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Operator: Thank you for standing by. This is the conference operator. Welcome to the Westport Fuel Systems Fourth Quarter and Fiscal Year End 2022 Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Ashley Nuell, Senior Director of Investor Relations. Please go ahead.

Ashley Nuell: Good morning, everyone. Welcome to Westport Fuel Systems Fourth Quarter and Full Year 2022 Results Conference Call, which is being held to coincide with the press release containing Westport’s financial results distributed yesterday. On today’s call speaking on behalf of Westport is Chief Executive Officer, David Johnson; and Chief Financial Officer, Bill Larkin. Attendance on this call is open to the public, but questions will be restricted to the investment community. You are reminded that certain statements made in this conference call and our responses to various questions may constitute forward-looking statements within the meaning of the U.S. and applicable Canadian securities laws, and as such, forward-looking statements are made based on our current expectations and involve certain risks and uncertainties. With that, I’ll turn the call over to you, David.

David Johnson: Thanks, Ashley. Good morning, everyone. I’m pleased to be with you today to discuss our 2022 results for the fourth quarter and full year. Today, I’ll be walking through our key financial and operating results, and our outlook for the roadmap to decarbonize transportation that is the need for and potential of clean, affordable, gaseous fuels; and our products, fuel systems for LNG, hydrogen, CNG, RNG, and LPG; and I’ll share some additional insights into our recent announcements related to hydrogen manufacturing capacity in China, and our third OEM demonstration program for hydrogen HPDI. Amid last year’s challenging macro environment, our top line was slightly lower in U.S. dollar terms compared to 2021. As has been a repeating theme through 2022, the dollar-euro exchange rate movement masked the top line growth in euro that we delivered at an operating level.

Excluding the impact of foreign exchange, our business grew 9% or $28 million. Our hydrogen components, fuel storage, delayed OEM and electronics businesses all saw revenue growth in 2022 and have also started strong in 2023. The impact of foreign exchange and the Russia-Ukraine conflict masked some of the improvements we saw in 2022 in our aftermarket business, resulting in revenues down slightly this year in U.S. dollars. High CNG and LNG prices in Europe reduced our HPDI and CNG fuel system sales volumes in our heavy-duty and light-duty OEM businesses, while inflation, ongoing supply chain constraints and warranty costs weighed on our profitability. Although, we have no control over fuel pricing, we have put measures in place to improve our bottom line outlook for 2023 and beyond in the areas that we have the influence.

I’ll touch on these shortly. In our heavy-duty and aftermarket businesses, we have work to do to enhance volumes and margins, supporting profitability going forward. Improving profitability by extracting efficiency internally is one of our biggest priorities in 2023, and later in the call, Bill will highlight steps we are taken to address this. We continue to face industry headwinds and felt — feel both prepared and poised to grow in the future. We believe that the strong LPG price advantage, the establishment of natural gas price advantages versus petrol and diesel, and our continued expansion in new markets combined with support of global emissions reduction requirements will drive our business forward. Environmental, economic and regulatory requirements will not stop or weigh, and Westport is well positioned to respond.

And further OEM conversations around HPDI with LNG and biomethane and now hydrogen HPDI in the future will drive growth and profitability. Wider felt impacts of rising inflation, supply chain constraints, higher utility costs and fuel price volatility have continued to weigh heavily on our industry, as a result, recorded a net loss of $32.7 million for the year compared to net income of $13.7 million in 2021. Significant margin pressure combined with a loss of equity income from the Cummins Westport joint venture weighed heavily on the net loss as well as the impact of foreign exchange. 2022 was also a year of significant announcements with respect to advancements of our hydrogen HPDI fuel systems, new customers and collaborations. I want to quickly highlight a few of those announcements from the fourth quarter.

In November, we were awarded a program to supply Euro 7 LPG fuel systems to a leading global OEM and add-on to the Euro 6 supply program we had announced earlier in the year, and a program that starts production in Q4 of this year and will have a material impact to our revenue from 2024 on. In December, we announced the collaboration with Johnson Matthey, a global leader in sustainable technologies to develop an emissions after treatment system for hydrogen HPDI. Working together, we aim to create a zero emission solution for affordable and clean transportation that does not compromise performance or efficiency. As we look at the year ahead of us, I want to walk through our go-forward strategy and how we’re positioning ourselves for the future.

