods	18,444		17,999
	$	82,798	$	81,635

During the three months ended March 31, 2023, the Company recorded change in write-downs to net realizable value of approximately $586 (three months ended March 31, 2022 - $243).

```
     Sale of investment:
```

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.

	March 31, 2022
Proceeds from sale of investment	$	31,445
Holdback receivable1	9,713
Less: 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.

WESTPORT FUEL SYSTEMS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(Expressed in thousands of United States dollars, except share and per share amounts)
Three months ended March 31, 2023 and 2022

```
     Long-term investments:
```

	March 31, 2023		December 31, 2022
Weichai Westport Inc.	1,824		1,824
Minda Westport Technologies Limited	2,836		2,657
Other equity-accounted investees	148		148
	$	4,808	$	4,629

```
     Property, plant and equipment:
```

			Accumulated		Net Book
March 31, 2023	Cost		Depreciation		Value
Land and buildings	$	8,577	$	2,188	$	6,389
Computer equipment and software	9,243		7,020		2,223
Furniture and fixtures	7,656		5,809		1,847
Machinery and equipment	117,472		68,243		49,229
Leasehold improvements	13,843		10,316		3,527
	$	156,791	$	93,576	$	63,215
			Accumulated		Net Book
---	---	---	---	---	---	---
December 31, 2022	Cost		Depreciation		Value
Land and buildings	$	8,455	$	2,107	$	6,348
Computer equipment and software	8,756		6,740		2,016
Furniture and fixtures	7,283		5,606		1,677
Machinery and equipment	115,235		66,272		48,963
Leasehold improvements	13,874		10,237		3,637
	$	153,603	$	90,962	$	62,641

```
     Intangible assets:
```

	Gross Carrying		Accumulated		Intangible
March 31, 2023	Amount		Amortization		Assets, net
Patents and trademarks	$	20,129	$	12,695	$	7,434
Technology	4,023		3,834		189
Customer contracts	11,446		11,446		—
	$	35,598	$	27,975	$	7,623
	Gross Carrying		Accumulated		Intangible
---	---	---	---	---	---	---
December 31, 2022	Amount		Amortization		Assets, net
Patents and trademarks	$	19,799	$	12,189	$	7,610
Technology	3,952		3,745		207
Customer contracts	11,242		11,242		—
	$	34,993	$	27,176	$	7,817
WESTPORT FUEL SYSTEMS INC.
---
Notes to Condensed Consolidated Financial Statements (unaudited)
(Expressed in thousands of United States dollars, except share and per share amounts)
Three months ended March 31, 2023 and 2022

     Accounts payable and accrued liabilities:

	March 31, 2023		December 31, 2022
Trade accounts payable	$	71,787	$	72,934
Accrued payroll	18,154		17,069
Taxes payable	4,771		4,425
Deferred revenue	4,569		4,435
	$	99,281	$	98,863

     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.

The components of lease cost are as follows:


	2023		2022
Amortization of right-of-use assets	$	832	$	606
Interest	183		107
Total lease cost	$	1,015	$	713

The maturities of lease liabilities as at March 31, 2023 are as follows:

The remainder of 2023	$	2,633
2024	3,361
2025	2,881
2026	2,613
2027	2,468
Thereafter	14,422
Total undiscounted cash flows	28,378
Less: imputed interest	(3,529)
Present value of operating lease liabilities	24,849
Less: current portion	(3,473)
Long term operating lease liabilities	$	21,376
WESTPORT FUEL SYSTEMS INC.
---
Notes to Condensed Consolidated Financial Statements (unaudited)
(Expressed in thousands of United States dollars, except share and per share amounts)
Three months ended March 31, 2023 and 2022

```
     Short-term debt:
```

	March 31, 2023		December 31, 2022
Revolving financing facilities	$	9,129	$	9,102

The Company has a revolving financing facility with Hong Kong and Shanghai Banking Corporation ("HSBC"). This facility 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. The revolving financing facility's advances in either U.S. dollars or Euros bear interest at the secured overnight financing rate plus 2.66% per annum and the Euro short-term rate plus 2.5%, respectively. As at March 31, 2023, the amount outstanding for this loan was $8,351 (December 31, 2022 - $8,308).

Revolving financing facilities include a line of credit with Santander with a maximum draw amount of $800 and bear interest at a range of 2.02% - 3.04%. As at March 31, 2023, the amount outstanding was $778 (December 31, 2022 - $794).

```
     Long-term debt:
```

	March 31, 2023		December 31, 2022
Term loan facilities, net of debt issuance costs (a)	$	40,044	$	41,934
Other bank financing	522		512
Capital lease obligations	1,978		1,416
Balance, end of period	42,544		43,862
Less: current portion	(12,562)		(11,698)
Long-term portion	$	29,982	$	32,164

(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 March 31, 2023, the amount outstanding for this loan was $13,699, net of transaction costs (December 31, 2022 - $14,683). 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 March 31, 2023, the amount outstanding for this loan was $8,210 (December 31, 2022 - $8,044).

