2022 ANNUAL REPORT TABLE OF CONTENTS
About Westport Fuel Systems ....................................................... 4
Letter to Shareholders ..........................................................................6
At A Glance .................................................................................................10
Financial Highlights .............................................................................10
Management Discussion and Analysis ...................................12
Financial Statements .........................................................................36
2
3
ABOUT WESTPORT
We are a leading supplier of advanced fuel delivery systems, components, and software
for a wide range of affordable alternative low-carbon, renewable fuels. Our market-ready
solutions are tested and proven. They help reduce emissions, meet greenhouse gas
standards, and in most cases realize fuel cost savings for passenger cars and light-, medium-,
and heavy-duty trucks.
We are Driving Cleaner Performance with advanced, alternative-fuel systems for today’s
combustion-powered vehicles and for future fuel cell and hydrogen-fuelled vehicles. Our systems
reduce carbon emissions without compromise and without drastic or expensive change to vehicle
architecture, manufacturing, and supply chains. Our fuel systems for gaseous fuels replace the fuel
systems for traditional, high-carbon liquid fuels like gasoline and diesel, so the vehicle can be fuelled
by hydrogen (H2), liquefied natural gas (LNG), renewable natural gas (RNG), compressed natural gas
(CNG), and liquefied petroleum gas (LPG). We are supporting today’s internal combustion engines and
tomorrow’s fuel cells.
It’s an easy, cost-effective change, and it’s happening today.
4
ABOUT WESTPORT
We are a leading supplier of advanced fuel delivery systems, components, and software
for a wide range of affordable alternative low-carbon, renewable fuels. Our market-ready
solutions are tested and proven. They help reduce emissions, meet greenhouse gas
standards, and in most cases realize fuel cost savings for passenger cars and light-, medium-,
and heavy-duty trucks.
We are Driving Cleaner Performance with advanced, alternative-fuel systems for today’s
combustion-powered vehicles and for future fuel cell and hydrogen-fuelled vehicles. Our systems
reduce carbon emissions without compromise and without drastic or expensive change to vehicle
architecture, manufacturing, and supply chains. Our fuel systems for gaseous fuels replace the fuel
systems for traditional, high-carbon liquid fuels like gasoline and diesel, so the vehicle can be fuelled
by hydrogen (H2), liquefied natural gas (LNG), renewable natural gas (RNG), compressed natural gas
(CNG), and liquefied petroleum gas (LPG). We are supporting today’s internal combustion engines and
tomorrow’s fuel cells.
It’s an easy, cost-effective change, and it’s happening today.
5
Dear Fellow Shareholders,
2022 was an eventful year. We continued
strengthening our market position by delivering valuable,
impactful products and services to customers around
the world. We navigated 2022’s inflation and global
supply chain issues, the strengthening of the Euro, and
the end of the CWI joint venture; and as the year ended,
our financial results fell short of our expectations.
However, amid a difficult environment, we achieved
several important milestones:
• Proved the efficiency of our hydrogen HPDI™ fuel
system, based on our work with Scania
• Added significant new LPG business for both Euro 6 in
the near-term and Euro 7 longer-term, with a leading OEM
• Globally introduced H2 HPDI™ to numerous global
OEM customers, fleet operators, regulatory bodies,
policy makers, and investors who were able to see the
higher torque and power that H2 HPDI™ offers through
our demonstrator trucks
• Educated regulatory bodies throughout North
America and Europe on the advancements we have
made with respect to CO2 abatement
6
Our business and product offerings,
remain diverse and resilient and we
will turn the profitability trend back
in our favour as we capture market
share where the price advantage of
clean lower carbon and renewable
fuels is favourable.
2022 Performance
2022 was an operational success, even with the
Our hydrogen components business grew revenues
significant impact of foreign exchange translation,
by 50% in 2022, with future growth supported by a
the Russia-Ukraine conflict, and inflation, which
pipeline of approximately $100 million in OEM
had a weighted impact on our 2022 results.
projects. Hydrogen will play a significant role in the
future of transportation, and with our hydrogen
Our independent aftermarket business was
components in addition to our H2 HPDI™ fuel system
impacted by the Russia-Ukraine conflict and rising
solution, we are well positioned to lead this transition.
CNG prices in markets like Argentina. However, the
price advantage of alternative fuels in several of our
We remain encouraged by the LPG price advantage
key markets and the affordability of our products
seen in many markets. The new contract we secured
have driven growth in some of our existing
to supply Euro 6 and Euro 7 LPG fuel system to a
markets and encouraged us to grow in markets
global OEM demonstrate the long-term potential
like Peru, Bolivia, and Thailand. Both top-line and
of our LPG fuel system business. This potential is
bottom-line enhancements continue to be a priority
supported by customer demand and is expected
including entry into new markets and driving
to drive Westport’s European LPG market share to
margin improvements in our independent
approximately 50%, strengthening the revenue
aftermarket business.
profile through and beyond 2035.
continuted on next page
7
“ ”
In 2022, order volumes for our heavy-duty OEM business were lower than expected, due to the
challenging LNG pricing environment and differential to diesel. Despite a challenging 2022, our lead
LNG HPDI™ customer continues to gain market share in a growing European market. As commodity
natural gas prices have returned to pre-2020 lows, the economic benefit of LNG versus diesel, and the
growing availability of biogas are positive indications of volume growth with our lead customer.
2023 Outlook
The headwinds with respect to inflation and supply chain concerns we faced in 2022 linger into 2023.
However, investments into hydrogen production and distribution are growing, natural gas prices have
returned to more normalized levels, and biogas continues to be recognized as a “ready now” alternative
delivering net-zero carbon transport. Our business and product offerings remain diverse and resilient and
we will turn the profitability trend back in our favour as we capture market share where the price advantage
of clean lower carbon and renewable fuels is favourable, and as emissions regulations strengthen and
propel the transition to clean fuels. Some of the ways we are doing this in 2023 include:
8
“ • HPDI™ development projects for both LNG and hydrogen are underway with heavy-duty OEMs
representing approximately 70% of the European market
• Increasing market share with HPDI™ while advancing commercialization efforts of H2 HPDI™
• Building on the introduction of our H2 HPDI™ technology with demonstrator trucks to OEMs,
policymakers, and regulators
• Optimizing and leveraging our distinctive IAM and OEM distribution channels and positioning
Westport to deliver growth and innovation
• Substantial growth to continue for our fuel storage, hydrogen components, and electronics businesses
• Significant volume growth in our delayed-OEM business, driven by demand for clean, low-cost
alternative fuel vehicles
• We’re optimistic that the adoption trend for biomethane use for long-haul transportation will continue
in 2023, spurring additional demand for HPDI™ which offers 30% less fuel consumption with more torque
and better driveability when compared with products that don’t use HPDI™ fuel systems
Step changes in 2023 position us for
long-term growth in 2024 and beyond.
We have a clear focus on prudent capital management including cost optimization and margin expansion
throughout our entire business in addition to adding supply agreements. Step changes in 2023 will position us
for long-term growth in 2024 and beyond.
In closing
Our strategic priorities continue to drive every business decision helping us build even more
momentum as we continue to support the transition to clean energy.
Thank you to our shareholders and all our stakeholders. The developments made in 2022 have
set us on the right path for 2023. As we continue to grow and prosper, we remain appreciative of
your ongoing support.
Sincerely,
David Johnson,
Chief Executive Officer
9
“ ”
WESTPORT AT A GLANCE
Calgary, AB
★★Vancover, BC
2022 FINANCIAL HIGHLIGHTS
(US$ millions, except where noted)
Operations
Revenue
Gross margin
Gross margin %
Net income (loss) per year
EBITDA
Adjusted EBITDA
2022
305.7
36.2
12%
-32.7
-17.5
-27.8
2021
312.4
48.2
15%
13.7
23
17.5
2020
252.5
39.5
16%
-7.4
16.1
14.7
2019
305.3
68.2
22%
0
24.9
28.4
2018
270.3
64.2
24%
-31.5
-13.5
9.6
Basic per share amounts (US$ per common share)
Net income (loss) per share - basic
-0.19
0.09
-0.05
0
-0.24
Financial position
Cash and cash equivalents (including restricted cash)
Total assets
Debt, including current portion
Royalty payable, including current portion
Shareholders’ equity
10
86.2
407.5
53.0
5.5
204.0
124.9
471.3
69.4
9.8
236.4
64.3
346.3
85.5
16.2
104.1
46
279.9
48.9
18.2
89.4
61.1
269.9
55.3
20.9
90.7
2022 revenue of $306millionMore than 1,400 patents & applicationsMore than 64 years of innovation23 OEM customers 100+ distributors for our IAM business 70 countries being servedOver Cambridge, ON
Eindhoven, Netherlands
Cherasco, Italy
Albinea, Italy
Brescia, Italy
Gothenburg, Sweden
Slupsk, Poland
Delhi, India
Ahmedabad, India
Kunshan, China
Buenos Aires, Argentina
COMMITMENT TO ESG
Our 2022 ESG accomplishments continue to create a world where climate change is
mitigated, and global air quality contributes to a healthy society.
We demonstrated our commitment to the decarbonization of transportation,
announcing the promising results from our advanced studies on hydrogen-fuelled
internal combustion engines. We understand that change comes through adoption
by fleets and OEMs. We also know that our H2 HPDI™ fuel system meets the needs of
long-haul trucking applications. So, we continue to develop fuel systems that create a
path to carbon neutrality by way of less emissions, and less cost.
Moving forward, we are taking concrete steps to ensure that Westport’s products and
business practices have positive impacts throughout the value chain. A principled
growth approach drives our value-based leadership in a sound practice of achieving:
affordable and clean energy, industry, innovation, infrastructure and climate action.
11
Management's Discussion and Analysis
Management's Discussion and Analysis
Basis of Presentation
This Management’s Discussion and Analysis ("MD&A") for Westport Fuel Systems Inc. ("Westport Fuel Systems", the
"Company", "we", "us", "our") for the three months and year ended December 31, 2022 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 ("Annual Financial Statements"). Our Annual 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 March 13,
2023.