We’ll drive sustainable growth in our existing markets through a diversified portfolio of technologies, products, and services. This will be seen across all our business units. The strength of our diversified strategy was apparent in 2022 as our revenue before the impact of FX grew amid significant headwinds like the Russian sanctions and fuel price increases. Secondly, we aim to unlock new and emerging markets through the delivery of clean, affordable transportation solutions. This includes opening new geographies, but also capitalizing on the strengths we’re seeing from our delayed OEM, electronics, hydrogen component, and fuel storage businesses. Third, we’ll continue as we’ve done in the past to drive operational excellence and maintain our reputation as a Tier 1 supplier with enhanced quality and reliability.

Fourth, we’ll extract efficiencies through prudent capital management focused on cost optimization and margin expansion. Each of these initiatives positions us to strengthen profitability across our business units. Listening to global markets, there’s now an undeniably louder voice highlighting need for a portfolio of options, recognizing it won’t be a one size fits all approach when it comes to the need to decarbonize transportation. Some are using the word eclectic and contrasting that with all electric, clever rhyme, but also true. We have diverse technologies and fuels today, and we’ll have more diversity in the future. Gaseous fuels and our fuel systems will play an important and growing role in that eclectic future. A varied solution set that takes into consideration the differing needs of each application has always been our view.

It’s a welcome and needed change in the conversation at both, the OEM level and from policymakers alike. This might be the beginning of a step change, which we can all stand to benefit from. While much of the talk still points to fuel cells and battery electric options, hydrogen internal combustion engines are emerging as an attractive alternative for the implementation of decarbonized transport. In recent months, the likes of Toyota, Tata, Kawasaki, Reliance Industries, Tenneco, Volvo and others have increasingly expressed this view, reducing the cost of replacing current powertrains, but also maintenance costs compared to the fuel cell battery combination system enables faster conversions for fleets. We know that as we move up to long-haul heavy-duty, battery electric may not be able to meet the payload recharging requirements and therefore, hydrogen internal combustion engines is a very attractive proposition.

LNG and biomethane are also making a name for themselves in the heavy-duty long haul space. Trucking at its core is a conservative industry. It takes a while to prove concepts and to build the infrastructure that’s happening now, step by step. As an example of the growth we’re seeing, Europe added approximately a 100 new LNG stations this past year, reaching just over 600 stations and service now a growth rate of 20%. LNG and biomethane offer clear climate upsides, remain competitively priced in many countries, and more importantly, using our HPDI fuel system, offer the driver the same experience as diesel fuel, that’s power, performance, and reliability. To paint a picture of the momentum with biomethane in Europe where the production of bio LNG is ramping quickly, in Sweden last year, for example, 96% of all the gas used in transportation was biomethane.

Unsurprisingly, Sweden has the highest market share of LNG trucks on the road. It’s not just Sweden. Germany has been a dominant country with respect to biogas production for a while now. And other countries such as Denmark, France, Italy, and the Netherlands have actively promoted biogas production. With OEMs now on the clock to significantly decarbonize by 2025 and regulations proposed requiring reductions of 45% in 2030, utilizing LNG and biomethane today is a clear option. HPDI using LNG meets the 2025 carbon targets already, and is on the road in the thousands, putting us in a solid competitive position to capture this growth. When we think about the future of HPDI, we’re looking at hydrogen as the fuel of the future. In our discussion with global OEMs at IAA last year, it was clear they’re beginning to recognize that our hydrogen HPDI fuel system solution addresses the portion of the market not addressed by electrification and does so affordably.