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 March 31, 2023, the amount outstanding for this loan was $2,479 (December 31, 2022 - $2,699). 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 March 31, 2023, the amount outstanding for this loan was $10,690 (December 31, 2022 - $11,273). There is no security on the loan as it was made as part of the Italian government’s COVID-19 Decreto Liquidità.

WESTPORT FUEL SYSTEMS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(Expressed in thousands of United States dollars, except share and per share amounts)
Three months ended March 31, 2023 and 2022

```
     Long-term debt $continued$:
```

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 March 31, 2023, the amount outstanding for this loan was $4,966 (December 31, 2022 - $5,235). There is no security on the loan as it was made as part of the Italian government’s COVID-19 Decreto Liquidità.

Throughout the term of certain of these financing arrangements, the Company is required to meet certain financial and non-financial covenants. As of March 31, 2023, the Company is in compliance with all covenants under the financing arrangements.

The principal repayment schedule of long-term debt is as follows as at March 31, 2023:

	Term loan facilities		Other bank financing		Capital lease obligations		Total
Remainder of 2023	$	8,963	$	—	$	446	$	9,409
2024	11,889		131		591		12,611
2025	11,300		131		384		11,815
2026	7,384		130		204		7,718
2027 and thereafter	508		130		353		991
	$	40,044	$	522	$	1,978	$	42,544

```
     Long-term royalty payable:
```

	March 31, 2023		December 31, 2022
Balance, beginning of period	$	5,538	$	9,947
Accretion expense	249		791
Repayment	—		(5,200)
Balance, end of period	5,787		5,538
Less: current portion	(1,162)		(1,162)
Long-term portion	$	4,625	$	4,376

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 2.0TM 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 March 31, 2023, the total royalty prepayments paid to Cartesian as a result of the Consent Agreement was $11,912 (December 31, 2022 - $11,912).

WESTPORT FUEL SYSTEMS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(Expressed in thousands of United States dollars, except share and per share amounts)
Three months ended March 31, 2023 and 2022

     Long-term royalty payable \(continued\):

The required repayments including interest are as follows, as at March 31, 2023:

Remainder of 2023	$	1,162
2024	1,637
2025	2,270
2026	2,851
	$	7,920

Subsequent to March 31, 2023, the Company entered into a settlement agreement with Cartesian. Refer to note 21 for more details.

```
     Warranty liability:
```

A continuity of the warranty liability is as follows:

	March 31, 2023		December 31, 2022
Balance, beginning of period	$	14,299	$	18,791
Warranty claims	(2,081)		(11,081)
Warranty accruals	1,263		4,338
Change in estimate	(461)		3,559
Impact of foreign exchange changes	(19)		(1,308)
Balance, end of period	13,001		14,299
Less: current portion	(9,973)		(11,315)
Long-term portion	$	3,028	$	2,984
WESTPORT FUEL SYSTEMS INC.
---
Notes to Condensed Consolidated Financial Statements (unaudited)
(Expressed in thousands of United States dollars, except share and per share amounts)
Three months ended March 31, 2023 and 2022

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

During the three months ended March 31, 2023, the Company issued 416,172 common shares net of cancellations, upon exercises of share units (three months ended March 31, 2022 - 380,731 common shares). 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 months ended March 31, 2023, the Company recognized $700 (three months ended March 31, 2022 - $531) of stock-based compensation associated with the Westport Omnibus Plan. The Westport Omnibus Plan aims to advance the Company's interests by encouraging employees, consultants and non-employee directors to receive equity-based compensation and incentives. The plan outlines the stock-based options types, eligibility and vesting terms.

A continuity of the Units issued under the Westport Omnibus Plan are as follows:

	Three months ended March 31, 2023		Three months ended March 31, 2022
	Number of<br>Units	Weightedaveragegrantdate fairvalue(CDN )	Number of<br>Units	Weightedaveragegrantdate fairvalue(CDN )
Outstanding, beginning of period	3,174,321		1,866,433
Granted	2,895,186	1.57	1,897,932	2.01
Vested and exercised	(416,172)	4.06	(380,731)	3.56
Forfeited/expired	(222,836)	2.38	(16,096)	0.97
Outstanding, end of period	5,430,499		3,367,538
Units outstanding and exercisable, end of period	—		5,839

All values are in US Dollars.

WESTPORT FUEL SYSTEMS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(Expressed in thousands of United States dollars, except share and per share amounts)
Three months ended March 31, 2023 and 2022

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

During the three months ended March 31, 2023, 2,895,186 share units were granted to certain employees and directors (three months ended March 31, 2022 - 1,897,932). This included 1,392,557 Restricted Share Units (“RSUs”) (three months ended March 31, 2022 - 676,534) and 1,502,629 Performance Share Units (“PSUs”) (three months ended March 31, 2022 - 1,221,398). The value of PSU awards is determined using the Monte–Carlo averaging technique. 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 be issued over time but are based on future performance and other conditions tied to the payout of the PSU.

As at March 31, 2023, $5,687 of compensation expense related to Units awarded has yet to be recognized in results from operations and will be recognized ratably over 2 years.