Additional information relating to Westport Fuel Systems, including our Annual Information Form (“AIF”) and Form 40-F, is
available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. All financial information is reported in U.S. dollars
unless otherwise noted.
Forward Looking Statements
This MD&A contains forward-looking statements that are based on the beliefs of management and reflects our current
expectations as contemplated under the safe harbor provisions of Section 21E of the United States Securities Act of 1934, as
amended. Such forward-looking statements include, but are not limited to, statements regarding the impact of the acquisition
of Stako sp. zo.o. ("Stako") on our business, 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,
margin pressure in 2022 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, the impact of the COVID-19 pandemic
(including variants thereof) and the supply and effectiveness of vaccines on future performance, earnings, supply, and demand
for our products, 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. In addition,
the impacts of the COVID-19 pandemic could cause actual results to differ materially from the forward-looking statements
contained in this MD&A. The forward-looking statements contained in this MD&A are based upon a number of material factors
and assumptions which include, without limitation, market acceptance of our products, product development delays in
contractual commitments, the ability to attract and retain business partners, competition from other technologies, the impact
of the COVID-19 pandemic, 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.
12 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Readers should not place undue reliance on any such forward-looking statements, which are pertinent only as of the date they
were made.
Management's Discussion and Analysis
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.
General Developments
•
•
•
•
•
In May 2022, Westport received positive market feedback from Westport's Hydrogen fuelled HPDI fuel system equipped
demonstrator truck, on display at the 2022 ACT Expo in Long Beach, California.
In July 2022, Westport was awarded a program to develop and supply liquid petroleum gas ("LPG") fuel systems for
several vehicle applications for a global OEM. The agreement is forecasted to provide €38.0 million in revenue through
the end of 2025, with production expected to begin in Q4 2023.
In October 2022, Westport announced test results for an HPDI fuel system equipped engine fuelled with hydrogen from
the demonstration program with Scania. Scania's 13-Litre CBE1 platform equipped with Westport's HPDI fuel system
and fuelled with hydrogen, demonstrated a peak Brake Thermal Efficiency of 51.5% complemented by 48.7% at road
load conditions, with engine-out NOx similar to the base diesel engine.
In December 2022, Westport was awarded a program to develop and supply liquefied petroleum gas ("LPG") fuel
systems to a global original equipment manufacturer (OEM) to accommodate a number of its Euro 7 vehicle platforms.
This program is forecasted to generate €40.0 million in annual revenue with production expected to begin in Q1 2025.
In December 2022, Westport and Johnson Matthey, a global leader in sustainable technologies, announced
collaboration to develop an emissions aftertreatment system tailored to Westport's hydrogen fuelled HPDI fuel system,
with the goal of reducing or eliminating emissions.
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.
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 13
Management's Discussion and Analysis | Business Overview and General Developments
The majority of our revenues are generated through the following businesses:
Independent Aftermarket
OEM Businesses
Heavy-duty OEM
Delayed OEM
Light-duty OEM
Electronics
Hydrogen
Fuel storage
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
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.
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.
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.
We sell systems and components to OEMs that are used to manufacture new,
direct off the assembly line LPG or CNG-fueled vehicles.
We design, industrialize and assemble electronic control modules.
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.
We manufacture LPG fuel storage solutions and supply fuel storage tanks to
the aftermarket, OEM, and other market segments.
RISKS, LONG-TERM PROFITABILITY & LIQUIDITY
Global Supply Chain Challenges and Inflationary Environment
We continue to experience supply chain challenges to source semiconductors and other inputs to production due to supply
shortages plaguing the automotive industry. While demand for more climate-friendly vehicles with favorable fuel price
economics is growing, the global shortage of semiconductors and raw materials is impacting automotive manufacturing and
creating bottlenecks. We expect 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
14 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Management's Discussion and Analysis | Business Overview and General Developments
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 $7.6 million less in the year ended December 31, 2022 compared to same period in 2021. 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
During 2022, there have been significant increases and continued volatility in LNG and CNG pricing. 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. Gaseous fuel price increases that negatively impact the price differential of gaseous fuels versus
diesel and gasoline, may impact our customers' decision to adopt such gaseous fuels as a transportation energy solution in
the short-term. We continue to observe softness in demand in our heavy-duty and light-duty OEM sales volumes caused by the
uncertainty over the elevated prices of CNG and LNG relative to diesel and gasoline in Europe. Despite pressure on CNG and
LNG prices, the LPG price differential to gasoline in Europe continued to improve towards the end of the year and be 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 annual financial statements for the
year ended December 31, 2022. However, changes in circumstances due to the aforementioned risks could affect our
judgments and estimates associated with our liquidity and other critical accounting assessments.
We continue to generate operating losses and negative cash flows from operating activities primarily due to the lack of scale in
our heavy-duty OEM business. Despite customer interest, sales of our HPDI 2.0 fuel systems to our OEM launch partner
continue to be adversely affected by the impact of the continued volatility in natural gas prices, decreasing end-customer
demand. Cash used in operating activities was $31.6 million for the year ended December 31, 2022. Despite the successful
monetization of the CWI joint venture's intellectual property and the sale of our interest in CWI in the first quarter of 2022, the
loss of income from the equity interest in the former CWI business had a significant impact on our annual cash flows.
As at December 31, 2022, we had cash and cash equivalents of $86.2 million. Although we believe we have sufficient liquidity
to continue as a going concern beyond March 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 fund our long-term strategic objectives and operations. In addition to new customer announcements and
entering new markets, the Company is focused on improving profitability through growth in our heavy-duty OEM business driving
economies of scale and improvements in our light-duty OEM and IAM businesses, including pricing measures and
manufacturing strategies driving margin expansion. If, as a result of future events, we were to determine we were no longer
able to continue as a going concern, significant adjustments would be required to the carrying value of assets and liabilities in
the accompanying annual financial statements and the adjustments could be material.
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 15
Management's Discussion and Analysis | Overview of Financial Results for 2022
Overview of Financial Results for 2022
Revenues of $305.7 million for the year ended December 31, 2022 were lower by 2%, compared to $312.4 million in the prior
year, primarily driven by the weakening of the Euro against the U.S. dollar when translating our financial statements into U.S.
dollars. Excluding the negative impact of foreign currency translation, total revenue would have increased by $27.7 million or
9%. The full year impact of the acquisition of our fuel storage business in June 2021, increased sales volumes of our hydrogen
and electronics products, and increased sales volumes to OEMs in India of our light-duty OEM products contributed to the
growth in revenues. These were offset by the negative impact of the fuel price volatility, lower sales volumes to Russian
customers in the independent aftermarket and OEM businesses from the ongoing Russian-Ukraine conflict, and lower sales of
CNG and LNG products due to higher natural gas prices in the European market.
We reported a net loss of $32.7 million for the year ended December 31, 2022 compared to net income of $13.7 million for
the prior year. This change was primarily the result of:
•
•
•
•
•
•
decreases in our FY2022 gross margin of $12.0 million compared to FY2021 due to translating our consolidated
financial statements to USD resulting in lower revenue, and reduction in our gross margin percentage from the impact
of increasing material, manufacturing and labor costs because of global inflation;
loss of equity income from the termination and sale of the Cummins Westport Inc. ("CWI") joint venture resulting in a
$33.0 million reduction in FY2022 compared to FY2021, which was partially offset by a gain of $19.1 million
recognized for the sale of our interest in the CWI joint venture including the monetization of the related intellectual
property;
recognition of $5.9 million bargain purchase gain related to the acquisition of the fuel storage business acquired in
2021 which did not reoccur in 2022;
increases in sales and marketing expenditures due to increased central marketing communication to introduce the
future HPDI H2 technology to the markets;
foreign exchange loss of $6.4 million compared to a foreign exchange gain of $2.0 million in the prior year, which is
related to the revaluation of U.S. dollar denominated debt in our Canadian legal entities and, is offset by the
revaluation of our U.S. dollar cash and accounts receivable; and
income tax expense of $1.4 million compared to an income tax recovery of $8.1 million recognized for COVID-19 tax
relief ruling from the Government of Italy in the prior year.
Cash and cash equivalents were $86.2 million as of December 31, 2022. Cash used in operating activities during the year was
$31.6 million, due to operating losses of $32.7 million, and net cash used in working capital of $1.1 million. Investing
activities included the purchase of fixed and intangible assets of $14.5 million and net proceeds from the sale of our interest
in CWI. Financing activities were attributed to net debt repayments of $22.5 million in the year.
We reported adjusted EBITDA loss of $27.8 million, (see "Non-GAAP Measures" section in the MD&A) during the year ended
December 31, 2022, compared to adjusted EBITDA of $17.5 million in the prior year.
16 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Management's Discussion and Analysis | Selected Annual Financial Information
Selected Annual Financial Information
Selected Consolidated Statements of Operations Data
The following table sets forth a summary of our financial results:
SELECT CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(expressed in millions of U.S. dollars, except per share amounts and shares outstanding)
Revenue
Gross margin1
Gross margin %1
Loss from operations
Income from investments accounted for by the equity method
Net income (loss)
Net income (loss) per share - basic
Net income (loss) per share - diluted
Weighted average basic shares outstanding (millions)
Weighted average diluted shares outstanding (millions)
EBIT1
EBITDA1
Adjusted EBITDA1
2022
Years ended Dec 31
2021
$ 305.7 $ 312.4 $ 252.5
39.5
$
2020
36.2 $
12 %
(50.3) $
0.9 $
(32.7) $
(0.19) $
48.2 $
15 %
(30.5) $
33.7 $
13.7 $
0.09 $
16 %
(22.0)
24.0
(7.4)
(0.05)
(0.19) $
0.08 $
(0.05)
171.2
171.2
(29.3) $
(17.5) $
(27.8) $
160.2
162.1
9.0 $
23.0 $
17.5 $
137.1
137.1
2.1
16.1
14.7
$
$
$
$
$
$
$
$
(1) 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.