Gaseous fuels are a compelling way to address heavy-duty long haul applications. And HPDI offers the lowest cost to develop, the lowest cost to industrialize and the lowest cost to operate. Again, we need a variety of solutions and can’t rely on a single idea or concept to work for everything. It’s just not realistic. The challenging LNG pricing environment and differential to diesel last year resulted in a difficult year for our heavy-duty OEM business resulting in lower volume than expected. These lower volume levels truly impacted our economies of scale, and when combined with higher production costs drove margin pressure. In recent months, we’re beginning to see a more favorable LNG price trend in Europe with a fuel price returning to levels we haven’t seen since 2020, 2021.

This more normalized LNG price is pushing the total cost of ownership back in the favor of LNG powered fleets, and we remain encouraged by this price trend. Despite the macroeconomic environment, our European launch partner remains committed to the growth of HPDI. In fact, recently many OEMs have made public announcements supporting the need for several technical solutions due to the availability of energy and fuel infrastructure, which differs greatly between countries and regions, and also because the requirements for range, weight and payloads will differ by use case. These statements have been supporting the future use of LNG and biomethane as a part of a multi-option effort to decarbonize transportation. This is exciting for us. We’re at the beginning of the transition to cleaner fuels, natural gas, biomethane, and then hydrogen.

This transition to cleaner fuels is also making its presence known in North America. As a Canadian industrial gas and engineering company has recently committed to evaluating Class 8 LNG power tractors, its long haul operations, focusing on measuring performance, fuel savings on other operational factors against its diesel fleet. Turning to light-duty OEM. In 2022, we had several exciting announcements, including two major contracts with a leading European OEM for the supply of LPG fuel systems for both, Euro 6 and Euro 7 standards through 2035 and beyond. The LPG vehicle market in Europe remained strong, bolstered by pricing advantage of petrol. In Q4 last year, LPG fueled vehicle registrations grew by over 16%. This trend is also positive for our delayed OEM business where we saw 20% revenue growth in 2022, converting some 40,000 vehicles, a number we expect to grow significantly in 2023.

In India, we are encouraged by the increased level of light-duty sales to OEMs as that market has been negatively impacted recently by rising CNG prices. To add some perspective, the price spreads between CNG and diesel have decreased by 19% year to date. Despite the pricing environment, biogas and bio CNG remain a focus for the Indian government with recent announcements supporting the production and development of 500 new biogas plants and up to 5,000 bio CNG plants with a production target of 15 million megatons by 2023, 2024. This is still an important growth market for our company going forward. Our partner in China, Weichai, remains committed to the commercial launch of HPDI as we mentioned in December at our Capital Markets Day. They recently took possession of nearly a 100 HPDI units.

A volatile LNG pricing environment has hampered the progress of this market. However, as pricing normalizes, it should be a boost towards a commercial launch, and we’ll update the market on this progress. We’ve talked a lot recently about our hydrogen components business, a business that grew gross profit by almost 60% in 2022, and continue to see strong growth. A few weeks ago, we announced our plan to invest up to $10 million to expand our global manufacturing footprint in China, supporting our hydrogen components business and other alternative fuel system technologies. China leads the world in hydrogen investment and infrastructure development and has a published ambitious objective of having 1 million hydrogen fuel vehicles on the road in China by 2030.

The new Westport facility in the city of Changzhou will begin operations in 2024, and include an ultra-modern manufacturing facility and a contemporary innovation center. Our hydrogen components have had a strong presence in China in the market for over 10 years. This announcement is truly a stepping stone to continue our hydrogen technology advancement and positions Westport to support a variety of applications using fuel cells and internal combustion engines using hydrogen for fuel. Globally, hydrogen continues to gain traction as governments, private companies and policy makers continue their push for investment and support to solidify hydrogen as the fuel of the future. In Europe, in particular, nine EU member states have called on the European Commission to include low carbon hydrogen produced from nuclear electricity in the EU’s renewable hydrogen targets, stressing energy security and energy independence.

As demand increases, pricing is expected to decrease, and refueling infrastructure increases both driving factors for adoption. With these in place, change can happen quickly. The roadmap for hydrogen is very encouraging for our business. Our components business provides all the necessities for both, IC engines and fuel cells. Because of this, we stand to benefit broadly from all hydrogen applications in transport. When looking more closely at using hydrogen for heavy-duty transport. In February, the European Union made some significant announcements regarding potential heavy-duty vehicle emission standards and hydrogen internal combustion engines. For the first time, hydrogen IC engines were included in the list of technologies that will drive the shift to zero emissions.