(b) Aggregate intrinsic values:

The aggregate intrinsic value of the Company’s share units at March 31, 2023 as follows:

	March 31, 2023
	(CDN )
Share units:
Outstanding
Exercisable	—

All values are in US Dollars.

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


	2023		2022
Cost of revenue	$	55	$	33
Research and development	119		67
General and administrative	416		307
Sales and marketing	110		124
	$	700	$	531

Of the stock-based compensation expense recognized in the three months ended March 31, 2023, $633 was settled in shares and $67 was settled in cash (three months ended March 31, 2022 - $474 and $51, respectively).

```
     Related party transactions:
```

The Company's related parties are Minda Westport Technologies Limited, directors, officers and shareholders that own greater than 10% of the Company's shares.

The Company engages in transactions with Minda Westport Technologies Limited and recorded $2,117 of accounts receivable as at March 31, 2023 (December 31, 2022 - $3,974). During the three months ended March 31, 2023, the Company sold inventory to Minda Westport Technologies Limited for $1,403 (three months ended March 31, 2022 - $2,426).

WESTPORT FUEL SYSTEMS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(Expressed in thousands of United States dollars, except share and per share amounts)
Three months ended March 31, 2023 and 2022

```
     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.

```
     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”).

Financial information by business segment as follows:

	Three months ended March 31, 2023
	Revenue		Operating income (loss)		Depreciation & amortization		Equity income
OEM	$	56,345	$	(6,005)	$	2,262	$	129
IAM	25,895		(35)		638		—
Corporate	—		(3,392)		127		—
Total Consolidated	$	82,240	$	(9,432)	$	3,027	$	129
	Three months ended March 31, 2022
---	---	---	---	---	---	---	---	---
	Revenue		Operating income (loss)		Depreciation & amortization		Equity income
OEM	$	51,857	$	(6,294)	$	2,144	$	293
IAM	24,687		(448)		856		—
Corporate	—		(4,061)		89		—
Total Consolidated	$	76,544	$	(10,803)	$	3,089	$	293
WESTPORT FUEL SYSTEMS INC.
---
Notes to Condensed Consolidated Financial Statements (unaudited)
(Expressed in thousands of United States dollars, except share and per share amounts)
Three months ended March 31, 2023 and 2022

     Segment information \(continued\):

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 March 31,
		2023		2022
Europe		70	%	68	%
Asia		12	%	14	%
Americas		11	%	9	%
Africa		4	%	5	%
Other		3	%	4	%

Total assets are allocated as follows:

	Total assets by operating segment
	March 31, 2023		December 31, 2022
OEM	$	235,477	$	241,795
IAM	150,586		145,377
Corporate	13,064		20,279
Total consolidated assets	$	399,127	$	407,451
WESTPORT FUEL SYSTEMS INC.
---
Notes to Condensed Consolidated Financial Statements (unaudited)
(Expressed in thousands of United States dollars, except share and per share amounts)
Three months ended March 31, 2023 and 2022

```
     Financial instruments:
```

Financial management risk

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

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 losses and negative cash flows from operations since inception. At March 31, 2023, the Company has $71,963 of cash and cash equivalents, including of $101 restricted cash.

The following are the contractual maturities of financial obligations as at March 31, 2023:

	Carrying<br>amount		Contractual<br>cash flows		< 1 year		1-3 years		4-5 years		>5 years
Accounts payable and accrued liabilities	$	99,281	$	99,281	$	99,281	$	—	$	—	$	—
Short-term debt (note 12)	9,129		9,129		9,129		—		—		—
Term loan facilities (note 13 (a))	40,044		45,863		14,146		25,568		6,149		—
Other bank financing	522		528		—		267		131		130
Long-term royalty payable (note 14)	5,787		7,920		1,162		3,907		2,851		—
Capital lease obligations	1,978		2,002		618		878		198		308
Operating lease obligations (note 11)	24,849		28,377		3,473		6,055		2,577		16,272
	$	181,590	$	193,100	$	127,809	$	36,675	$	11,906	$	16,710

Fair value of financial instruments

The carrying amounts reported in the condensed consolidated interim 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. 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 condensed consolidated interim balance sheets 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 13) are carried at amortized cost, which approximate their respective fair values as at March 31, 2023.

WESTPORT FUEL SYSTEMS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
(Expressed in thousands of United States dollars, except share and per share amounts)
Three months ended March 31, 2023 and 2022

     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 March 31, 2023, cash and cash equivalents are measured at fair value on a recurring basis and are included in Level 1.

```
     Subsequent Event:
```

Settlement of long-term royalty payable:

On April 1, 2023, the Company and Cartesian entered into a settlement agreement to terminate the Tranche 1 Financing and the Consent Agreement in exchange for mutual releases and cash consideration, which included the release of the security interest in the Company's HPDI 2.0 fuel system intellectual property. The Company paid Cartesian $8,687 on April 3, 2023.

This agreement will result in a derecognition of the long-term royalty payable in the condensed consolidated interim balance sheet, which will result in a loss on extinguishment of debt for the amount of approximately $2,901 in the second quarter of 2023.