SELECT CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(expressed in millions of U.S. dollars, except per share amounts and shares outstanding)
Revenue
Gross margin1
Gross margin %1
Loss from operations
Income from investments accounted for by the equity method
Net income (loss)
Net income per share - basic
Net income per share - diluted
Weighted average basic shares outstanding (millions)
Weighted average diluted shares outstanding (millions)
EBIT1
EBITDA1
Adjusted EBITDA1
Three months ended Dec 31
2022
2021
$
$
$
$
$
$
$
$
$
$
78.0 $
4.6 $
6 %
(17.2) $
— $
(16.9) $
(0.10) $
(0.10) $
171.3
171.3
(16.3) $
(13.5) $
(12.9) $
82.7
9.3
11 %
(10.0)
15.0
5.4
0.04
0.03
170.8
172.7
4.9
8.4
10.0
(1) 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.
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 17
Management's Discussion and Analysis | Selected Annual Financial Information
Selected Balance Sheet Data
The following table sets forth a summary of our financial position:
SELECTED BALANCE SHEET DATA
(expressed in millions of U.S. dollars)
Cash and cash equivalents
Net working capital1
Total assets
Short-term debt
Long-term debt, including current portion
Royalty payable, including current portion
Non-current liabilities1
Total liabilities
Shareholder's equity
$
Years ended Dec 31
2021
2022
86.2 $
77.5
407.5
9.1
43.9
5.5
31.3
203.5
204.0
124.9
96.7
471.3
13.7
55.7
9.9
38.6
234.9
236.4
(1) 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.
Results from Operations
Operating Segments
We manage and report the results of our business through three segments: OEM, IAM, and Corporate. This reflects the way
operating decisions and the assessment of business performance is currently managed by the Chief Operating Decision Maker
("CODM"). As discussed in note 7 of the Annual Financial Statements, the CWI joint venture ended as at December 31, 2021
and our 50% share in the joint venture was sold to Cummins on February 7, 2022. We recorded the investment as an asset
held for sale as at December 31, 2021 and no longer considered it as an operating segment, however, income from our
investment in the CWI joint venture remained in Corporate equity income in 2021.
OEM BUSINESS SEGMENT
Our OEM segment designs, manufactures, and sells alternative fuel systems, components and electronics, including the HPDI
2.0 fuel systems product and related engineering services, to OEMs and to supplier OEMs. Our diverse product offerings are
sold under established global brands and utilize a broad range of alternative fuels, including: LPG, CNG, LNG, RNG, and
hydrogen, which have numerous environmental and economic advantages. The OEM business segment's products and services
are available for passenger cars, light-, medium- and heavy-duty trucks, cryogenics, and hydrogen applications. The OEM group
includes the light-duty and heavy-duty OEM product lines, DOEM, electronic and fuel storage businesses.
IAM BUSINESS SEGMENT
Our IAM segment designs, manufactures, and sells alternative fuel systems and components that consumers can purchase
and have installed onto their vehicles to use LPG or CNG fuels in addition to gasoline. Distribution of such products is realized
through a comprehensive distribution network (in more than 70 countries) selling our products to the workshops that are
responsible for conversion, maintenance and service.
CORPORATE BUSINESS SEGMENT
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.
18 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
(in millions of U.S. dollars)
OEM
IAM
Corporate
Total consolidated
(in millions of U.S. dollars)
OEM
IAM
Corporate
Total consolidated
Management's Discussion and Analysis | Results from Operations
Three months ended December 31, 2022
Depreciation &
amortization
Operating income
(loss)
Revenue
Equity income
(loss)
47.8 $
(12.8) $
30.2
—
0.6
(5.0)
78.0 $
(17.2) $
1.8 $
0.8
0.1
2.7 $
—
—
—
—
Three months ended December 31, 2021
Depreciation &
amortization
Operating income
(loss)
Revenue
Equity income
57.4 $
25.3
—
82.7 $
(5.0) $
(1.3)
(3.7)
(10.0) $
2.1 $
1.4
0.1
3.6 $
0.3
—
14.7
15.0
$
$
$
$
REVENUE FOR THE THREE MONTHS AND YEARS ENDED
(in millions of U.S. dollars)
Three months ended
December 31
Change
Years ended
December 31
OEM
IAM
Total Revenue
Revenue
2022
2021
$
$
$
$
47.8
30.2 $
78.0 $
57.4
25.3 $
82.7 $
(9.6)
4.9
(4.7)
2021
2022
%
(17) %
19 % $ 107.7 $ 116.9 $
(6) % $ 305.7 $ 312.4 $
195.5
198.0
Change
$
%
2.5
(9.2)
(6.7)
1 %
(8) %
(2) %
OEM
Revenue for the three months and year ended December 31, 2022 was $47.8 million and $198.0 million, respectively,
compared with $57.4 million and $195.5 million for the three months and year ended December 31, 2021.
OEM revenue decreased by $9.6 million in the fourth quarter of 2022 compared to the prior year period and was primarily
driven by the decrease in average Euro rate versus the U.S. dollar and decrease in sales for our light-duty OEM business, which
was partially offset by higher sales volumes of our fuel storage, DOEM, hydrogen, and electronics businesses. Our heavy-duty
OEM sales volumes decreased by 50% in the fourth quarter of 2022 compared to the prior year period mainly due to the
unfavorable fuel price differential between LNG and diesel in Europe driven by the shortage of LNG supply, which caused a
reduction in volumes.
OEM revenue for the year ended December 31, 2022 increased by $2.5 million compared to the prior year, primarily driven by
increased sales volumes to OEMs in India of our light-duty CNG products where we continue to see strong government support
and policies in place for the significant expansion of CNG vehicles, increased sales volumes of electronics, fuel storage,
hydrogen and DOEM products. This was partially offset by lower sales volumes in Western Europe for our light-duty OEM
products, lower year-over-year revenues in our heavy-duty OEM business, and foreign exchange impact from the strengthening of
U.S. dollar against the Euro when translating our financial statements.
IAM
Revenue for the three months and year ended December 31, 2022 was $30.2 million and $107.7 million, respectively,
compared with $25.3 million and $116.9 million for the three months and year ended December 31, 2021.
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 19
Management's Discussion and Analysis | Results from Operations
The increase in revenue for the three months ended December 31, 2022 compared to the prior year period was primarily driven
by increased sales to Eastern Europe, Western Europe, and Asia Pacific. This was partially offset by the aforementioned foreign
exchange impact of the Euro versus U.S. dollars.
The decrease in revenue for the year ended December 31, 2022 compared to the prior year was primarily driven by lower sales
volumes to the Russian market due to the ongoing Russia-Ukraine conflict, lower sales volumes to Argentina due to CNG prices
and government support to petrol prices, and the aforementioned foreign exchange impact. Revenue for the year ended
December 31, 2021 included a large one-time infrastructure project of $5.3 million in Tanzania to build fueling infrastructure to
enable the sale and operation of gaseous fueled vehicles.
Gross Margin for the Three Months Ended December 31, 2022
GROSS MARGIN FOR THE THREE MONTHS ENDED
(in millions of U.S. dollars)
OEM
IAM
Total gross margin
Three months ended Dec 31
Change
2022
$ (0.8)
5.4
$ 4.6
% of
revenue
% of
revenue
2021
(2) % $ 5.1
18%
4.2
6 % $ 9.3
9 % $
17%
11 % $
$
(5.9)
1.2
(4.7)
%
(116) %
29 %
(51) %
OEM
Gross margin for the three months ended December 31, 2022 decreased by $5.9 million to $(0.8) million, or (2)% of revenue,
compared to $5.1 million, or 9% of revenue, for the same prior year period.
The decrease in gross margin for the three months ended December 31, 2022 was driven primarily by decreased sales
volumes in multiple OEM business, negative sales mix, 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, and an annual contractual price reduction year over year to our initial OEM launch partner. This was partially
offset by increased volume in the Indian and commercial vehicles markets.
IAM
Gross margin for the three months ended December 31, 2022 increased by $1.2 million to $5.4 million, or 18% of revenue,
compared to $4.2 million, or 17% of revenue, for the same prior year period.
The increase in gross margin for the three months ended December 31, 2022 was primarily driven by higher sales volumes in
Eastern and Western Europe. This was partially offset by the lower sales volume in Russia, Turkey, and Egypt, and higher
production input costs incurred in materials, transportation, and energy costs.
Gross Margin for the Year Ended December 31, 2022
GROSS MARGIN FOR THE YEARS ENDED
(in millions of U.S. dollars)
OEM
IAM
Total gross margin
20 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Years ended Dec 31
Change
2022
$ 13.6
% of
revenue
2021
% of
revenue
7 % $ 20.4
10 % $
%
$
(6.8) (33) %
22.6
21%
27.8
24%
(5.2) (19) %
$ 36.2
12 % $ 48.2
15 % $ (12.0) (25) %
Management's Discussion and Analysis | Results from Operations
OEM
Gross margin for the year ended December 31, 2022 decreased by $6.8 million to $13.6 million, or 7% of revenue, compared
to $20.4 million, or 10% of revenue, for the prior year.
The decrease in gross margin and gross margin percentage was primarily driven by an annual contractual price reduction year
over year to our initial OEM launch partner, decrease in heavy-duty OEM sales volumes, negative product mix impact due to
higher sales in India, and higher production input costs incurred in materials, transportation, and energy costs.
IAM
Gross margin for the year ended December 31, 2022 decreased by $5.2 million to $22.6 million, or 21% of revenue, compared
to $27.8 million, or 24% of revenue, for the prior year.
The decrease in gross margin and gross margin percentage was primarily driven by lower sales volumes and lower product
margins from higher production input costs incurred in materials, transportation, and energy costs caused by the global supply
chain shortage, inflation, and labor costs. This was partially offset by a positive mix impact due to higher sales in the
European market.
Research and Development Expenses ("R&D")
RESEARCH & DEVELOPMENT FOR THE THREE MONTHS AND YEARS ENDED
(n millions of U.S. dollars)
Three months ended
December 31
Change
Years ended
December 31
Change
OEM
IAM
Total R&D
2022
2021
$
%
2022
2021
$
$
$
4.9 $
0.9
5.8 $
3.1 $
1.7
4.8 $
1.8
(0.8)
1.0
58 % $
(47) %
21 % $
19.5 $
4.0
23.5 $
19.3 $
5.9
25.2 $
0.2
(1.9)
(1.7)
%
1 %
(32) %
(7) %
OEM
R&D expenses for the three months and year ended December 31, 2022 were $4.9 million and $19.5 million, respectively,
compared to $3.1 million and $19.3 million for the same prior year periods.