Though still a proposal, this is a critical step change from the earlier dialogue. We’ll be monitoring these developments closely. And just last week, we announced another collaboration with a global OEM to evaluate the performance efficiency emissions of the OEM’s engine, equipped with our hydrogen HPDI fuel system. This collaboration marks Westport’s third major OEM engagement to date. Funded by the OEM, the work starts immediately and continues through year end. We look forward to updating the market further on the results of this ongoing evaluation work. Hydrogen mobility has now become much more substantial than just fuel cells as hydrogen internal combustion engines are set to play an important role moving forward. Operationally, our independent aftermarket business performed well in 2022 amid a difficult macroeconomic climate.

The impact of foreign exchange and translating results combined with lower sales in Russian market and lower volumes in Turkey and Argentina resulted in slightly lower revenue year-over-year. Despite these setbacks, in 2022, we were encouraged by growing volumes in both Eastern and Western Europe, and we’re seeing recovery trends so far in 2023. The lower volumes in some of our key markets like Turkey and Russia tighten margins already impacted by higher production input costs. Plans are in place to address this and we’re working to get our margins back into a more acceptable range. Despite pronounced supply chain and logistics headwinds that are still lingering with our customers and partners daily, we expect a busier 2023. We started seeing recovery in Western Europe in the back half of 2022, and this trend is continuing so far this year.

We’ll look to enter new markets where the spread between petrol and alternative fuels is favorable. We have several open tenders that we feel confident we’ll be able to acquire in both new and existing markets. A more normalized CNG pricing environment in places like India and Argentina will also be beneficial for us to grow market share and revenues. As the market leader for the LPG conversion of petrol direct injection vehicles we’ve historically benefited from this position in Western Europe. As an example, in Italy, a developed market, we’ve seen conversions increasing as incentives for petrols rolled off, extending the price advantage of LPG. In new markets across the world, the need for LPG conversions providing customers of lower cost clean fuel options is increasing, and we’re seeing an uptick in demand in countries like Poland and Turkey.

The growth of our LPG business will be an important part of our story moving forward. With price advantages in key markets like Italy, Netherlands, and Poland, we can continue to grow this business well into the future. The cost of owning electric cars is still expensive and is increasing in certain geographies due to the soaring commodities cost like lithium and the cost of operating electric cars is also climbing as electricity prices rise in Europe. Consumers continue to look for lower cost alternatives and can still make a conscious purchase with a vehicle powered by clean, lower cost alternative fuel. Despite the macro headwinds that we face, falling LNG prices and the continued focus on dramatically reducing carbon emissions create opportunities for our business as both industry operators and end customers look for lower cost options to reduce carbon.

With that, I’d like to turn it over to Bill to go through our financials.

Bill Larkin: Thank you, David, and good morning. I’ll start off by going over the Q4 and full year financial highlights. In the fourth quarter of €˜22, we generated revenue of $78 million. This was a decrease of 6% year-over-year. As David mentioned, this was primarily driven by the impact of foreign exchange when translating our financial statements into U.S. dollars and a decrease in light-duty in heavy-duty OEM sales. Both our independent aftermarkets and OEM segments continue to be impacted by the Russia-Ukraine conflict as volumes have decreased from pre-conflict levels. Also, the rise in European LNG prices slowed demand for HPDI trucks and reduced volumes. However, we did realize strong growth in our hydrogen components, electronics and fuel storage businesses.

Revenues for the full year of €˜22 decreased slightly by 2% to $305.7 million. This decline was primary driven by the weakening of the euro when translating our financial statements into U.S. dollars. Holding exchange rate consistent with fiscal €˜21, our FY22 revenues would have increased by 9% or $27.7 million compared to €˜21. Apart from foreign exchange, FY22 revenues were positively impacted by a full year’s revenue from our fuel storage business, which we acquired in June €˜21, increased sales volumes of our hydrogen and electronics products, higher delayed OEM volumes, and increased sales volumes of our light-duty products to OEMs in India. These were offset by lower sales volumes to our customers in Russia and both the IAM and the OEM businesses, and lower sales of CNG products in the Western European market due to higher natural gas prices.