R&D expenses for the three months ended December 31, 2022 increased by $1.8 million due to increased testing and
engineering resources for HPDI fuel systems.
IAM
R&D expenses for the three months and year ended December 31, 2022 were $0.9 million and $4.0 million, respectively,
compared to $1.7 million and $5.9 million for the same prior year periods.
The decrease in R&D expenses is primarily driven by a decrease in outside services related to IAM projects and lower
depreciation due to lower capital expenditures. This was partially offset by an increase in utility costs.
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 21
Management's Discussion and Analysis | Results from Operations
Selling, General and Administrative Expenses ("SG&A")
SALES AND MARKETING, GENERAL AND ADMINISTRATIVE FOR THE THREE MONTHS AND YEARS ENDED
(in millions of U.S. dollars)
OEM
IAM
Corporate
Total SG&A
Three months ended
December 31
Change
Years ended
December 31
Change
2022
2021
$
%
2022
2021
$
%
$
$
6.5 $
3.3
4.4
14.2 $
6.1 $
3.1
3.1
12.3 $
0.4
0.2
1.3
1.9
7 % $
6 %
42 %
15 % $
23.9 $
14.4
13.8
52.1 $
20.5 $
16.8
12.5
49.8 $
3.4
(2.4)
1.3
2.3
17 %
(14) %
10 %
5 %
OEM
SG&A expenses for the three months and year ended December 31, 2022 were $6.5 million and $23.9 million, respectively,
compared to $6.1 million and $20.5 million for the same prior year periods. The increases of $0.4 million and $3.4 million for
the respective periods were primarily driven by additional expenses from our fuel storage business acquired in June 2021,
higher compensation costs and travel-related costs, which is partially offset by the aforementioned foreign exchange impact.
IAM
SG&A expenses for the three months and year ended December 31, 2022 were $3.3 million and $14.4 million, respectively,
compared to $3.1 million and $16.8 million for the same prior year periods. The decrease of $2.4 million for the year was
mainly due to recoveries of excess benefit contribution paid from prior years and lower labor cost due to lower headcount
compared to prior year.
Corporate
SG&A expenses for the three months and year ended December 31, 2022 were $4.4 million and $13.8 million, respectively,
compared to $3.1 million and $12.5 million for the same prior year periods. The increase of $1.3 million for the year was
mainly due to higher consulting costs compared to prior year.
22 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Management's Discussion and Analysis | Results from Operations
Other Significant Expense and Income Items for the year ended December 31, 2022
Foreign exchange gains and losses reflect net realized gains and losses on foreign currency transactions and net unrealized
gains and losses on our net U.S. dollar denominated monetary assets and liabilities in our Canadian operations that were
mainly comprised of cash and cash equivalents, assets held for sale, 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 year ended December 31, 2022, we recognized a foreign exchange loss of $6.4 million
compared to a foreign exchange gain of $2.0 million for the year ended December 31, 2021. The loss recognized in the current
year 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 years ended December 31, 2022 and December 31, 2021 were $11.8 million and
$14.0 million respectively. The amounts included in cost of revenue for the same periods were $7.3 million and $8.7 million,
respectively. Depreciation and amortization has decreased year-over-year due to machinery and equipment disposals for the
year and the net weakening of the Euro against the U.S. dollar, which decreased reported U.S. dollar depreciation and
amortization.
Interest on debt and amortization of discount
(in millions of U.S. dollars)
Interest expense on long-term debt
Royalty payable accretion expense
Total interest on long-term debt and accretion on royalty payable
Three months ended
December 31,
2021
2022
$
$
0.7 $
—
0.7 $
0.7 $
(0.1)
0.6 $
2022
Years ended
December 31,
2021
2.6 $ 3.6
0.8
1.4
3.4 $ 5.0
The decrease in interest expense on long-term debt for the year ended December 31, 2022 compared to prior year period was
mainly due to the conversion of the convertible notes held by Cartesian (defined in note 15 in our Annual Financial
Statements). The royalty payable accretion expense decreased as we continued to make repayments as scheduled and
adjusted the current quarter accretion expense due to a change in estimate on future royalty repayments.
Income tax expense for the year ended December 31, 2022 was $1.4 million compared to $8.1 million of income tax recovery
in the prior year. This was primarily related to recognition of the tax benefits of a step up in the tax basis of certain of our
Italian assets. This step up was a result of recent measures introduced in Italy by art. 110 of the Law Decree No. 104/2020
converted in the Law n. 126/2020, enacting "Urgent measures to support and relaunch the economy".
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 23
Management's Discussion and Analysis | Capital Requirements, Resources & Liquidity
Capital Requirements, Resources and Liquidity
Our cash and cash equivalents position decreased by $38.7 million to $86.2 million at December 31, 2022 compared to
$124.9 million at December 31, 2021. The decrease was primarily driven by the net cash used in our operating activities,
purchases of fixed assets and net debt repayments, partially offset by net changes to working capital and net proceeds from
the sale of our interest in CWI.
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 the 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 "Risk, 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 year ended December 31, 2022, net cash used in operating activities was $31.6 million compared to $43.8 million for
the year ended December 31, 2021, a $12.2 million decrease in net cash used in operating activities. The decrease in cash
used in operating activities was primarily driven by an increase in our net loss offset by net changes in working capital,
specifically in inventory and accounts receivable. We had built up inventory in the third quarter of 2021 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 inflows from accounts receivable resulted from improved collections on
key customer accounts compared to the prior year, which was offset by net cash outflows from a reduction in accounts payable
and accrued liabilities due to lower accruals compared to the prior year.
Cash Flow from Investing Activities
For the year ended December 31, 2022, our net cash flows from investing activities were $17.6 million compared to $2.3
million for the year ended December 31, 2021. The increase in net cash flows from investing activities compared to the prior
year was primarily driven by the proceeds on the sale of the CWI investment of $31.4 million in 2022. In the prior year, we
received dividends of $21.8 million while no dividends received this year. The capital expenditures were comparable year-over-
year.
Cash Flow from Financing Activities
For the year ended December 31, 2022, our net cash flows used in financing activities were $22.5 million, compared to net
cash flows from financing activities of $104.7 million during the year ended December 31, 2021. In 2021, we received $12.8
million in net proceeds from the issuance of 1,819,712 common shares through our at-the-market ("ATM") equity offering in
the first quarter of 2021. We also received $107.9 million, net of transaction costs, from a marketed public offering which
closed on June 8, 2021. Net payments on our operating lines of credit and long-term facilities increased to $17.3 million for
the year ended December 31, 2022 compared to $8.6 million in the prior year.
24 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Management's Discussion and Analysis | Capital Requirements, Resources & Liquidity
Contractual Obligations and Commitments
CONTRACTUAL CASH FLOWS
(in millions of U.S. dollars)
Accounts payable and accrued
liabilities
Short-term debt1
Long-term debt, principal2
Long-term debt, interest2
Long-term royalty payable3
Operating lease commitments4
Carrying
Amount
Contractual
Cash Flows
< 1yr
1-3 yrs
4-5 yrs
> 5 yrs
$
98.9 $
98.9 $
98.9 $
— $
— $
9.1
43.9
—
5.5
23.4
9.1
41.9
8.4
7.9
27.0
9.1
11.2
3.6
1.1
3.4
—
22.9
4.1
3.9
5.3
—
7.8
0.7
2.9
4.5
$
180.8 $
193.2 $
127.3 $
36.2 $
15.7 $
—
—
—
—
—
13.9
13.9
1.
2.
3.
4.
For details of our short-term debt, see note 14 of the Annual Financial Statements.
For details of our long-term debt, principal and interest, see note 15 of the Annual Financial Statements.
For additional information on the long-term royalty payable, see note 16 of the Annual Financial Statements.
For additional information on operating lease obligations, see note 13 of the Annual Financial Statements.
Shares Outstanding
For the year ended December 31, 2022, the weighted average number of shares used in calculating the income per share was
171,225,305. During the year ended December 31, 2022, 2,541,098 share units were granted to directors, executives and
employees (2021 - 875,703 share units). This included 994,700 Restricted Share Units ("RSUs") (2021 - 417,719 RSUs),
1,221,398 Performance Share Units ("PSUs") (2021 - 457,984 PSUs) and 325,000 Deferred Share Units (2021 - 0 DSUs).
The common shares, share options and share units outstanding and exercisable as at the following dates are shown below:
SHARES OUTSTANDING
Dec 31, 2022
Mar 13, 2023
(weighted average exercise prices are
presented in Canadian dollars)
Number
Common Shares outstanding
Share Units
Outstanding
Exercisable
171,303,165
3,174,321
—
Critical Accounting Policies and Estimates
Weighted average
exercise price
$
Weighted average
exercise price
$
Number
171,714,900
2.41
0
2,535,313
4,437
N/A
N/A
Our Annual 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 Annual 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 accounts receivable,
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 the Annual Financial Statements. Actual amounts
may vary significantly from estimates used.
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 25
Management's Discussion and Analysis | Shares Outstanding
Revenue Recognition
We generate revenues primarily from product sales. Product revenues are derived primarily from standard product sales
contracts and from long-term fixed price contracts. Under ASC 606, revenue is recognized when a customer obtains control of
the goods or services. Determining the timing of the transfer of control, at a point in time or over time, requires judgment. On
standard product sales contracts, revenues are recognized when customers obtain control of the product, that is when transfer
of title and risks and rewards of ownership of goods have passed and when the obligation to pay is considered certain.
Invoices are generated and revenue is recognized at that point in time. Provisions for warranties are made at the time of sale.
Accounts Receivable
We make assumptions and have established current expected credit losses ("CECL") for pools of assets with similar risk
characteristics by evaluating historical levels of credit losses, current economic conditions that may affect a customer's ability
to pay, and creditworthiness of significant customers. When specific customers are identified as no longer sharing the same
risk profile as their current pool, they are removed from the pool and evaluated separately. When we become aware of a
customer’s inability to meet its financial obligation, we record a specific credit loss provision to reduce the customer's related
accounts receivable to its estimated net realizable value.
Warranty Liability
Estimated warranty costs are recognized at the time we sell our products and are included in cost of revenue. We provide
warranty coverage on products sold from the date the products are put into service by customers. Warranty liability represents
our best estimate of warranty costs expected to be incurred during the warranty period. Furthermore, the current portion of
warranty liability represents our best estimate of the costs to be incurred in the next twelve-month period. We use historical
failure rates and cost to repair defective products to estimate the warranty liability. New product launches require a greater use
of judgment in developing estimates until claims experience becomes available. Product specific experience is typically
available four or five quarters after product launch, with a clear experience trend not evident until eight to twelve quarters after
launch. We generally record warranty expense for new products using historical experience from previous engine generations in
the first year, a blend of actual product and historical experience in the second year and product specific experience thereafter.
The amount payable by us and the timing will depend on actual failure rates and cost to repair failures of our products.
Inventories
Our inventories consist of our fuel system products (finished goods), work-in-progress, purchased parts and assembled parts.
Inventories are recorded at the lower of cost and net realizable value. The cost of fuel system product inventories, assembled
parts and work-in-progress includes materials, labour and production overhead including depreciation. We record inventory
write-downs based on an analysis of excess and obsolete inventories determined primarily by future demand forecasts. In
addition, we record a liability for firm, non-cancelable, and unconditional purchase commitments with manufacturers for
quantities in excess of our future demand forecast consistent with our valuation of excess and obsolete inventory.
PP&E and Intangible Assets
We consider whether or not there has been an impairment in our long-lived assets, such as plant and equipment, furniture and
leasehold improvements and intangible assets, whenever events or changes in circumstances indicate that the carrying value
of the assets may not be recoverable. If such assets are not recoverable, we are required to write down the assets to fair
value. When quoted market values are not available, we use the expected future cash flows discounted at a rate
commensurate with the risks associated with the recovery of the asset as an estimate of fair value to determine whether or not
a write down is required.
26 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Management's Discussion and Analysis | Critical Accounting Policies & Estimates
Impairment of PP&E
We have significant investments in PP&E related to our HPDI business. The HPDI business is still in the early stages of
commercialization, and, as a result, is currently generating losses. Based on our current projections, meaningful increases in
component sales are expected compared to 2022 levels, allowing the business to benefit from economies of scale and
become profitable. If these assumptions are not realized, we may be required to record an impairment on these assets in
future periods.
As of December 31, 2022, we have concluded that there are no impairment indicators.
Intangible Assets
We concluded that there were no impairment indicators as of December 31, 2022 related to intangible assets. Therefore, no
impairment on intangible assets was recorded in the year ended December 31, 2022.
Disclosure Controls and Procedures and Internal Controls Over Financial Reporting
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934,
as amended ("Exchange Act"), are designed to provide reasonable assurance that information required to be disclosed in the
reports that we file or submit under the Exchange Act and applicable Canadian securities law requirements is recorded,
processed, summarized and reported within the time periods specified in the SEC's rules and forms and applicable Canadian
securities law requirements, and that such information is accumulated and communicated to our management, including our
Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") (our principal executive officer and principal financial officer,
respectively), as appropriate to allow timely decisions regarding required disclosures.
We evaluated the effectiveness of our internal controls over financial reporting as of December 31, 2022 with the participation,
and under the supervision, of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon
this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2022, our internal
controls and procedures over financial reporting were effective for the period.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process
designed by, or under the supervision of, our CEO and CFO and effected by our board of directors, management, and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our
consolidated financial statements for external reporting purposes in accordance with U.S. GAAP and the requirements of the
SEC, as applicable. There are inherent limitations in the effectiveness of internal control over financial reporting, including the
possibility that misstatements may not be prevented or detected.
Because of these inherent limitations, internal control systems, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control system's objectives will be met, and no evaluation of controls can provide
absolute assurance that all control issues have been detected. The design of any system of controls is based in part on
certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under potential future conditions, regardless of how remote. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation.
Management, including the CEO and CFO, has evaluated the effectiveness of our internal control over financial reporting, based
on the criteria in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 27
Management's Discussion and Analysis | Disclosure Controls and Procedures
Treadway Commission. Based on this evaluation, management has determined that our internal control over financial reporting
was effective as of December 31, 2022.
During the year ended December 31, 2022, 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.
KPMG LLP ("KPMG"), our independent registered public accounting firm, has audited our consolidated financial statements and
expressed an unqualified opinion thereon. KPMG has also expressed an unqualified opinion on the effective operation of our
internal control over financial reporting as of December 31, 2022. KPMG's audit report on effectiveness of internal control over
financial reporting is included in the Annual Financial Statements.
Summary of Quarterly Results and Discussion of the Quarter Ended
December 31, 2022
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 our last eight quarters:
SELECTED CONSOLIDATED QUARTERLY OPERATIONS DATA
(expressed in millions of U.S. dollars, except
for per share amounts)
2021
2022
Three months ended: Mar 31
Jun 30(1)
Sep 30
Dec 31 Mar 31(2)
Jun 30
Sep 30
Dec 31
Total revenue
$ 76.4 $ 79.0 $ 74.3 $ 82.7 $ 76.5 $ 80.0 $ 71.2 $ 78.0
Cost of product and parts revenue
$ 63.4 $ 63.3 $ 64.2 $ 73.4 $ 66.6 $ 69.5 $ 59.9 $ 73.4
Gross margin
$ 13.0 $ 15.7 $ 10.1 $ 9.3 $ 9.9 $ 10.5 $ 11.3 $ 4.6
Gross margin percentage
17.0 %
19.9 %
13.6 %
11.2 %
12.9 %
13.1 %
15.9 %
5.9 %
Net income (loss)
$
(3.1) $ 17.2 $
(5.8) $ 5.4 $ 7.7 $ (11.6) $ (11.9) $ (16.9)
EBITDA (3)
Adjusted EBITDA (3)
U.S. dollar to Euro average
exchange rate
U.S. dollar to Canadian dollar
average exchange rate
Earnings (loss) per share
Basic
Diluted
Notes
$ 1.9 $ 13.9 $
(1.2) $ 8.4 $ 11.7 $
(7.7) $
(8.0) $ (13.5)
$ 2.7 $ 6.2 $
(1.4) $ 10.0 $
(6.1) $
(4.3) $
(4.5) $ (12.9)
0.83
0.83
0.85
0.87
0.89
0.94
0.99
0.98
1.27
1.23
1.26
1.26
1.27
1.28
1.31
1.36
$ (0.02) $ 0.11 $ (0.03) $ 0.04 $ 0.05 $ (0.07) $ (0.07) $ (0.10)
$ (0.02) $ 0.11 $ (0.03) $ 0.03 $ 0.04 $ (0.06) $ (0.07) $ (0.10)
(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 of 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.
28 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Management's Discussion and Analysis | Summary of Quarterly Results
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.
Non-GAAP Financial Measures Reconciliation
GROSS MARGIN
(expressed in millions of U.S. dollars)
Revenue
Less: Cost of revenue
Gross Margin
GROSS MARGIN AS A PERCENTAGE OF REVENUE
(expressed in millions of U.S. dollars)
Revenue
Gross Margin
Gross Margin as a percentage of Revenue
2022
305.7 $
269.5 $
36.2 $
Years ended December 31,
2020
2021
312.4 $
264.2 $
48.2 $
252.5
213.0
39.5
2022
305.7 $
36.2 $
12 %
Years ended December 31,
2020
2021
312.4 $
48.2 $
15 %
252.5
39.5
16 %
$
$
$
$
$
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 29
Management's Discussion and Analysis | Summary of Quarterly Results
NET WORKING CAPITAL
(expressed in millions of U.S. dollars)
Accounts receivable
Inventories
Prepaid expenses
Assets held for sale
Accounts payable and accrued liabilities
Current portion of operating lease liabilities
Current portion of warranty liability
Net Working Capital
NON-CURRENT LIABILITIES
(expressed in millions of U.S. dollars)
Total liabilities
Less:
Total current liabilities
Long-term debt
Long-term royalty payable
Non-Current Liabilities
December 31, 2022 December 31, 2021
$
101.6 $
81.6
7.8
—
(98.9)
(3.4)
(11.3)
77.5
101.5
83.1
7.0
22.0
(99.2)
(4.2)
(13.5)
96.7
December 31, 2022 December 31, 2021
$
203.5 $
234.9
135.5
32.2
4.4
31.3
146.5
45.1
4.7
38.6
30 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Management's Discussion and Analysis | Summary of Quarterly Results
EBIT AND EBITDA
Westport Fuel Systems defines EBIT as net income or loss before taxes adjusted for net interest expense. Westport Fuel
Systems defines EBITDA as EBIT adjusted for depreciation and amortization.
QUARTERLY EBIT AND EBITDA DATA
Three months ended:
Mar 31
Jun 30
Sep 30 Dec 31 Mar 31
Jun 30
Sep 30 Dec 31
2022
2021
Income (loss) before income taxes from
continuing operations
Interest expense, net(1)
EBIT
Depreciation and amortization
EBITDA
$
$
9.1 $
1.1
10.2
3.7
(2.8) $
1.2
(1.6)
3.5
1.9 $ 13.9 $
(5.4) $
0.9
(4.5)
3.3
(1.2) $
4.6 $
0.3
4.9
3.5
8.4 $ 11.7 $
7.6 $ (11.5) $ (11.0) $ (16.4)
0.1
1.0
0.2
(16.3)
8.6
(10.8)
2.8
2.8
3.1
(8.0) $ (13.5)
0.7
(10.8)
3.1
(7.7) $
1.
Interest expense, net is calculated as interest and other income, net of bank charges and interest on long-term debt and
accretion of royalty payables.