We reported a net loss of $32.7 million for the full year of €˜22 compared to net income of $13.7 million for the prior year. Some of the larger drivers of this change include a decrease in gross margin of $12 million. This decrease is due to a combination of translating our financial statements to U.S. dollars, resulting in lower revenue and a reduction in the gross margin dollars, a reduction in our gross margin percentage from the impact of increasing material, manufacturing and labor costs because of global inflation, a loss of 33 million of equity income from the termination and sale of the CWI joint venture, which was partially offset by a gain of $19.1 million recognized on the sale, and an $8.4 million year-over-year swing in foreign exchange, which is a loss of $6.4 million FY22 compared to a gain of $2 million in FY21.

FY21 also included tax benefits of $8.9 million related to our Italian operations. For the fourth quarter of €˜22, we reported net loss of $16.9 million compared to net income of $5.4 million in the prior year period. Moving on the next slide, in the fourth quarter of €˜22, we reported negative $12.9 million in adjusted EBITDA, compared to positive $10 million in the same period last year. The decrease in adjusted EBITDA was primarily due to an overall decrease in our gross margin and the loss of equity income from the CWI joint venture. As a reminder, the fourth quarter of €˜21 included $14.8 million in equity income from the CWI joint venture. Gross margin for the fourth quarter of 2022, decreased year-over-year to $4.5 million or 6% of revenue compared to $9.3 million or 11% of revenue for the fourth quarter of €˜21.

This reduction was mainly due to lower sales volumes in our OEM segment, a shift in our sales mix in our OEM business and increased manufacturing material, energy and utility costs and results of the widespread inflation and global supply chain challenges. Moving on to next slide, this our OEM business. Our OEM revenue for the fourth quarter of €˜22 was $47.8 million compared to $57.4 million in the same period in €˜21. The decrease of $9.6 million was driven by the weaker euro when translating our financial statements to the U.S. dollars, resulting in lower revenue, as well as decreases in sales in both our light-duty and heavy-duty OEM businesses. The decrease in revenue was partially offset by higher sales volumes in our fuel storage, delayed OEM, hydrogen, and electronics businesses.

Touch quickly on our hydrogen components business. This business grew revenue by over 60% in €˜22, as a result of increased volumes to our key customers. As a reminder, we work with the likes of Ballard and Plug Power and have been invited to participate in many more RFQs for OEM Tier 1 programs. Also, there’s a strong sign of further growth in the coming years with an announced pipeline of potential revenue totaling a $100 million. Our heavy-duty OEM plans decreased by 50% in the fourth quarter of €˜22, which will result of the unfavorable fuel price differential between LNG and diesel in Europe. This is largely driven by a shortage of LNG supply. More recently, we have seen a return to a more normalized LNG pricing environment in Europe, which we anticipate will be helpful in driving demand for HPDI trucks in the future.

Gross margin decreased year-over-year by $5.9 million to a loss of $800,000 compared to a positive $5.1 million in the fourth quarter of €˜21. Gross margin was negatively impacted by lower sales volume and continued higher input cost. As a reminder, we did have a contractual price reduction on sales to our initial heavy-duty OEM launch partner. Moving on to the next slide, that’s an overview of our independent aftermarket business. Our independent aftermarket revenue for the fourth quarter €˜22 was $30.2 million compared to $25.3 million for the same period in €˜21. The increase of $4.9 million was primarily due to increases of sales into Eastern Europe, Italy and Asia Pacific, partially offset by the foreign exchange impact when translating our financials in the U.S. dollars.

We did see a positive trend developed in the fourth quarter through a partial recovery of sales into Western Europe, particularly in Italy, Germany, and the Netherlands. We remain confident in our ability to deliver revenue growth through new and existing markets in our independent aftermarket business. Gross margin was $5.4 million compared to $4.2 million in the fourth quarter of

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