Adjusted EBITDA
Westport Fuel Systems defines Adjusted EBITDA as EBITDA from continuing operations adjusted for stock-based compensation,
unrealized foreign exchange gains or losses, and non-cash and other adjustments.
QUARTERLY ADJUSTED EBITDA DATA
Three months ended:
EBITDA
Stock based compensation
2022
Mar 31
$
Jun 30
1.9 $ 13.9 $
0.1
0.5
Sep 30 Dec 31 Mar 31
(1.2) $
0.7
8.4 $ 11.7 $
0.6
0.5
Unrealized foreign exchange (gain) loss
Asset impairment
Bargain purchase gain
Adjusted EBITDA
0.7
—
—
2.7 $
(2.3)
—
—
6.2 $
(0.9)
—
—
0.5
—
—
(1.4) $ 10.0 $
0.8
—
—
(6.1) $
$
2021
Jun 30
Sep 30 Dec 31
(7.7) $
0.9
2.5
—
—
(4.3) $
(8.0) $ (13.5)
0.2
0.8
2.7
—
—
0.4
—
—
(4.5) $ (12.9)
Business Risks and Uncertainties
An investment in our business involves risk and readers should carefully consider the risks described in our AIF and other
filings on www.sedar.com and www.sec.gov. Our ability to generate revenue and profit from our technologies is dependent on a
number of factors, and the risks discussed in our AIF, which, if they were to occur, could have a material impact on our
business, financial condition, liquidity, results of operation or prospects. While we have attempted to identify the primary known
risks that are material to our business, the risks and uncertainties discussed in our AIF may not be the only ones we face.
Additional risks and uncertainties, including those that we do not know about now or that we currently believe are immaterial
may also adversely affect our business, financial condition, liquidity, results of operation or prospects. A full discussion of the
risks impacting our business is contained in the AIF for the year ended December 31, 2022 under the heading “Risk Factors”
and is available on SEDAR at www.sedar.com.
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 31
Reports
Reports
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Westport Fuel Systems Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Westport Fuel Systems Inc. (and subsidiaries) (the
Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive income
(loss), shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the
related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its
operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with U.S.
generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 13, 2023 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that
our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
32 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Reports
Indicators of Impairment for Property, Plant and Equipment in the Company's heavy-duty
Original Equipment Manufacturer business
As discussed in Note 9 to the consolidated financial statements, the carrying value of property, plant and equipment as of
December 31, 2022, is $62,641 thousand, which includes the property, plant and equipment used in the Company’s heavy-duty
Original Equipment Manufacturer (OEM) business, including a specific fuel systems business, which is in the early stages of
commercialization and has generated losses to date. As discussed in Note 3(k) to the consolidated financial statements, the
Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. The Company’s determination of whether an indicator of impairment exists
includes the preparation of a forecast of future cash flows of the specific fuel systems business. The significant assumptions
used in the Company’s forecast of future cash flows include, amongst others, estimates of component sales in the future. We
identified the assessment of indicators of impairment for property, plant and equipment related to this specific fuel systems
business as a critical audit matter. A higher degree of subjective auditor judgment was required to assess the Company’s
evaluation of indicators of impairment due to the uncertainty in the estimates of component sales in the future.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls over the Company’s process for the identification and evaluation
of indicators of impairment. We evaluated the reasonableness of the estimates of component sales in the future by comparing
them to the Company’s approved budget, internal documentation and external communications and compared their consistency
with relevant industry data and regulatory factors. We compared the forecasted sales for a key customer in the heavy-duty OEM
business to the demand forecast provided to the Company by this customer. We performed sensitivity analyses to assess the
impact of changes of the estimates of component sales in the future. We compared the Company’s historical sales forecasts
to actual results to assess the accuracy of the Company’s forecasts of future sales.
Chartered Professional Accountants,
We have served as the Company's auditors since 2015.
Vancouver, Canada
March 13, 2023
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Westport Fuel Systems Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Westport Fuel Systems Inc.’s (and subsidiaries’) (the Company) internal control over financial reporting as of
December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated
statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 33
Reports
two-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements), and our
report dated March 13, 2023 expressed an unqualified opinion on those consolidated financial statements.
34 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Reports
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s
Report on Internal Control Over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Chartered Professional Accountants,
Vancouver, Canada
March 13, 2023
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 35
Financial Statements | Consolidated Balance Sheet
Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
(expressed in thousands of United States dollars, except share amounts)
Assets
Current assets:
Cash and cash equivalents (including restricted cash, note 3(c))
Accounts receivable (note 5)
Inventories (note 6)
Prepaid expenses
Assets held for sale (note 7)
Total current assets
Long-term investments (note 8)
Property, plant and equipment (note 9)
Operating lease right-of-use assets (note 13)
Intangible assets (note 10)
Deferred income tax assets (note 19(b))
Goodwill (note 11)
Other long-term assets (notes 7 and 17)
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities (note 12)
Current portion of operating lease liabilities (note 13)
Short-term debt (note 14)
Current portion of long-term debt (note 15)
Current portion of long-term royalty payable (note 16)
Current portion of warranty liability (note 17)
Total current liabilities
Long-term operating lease liabilities (note 13)
Long-term debt (note 15)
Long-term royalty payable (note 16)
Warranty liability (note 17)
Deferred income tax liabilities (note 19(b))
Other long-term liabilities
Total liabilities
Shareholders’ equity:
Share capital (note 18):
Unlimited common and preferred shares, no par value
171,303,165 (2021 - 170,799,325) common shares issued and outstanding
Other equity instruments
Additional paid-in-capital
Accumulated deficit
Accumulated other comprehensive loss
Total shareholders' equity
Total liabilities and shareholders' equity
Commitments and contingencies (note 21)
$
$
$
December 31,
2022
2021
86,184 $
101,640
81,635
7,760
—
277,219
4,629
62,641
23,727
7,817
10,430
2,958
18,030
407,451 $
98,863 $
3,379
9,102
11,698
1,162
11,315
135,519
20,080
32,164
4,376
2,984
3,282
5,080
203,485
124,892
101,508
83,128
6,997
22,039
338,564
3,824
64,420
28,830
9,286
11,653
3,121
11,615
471,313
99,238
4,190
13,652
10,590
5,200
13,577
146,447
24,362
45,125
4,747
5,214
3,392
5,607
234,894
1,243,272
9,212
11,516
(1,024,716)
(35,318)
203,966
407,451 $
1,242,006
8,412
11,516
(992,021)
(33,494)
236,419
471,313
$
See accompanying notes to consolidated financial statements
Approved on behalf of the Board
Anthony Guglielmin Director
Brenda J. Eprile
Director
36 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Financial Statements | Consolidated Statements of Operations & Comprehensive Income (Loss)
CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME (LOSS)
(expressed in thousands of United States dollars, except share and per share amounts)
Revenue
Cost of revenue and expenses:
Cost of revenue
Research and development
General and administrative
Sales and marketing
Foreign exchange loss (gain)
Depreciation and amortization (notes 9 and 10)
Loss (gain) on sale of assets
Impairment on long-lived assets, net
Loss from operations
Income from investments accounted for by the equity method
Gain on sale of investment (note 7)
Interest on long-term debt and amortization of discount
Other income (loss), net
Interest income, net of bank charges
Income (loss) before income taxes
Income tax expense (recovery) (note 19):
Current
Deferred
Net income (loss) for the year
Other comprehensive income (loss):
Cumulative translation adjustment
Comprehensive income (loss)
Income (loss) per share:
Net income (loss) per share - basic
Net income (loss) per share - diluted
Weighted average common shares outstanding:
Basic
Diluted
See accompanying notes to consolidated financial statements.
Years ended December 31,
2022
2021
$
305,698 $
312,412
269,496
264,260
23,497
37,042
15,073
6,378
4,416
62
—
355,964
(50,266)
930
19,119
(3,351)
879
1,406
(31,283)
1,852
(440)
1,412
(32,695)
25,194
36,290
13,495
(1,984)
5,390
(146)
459
342,958
(30,546)
33,741
—
(4,937)
1,053
360
5,527
2,172
(10,303)
(8,131)
13,658
(1,824)
(34,519) $
(8,953)
4,705
(0.19) $
(0.19) $
0.09
0.08
$
$
$
171,225,305 160,232,742
171,225,305 162,099,175
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 37
Consolidated Financial Statements | Consolidated Statements of Cash Flows
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(expressed in thousands of United
States dollars, except share amounts)
January 1, 2021
Issuance of common shares on
exercise of share units
Issuance of common shares on
conversions of convertible debt
Issuance of common shares on
at-the-market public offering, net
of costs incurred
Issuance of common shares on
public offering, net of costs
incurred
Stock-based compensation
Net income for the year
Other comprehensive loss
Common
shares
outstanding
144,069,972 $ 1,115,092 $
Share
capital
Other equity
instruments
Additional
paid-in-
capital
Accumulated
deficit
Accumulated
other
comprehensive
loss
Total
shareholders
' equity
7,671 $ 11,516 $ (1,005,679) $
(24,541) $
104,059
327,774
1,001
(1,001)
3,651,867
5,186
—
—
—
—
—
—
—
—
5,186
1,819,712
12,806
—
—
—
—
12,806
20,930,000
107,921
—
—
—
—
—
—
—
1,742
—
—
—
—
—
—
—
—
13,658
—
—
—
107,921
1,742
13,658
—
(8,953)
(8,953)
December 31, 2021
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
Stock-based compensation
Net loss for the year
Other comprehensive loss
503,840
1,266
(1,266)
—
—
—
—
—
—
2,066
—
—
—
—
—
—
—
—
(32,695)
—
—
—
—
2,066
(32,695)
—
(1,824)
(1,824)
December 31, 2022
171,303,165 $ 1,243,272 $
9,212 $ 11,516 $ (1,024,716) $
(35,318) $
203,966
See accompanying notes to consolidated financial statements.
38 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Consolidated Financial Statements | Consolidated Statements of Shareholder's Equity
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in thousands of United States dollars)
Years ended December 31,
2022
2021
Net income (loss) for the year
$
(32,695) $
13,658
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization
Stock-based compensation expense
Unrealized foreign exchange loss (gain)
Deferred income tax
Income from investments accounted for by the equity method
Interest on long-term debt and accretion of royalty payable
Impairment on long lived assets, net
Change in inventory write-downs to net realizable value (note 6)
Net gain on sale of investments (note 7)
Net (gain) loss on sale of assets
Other (income) loss, net
Bargain purchase gain from acquisition (note 4)
Change in bad debt expense
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Warranty liability
Net cash used in operating activities
Investing activities:
Purchase of property, plant and equipment
Purchase of intangible assets
Acquisitions, net of acquired cash
Proceeds on sale of investments (note 7)
Proceeds on sale of assets
Dividends received from joint ventures
Net cash provided by investing activities
Financing activities:
Drawings on operating lines of credit and long-term facilities
Repayment of operating lines of credit and long-term facilities
Proceeds from share issuance, net
Repayment of royalty payable
Net cash (used in) provided by financing activities
Effect of foreign exchange on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year (including restricted cash)
Cash and cash equivalents, end of year (including restricted cash)
SUPPLEMENTARY CASH FLOW INFORMATION
Supplementary information:
Interest paid
Taxes paid, net of refunds
See accompanying notes to consolidated financial statements.
11,800
2,066
6,378
(440)
(930)
3,351
—
722
(19,119)
62
(879)
—
810
(1,528)
(3,505)
(134)
122
2,341
(31,578)
(14,242)
(287)
—
31,445
731
—
17,647
41,218
(58,478)
—
(5,200)
(22,460)
(2,317)
(38,708)
124,892
$
86,184 $
14,035
1,911
(1,984)
(10,303)
(33,741)
4,937
459
914
—
(146)
—
(5,856)
(326)
(11,117)
(31,744)
3,964
11,313
233
(43,793)
(14,158)
—
(5,948)
—
600
21,796
2,290
74,408
(82,958)
120,727
(7,451)
104,726
(2,593)
60,630
64,262
124,892
Years ended December 31,
2022
2021
$
3,037 $
1,795
3,916
3,106
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 39
Financial Statements | Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
1. Company Organization and Operations
Westport Fuel Systems Inc. (the “Company”) was incorporated under the Business Corporations Act (Alberta) on March 20,
1995. The Company 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 alternative fuels, including liquid petroleum gas ("LPG"),
compressed natural gas ("CNG"), liquified natural gas ("LNG"), renewable natural gas ("RNG") or biomethane, and hydrogen.
The Company supplies its products in more than 70 countries through a network of distributors, service providers for the
aftermarket and directly to original equipment manufacturers (“OEMs”) and Tier 1 and Tier 2 OEM suppliers. The Company’s
products and services are available for passenger car and light-, medium- and heavy-duty truck and off-road applications.
2. Liquidity 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 consolidated
financial statements are issued. These consolidated 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
consolidated 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 December 31,
2022, the Company has cash and cash equivalents of $86,184 and during the year ended December 31, 2022, the Company
used cash in operating activities of $31,578. The ability to continue as a going concern beyond March 2024 will depend on the
Company's ability to generate sufficient positive cash flows from all its operations, specifically through profitable, sustainable
growth.
40 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Financial Statements | Notes | 2. Liquidity and Going Concern
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.
3. Significant Accounting Policies
A. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances
and transactions have been eliminated on consolidation.
These consolidated financial statements are presented in accordance with accounting principles generally accepted in the
United States (“U.S. GAAP”).
Certain reclassifications in short-term and long-term debt have been made to prior year consolidated financial statements to
conform to the current year presentation.
B. FOREIGN CURRENCY TRANSLATION
The Company’s functional currency is the Canadian dollar and its reporting currency for its consolidated financial statement
presentation is the United States dollar ("U.S. Dollar"). The functional currencies for the Company's subsidiaries include the
following: U.S. dollar, Canadian dollar, Euro, Argentine 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 (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 consolidated statements of operations, except for the translation gains and losses arising from available-for-
sale instruments, which are recorded through other comprehensive (loss) until realized through disposal or impairment.
Except as otherwise noted, all amounts in these financial statements are presented in U.S. dollars. For the year presented,
the Company used the following exchange rates:
FOREIGN EXCHANGE RATES
Canadian dollar
Euro
RMB
Polish Zloty
Swedish Krona
Indian Rupee
Argentine Peso
Year-end exchange rate as at:
December 31,
December 31,
2021
2022
1.27
1.35
0.88
0.94
6.35
6.90
4.04
4.39
9.05
10.42
74.45
82.69
102.54
176.79
Average for the year ended:
December 31,
2022
1.30
0.95
6.72
4.44
10.08
78.50
127.11
December 31,
2021
1.25
0.85
6.45
3.92
8.57
73.92
94.79
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 41
Notes to Consolidated Financial Statements
C. CASH AND CASH EQUIVALENTS (including restricted cash):
Cash and cash equivalents include cash on hand, term deposits, banker acceptances and guaranteed investment certificates
with maturities of ninety days or less when acquired. Cash and cash equivalents at December 31, 2022 include restricted cash
of $98 (2021 - $104). Restricted cash at December 31, 2022 and 2021 is related to cash used to secure a letter of credit.
D. ACCOUNTS RECEIVABLE, NET
The accounts receivable balance reflects invoiced and accrued revenue and is presented net of an allowance for credit losses.
The Company expects most of its accounts receivable balances to continue to come from large customers as it supplies the
majority of its products and services through a network of distributors and OEMs and provides Delayed OEM ("DOEM")
services. The Company establishes current expected credit losses ("CECL") for pools of assets with similar risk characteristics
by evaluating historical levels of credit losses, current economic conditions that may affect a customer's ability to pay, and
creditworthiness of significant customers. When specific customers are identified as no longer sharing the same risk profile as
their current pool, they are removed from the pool and evaluated separately. The Company, in the normal course of business,
monitors the financial condition of its customers and reviews the credit history of each new customer. When the Company
becomes aware of a specific customer's inability to meet its financial obligations to the Company (such as in the case of
bankruptcy filings or material deterioration in the customer's operating results or financial position, and payment experiences),
the Company records a specific credit loss provision to reduce the customer's related accounts receivable to its estimated net
realizable value. If circumstances related to specific customers change, the Company's estimates of the recoverability of
accounts receivable balances could be further adjusted.
E. INVENTORIES
The Company’s inventories consist of the Company’s fuel system products (finished goods), work-in-progress, purchased parts
and assembled parts. Inventories are recorded at the lower of cost and net realizable value. The cost of fuel system product
inventories, assembled parts and work-in-progress includes materials, labour and production overhead, including depreciation.
The Company records inventory write-downs based on an analysis of excess and obsolete inventories determined primarily by
future demand forecasts. In addition, the Company records a liability for firm, noncancellable, and unconditional purchase
commitments with manufacturers for quantities in excess of the Company’s future demand forecast consistent with its
valuation of excess and obsolete inventory.
F. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided for as follows:
PROPERTY, PLANT AND EQUIPMENT DEPRECIATION
Assets
Buildings
Computer equipment and software
Furniture and fixtures
Machinery and equipment
Leasehold improvements
Basis
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
Rate
10 years
3 years
5 years
5-10 years
Shorter of lease
term or
estimated useful
life
Depreciation expense on machinery and equipment used in the production and manufacturing process is included in cost of
revenue. All other depreciation is included in depreciation and amortization expense in the consolidated statements of
operations and comprehensive income (loss).
42 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Notes to Consolidated Financial Statements
G. LONG-TERM INVESTMENTS
The Company accounts for investments in which it has significant influence, including variable interest entities ("VIEs") for
which the Company is not the primary beneficiary, using the equity method of accounting. Under the equity method, the
Company recognizes its share of income from equity accounted investees in the statement of operations with a corresponding
increase in long-term investments. Any dividends paid or payable are credited against long-term investments.
H. FINANCIAL LIABILITIES
Accounts payable and accrued liabilities, short-term debt, long-term debt and long-term royalty payable are measured at
amortized cost. Transaction costs relating to long-term debt are netted against long-term debt and are amortized using the
effective interest rate method.
I. RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred and are recorded net of funding received or receivable.
J. INTANGIBLE ASSETS
Intangible assets consist primarily of the estimated value of intellectual property, trademarks, technology, customer contracts
and non-compete agreements acquired through acquisitions. Intangible assets are amortized over their estimated useful lives,
which range from 5 to 20 years.
K. IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. If such conditions exist, assets are considered impaired if the sum of
the undiscounted expected future cash flows expected to result from the use and eventual disposition of an asset is less than
its carrying amount. An impairment loss is measured at the amount by which the carrying amount of the asset exceeds its fair
value. When quoted market prices are not available, the Company uses the expected future cash flows discounted at a rate
commensurate with the risks associated with the recovery of the asset as an estimate of fair value.
The Company has significant investments in property, plant and equipment used in its heavy-duty OEM business, relating to the
HPDI 2.0TM fuel systems that is in the early stages of commercialization, and, as a result, is currently generating losses. Based
on the Company's current projections, meaningful increases in component sales, compared to 2022 levels, are expected,
allowing the business to benefit from economies of scale and become profitable. If these assumptions are not realized, the
Company may be required to record an impairment on these assets in future periods.
L. GOODWILL
Goodwill is recorded at the time of purchase for the excess of the amount of the purchase price over the fair values of the
identifiable assets acquired and liabilities assumed. The fair value is determined using the estimated discounted future cash
flows of the reporting unit. Goodwill is not amortized and instead is tested at least annually for impairment, or more frequently
when events or changes in circumstances indicate that goodwill might be impaired. This impairment test is performed annually
at December 31. Future adverse changes in market conditions or poor operating results of underlying assets could result in an
inability to recover the carrying value of the goodwill, thereby possibly requiring an impairment charge.
M. WARRANTY LIABILITY
Estimated warranty costs are recognized at the time the Company sells its products and are included in cost of revenue. The
Company provides warranty coverage on products sold from the date the products are put into service by customers. Warranty
liability represents the Company’s best estimate of warranty costs expected to be incurred during the warranty period.
Furthermore, the current portion of warranty liability represents the Company’s best estimate of the costs to be incurred in the
next twelve-month period. The Company uses historical failure rates and costs to repair defective products to estimate the
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 43
Notes to Consolidated Financial Statements
warranty liability. New product launches require a greater use of judgment in developing estimates until claims experience
becomes available. Product specific experience is typically available four or five quarters after product launch, with a clear
experience trend not evident until eight to twelve quarters after launch. The Company records warranty expense for new
products using historical experience from previous generations in the first year, a blend of actual product and historical
experience in the second year and product specific experience thereafter. The amount payable by the Company and the timing
will depend on actual failure rates and cost to repair failures of its products.
N. REVENUE RECOGNITION
The Company generates revenues primarily from product sales. Product revenues are derived from standard product sales
contracts and from long-term fixed price contracts. The Company recognizes revenue when a customer obtains control of the
goods or services. Determining the timing of the transfer of control, at a point in time or over time, requires judgment. On
standard product sales contracts, revenues are recognized when customers obtain control of the product, that is when transfer
of title and risks and rewards of ownership of goods have passed and when obligation to pay is considered certain. Invoices
are generated and revenue is recognized at that point in time. Provisions for warranties are made at the time of sale. Service
revenue is recognized over time as performance obligations are satisfied.
O. INCOME TAXES
The Company accounts for income taxes using the asset and liability method. Under this method, deferred income tax assets
and liabilities are determined based on the temporary differences between the accounting basis and tax basis of the assets
and liabilities and for loss carry-forwards, tax credits and other tax attributes, using the enacted tax rates in effect for the years
in which the differences are expected to reverse. The effect of a change in tax rates on deferred income tax assets and
liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes deferred income tax assets to the extent the assets are more-likely-than-not to be realized. In making
such a determination, the Company considers all available positive and negative evidence including future reversals of existing
taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If it is
determined that, based on all available evidence, it is more-likely-than-not that some or all of the deferred income tax assets
will not be realized, a valuation allowance is provided to reduce the deferred income tax assets.
The Company uses a two-step process to recognize and measure the income tax benefit of uncertain tax positions taken or
expected to be taken in a tax return. The tax benefit from an uncertain tax position is recognized if it is more-likely-than-not
that the position will be sustained upon examination by a tax authority based solely on the technical merits of the position. A
tax benefit that meets the more-likely-than-not recognition threshold is measured as the largest amount that is greater than
50% likely to be realized upon settlement with the tax authority. To the extent a full benefit is not expected to be realized, an
income tax liability is established. Any change in judgment related to the expected resolution of an uncertain tax position is
recognized in the year of such a change.
Interest and penalties related to income taxes are included as a component of income tax expense.
P. LEASES
The Company determines if an arrangement is a lease or contains a lease at inception. Operating leases with lease terms
greater than 12 months are included in current and non-current assets, current and non-current liabilities in the consolidated
balance sheet. Assets under finance leases are included in property, plant and equipment and the related lease liabilities in
current and non-current liabilities in the consolidated balance sheets.
Operating lease and finance lease right-of-use (“ROU”) assets and operating lease liabilities are recognized based on the
present value of the future lease payments over the lease term at the commencement date. As the rate implicit in the lease is
not readily determinable for the Company’s operating leases, an incremental borrowing rate is generally used to determine the
present value of future lease payments. The incremental borrowing rate for each lease is based on the Company’s estimated
44 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Notes to Consolidated Financial Statements
borrowing rate over a similar term to that of the lease payments, adjusted for various factors including collateralization, location
and currency.
The operating lease expenses are recognized on a straight-line basis over the lease term and included in general and
administration expenses. Short-term leases, which have an initial term of 12 months or less, are not recorded in the
consolidated balance sheets.
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.
Q. STOCK-BASED COMPENSATION
The Company measure stock-based awards at fair value on the date of the grant and expense the awards over the requisite
service period of employees or consultants. The fair value of stock options is determined using the fair market value at the
time of grant. The fair value of restricted stock units (“RSU”s) and Deferred Share Units (“DSU”s) are determined using the
share price of the Company at the date of grant. The fair value of performance based restricted stock units (“PRSU”s) is
determined using the Monte Carlo Simulation Model. Stock-based compensation expense related to stock option awards is
recognized over the requisite service period on a graded vesting basis. Forfeitures are accounted for as they occur.
The Company’s estimates may be impacted by certain variables including, but not limited to, stock price volatility, employee
stock option exercise behaviors, additional stock option grants, the Company’s performance and related tax impacts.
R. EARNINGS (LOSS) PER COMMON SHARE
Basic earnings or loss per share includes no potential dilution and is computed by dividing the earnings or loss attributable to
common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings or loss
per share reflect the potential dilution of securities that could share in the earnings or loss of our Company. Dilutive securities
are excluded from the calculation of our diluted weighted average common shares outstanding if their effect would be anti-
dilutive based on the treasury stock method or due to a net loss from continuing operations. Common Shares that have not
been released under the Company’s stock based plan or are being held in trust for purposes of the Company’s restricted stock
unit program have been excluded from the calculation of basic earnings per share.
4. Business Combinations
Acquisition of Stako sp. z.o.o (“Stako”):
On May 28, 2021, the Company entered into an agreement to acquire all of the issued and outstanding shares of Stako from
Worthington Industries Inc. for a total purchase price of $7,130. The transaction was completed on May 30, 2021.
Stako is a leading manufacturer of liquid petroleum gas fuel (“LPG”) storage, supplying the aftermarket and OEM market
segments through a worldwide network of dealers. Stako’s current product range includes over 1,000 models of LPG storage
tanks. Over the last 30 years, Stako has supplied tanks to leading automobile manufacturers worldwide.
The business combination resulted in a bargain purchase transaction as the fair value of assets acquired and liabilities
assumed exceeded the total of the transaction date fair value of consideration paid by $5,856. The Company was able to
acquire Stako for less than its fair value due to the decision of the seller to divest their non-core LPG business.
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 45
Notes to Consolidated Financial Statements
There were no business combinations during the year ended December 31, 2022.
5. Accounts Receivable
ACCOUNTS RECEIVABLE
Customer trade receivables
Other receivables
Income tax receivable
Due from related parties (note 20)
Allowance for credit losses
6. Inventories
INVENTORIES
Purchased parts and materials
Work-in-process
Finished goods
Total
December 31,
2022
2021
$
82,533 $
19,355
818
3,974
(5,040)
90,324
14,504
872
1,651
(5,843)
$ 101,640 $ 101,508
December 31,
2022
2021
$
$
61,213 $
2,423
17,999
81,635 $
62,896
3,681
16,551
83,128
During the year ended December 31, 2022, the Company recorded write-downs to net realizable value of approximately $722
(year ended December 31, 2021 - $914).
7. Sale of Investment
Cummins Westport Inc.
December 31,
2022
2021
$
— $
22,039
On February 7, 2022, the Company sold 100% of its shares in Cummins Westport Inc. ("CWI") to Cummins Inc. ("Cummins")
for proceeds of $22,200, with Cummins continuing to operate the business as the sole owner. As part of the agreement,
Cummins agreed to purchase the Company's interest in the intellectual property with proceeds to the Company of $20,000.
The Company received proceeds of $31,445, net of a $10,800 holdback, after the closing date. The holdback will be retained
by Cummins for a term of three years to satisfy any extended warranty obligations in excess of the recorded extended warranty
obligation. Any unused amounts will be repaid to the Company at the end of three-year term and, in the event that the holdback
is not sufficient to cover the extended warranty obligations, the Company may also be required to supplement this holdback
amount to cover valid extended warranty claims.
Proceeds from sale of investment
Holdback receivable1
Carrying value of investment
Gain on sale of investment
1Holdback receivable is included in other long-term assets in the consolidated balance sheets.
December 31, 2022
31,445
$
9,713
22,039
19,119
$
46 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
8. Long-term Investments
LONG-TERM INVESTMENTS
Weichai Westport Inc.
Minda Westport Technologies Limited
Other equity accounted investees
Total long-term investments
Notes to Consolidated Financial Statements
December 31,
2022
2021
1,824
2,657
148
4,629 $
1,824
1,852
148
3,824
$
WEICHAI WESTPORT INC. ("WWI")
The Company, indirectly through its wholly-owned subsidiary, Westport Innovations (Hong Kong) Limited (“Westport HK”),
is currently the registered holder of a 23.33% equity interest in WWI. In April 2016, the Company sold to Cartesian Capital
Group (“Cartesian”) a derivative economic interest granting it the right to receive an amount of future income received by
Westport HK from WWI equivalent to having an 18.78% equity interest in WWI and concurrently granted a Cartesian entity an
option to acquire all of the equity securities of Westport HK for a nominal amount. The Company retained the right to transfer
any equity interest held by Westport HK in WWI that was in excess of an 18.78% interest in the event that such option was
exercised. As a result of such transactions, the Company’s residual 23.33% equity interest in WWI currently corresponds to an
economic interest in WWI equivalent to 4.55%.
9. Property, Plant & Equipment
PROPERTY, PLANT & EQUIPMENT
December 31, 2022
Land and buildings
Computer equipment and software
Furniture and fixtures
Machinery and equipment
Leasehold improvements
December 31, 2021
Land and buildings
Computer equipment and software
Furniture and fixtures
Machinery and equipment
Leasehold improvements
Cost
Accumulated
depreciation
Net book
value
$
$
$
$
8,455 $
8,756
7,283
115,235
13,874
153,603 $
2,107 $
6,740
5,606
66,272
10,237
90,962 $
6,348
2,016
1,677
48,963
3,637
62,641
Cost
Accumulated
depreciation
Net book
value
8,843 $
7,965
6,223
113,479
13,502
150,012 $
1,883 $
6,054
5,149
62,320
10,186
85,592 $
6,960
1,911
1,074
51,159
3,316
64,420
Total depreciation expense for the year ended December 31, 2022 was $10,712 (year ended December 31, 2021 - $12,437).
The amount of depreciation expense included in cost of revenue for the year ended December 31, 2022 was $7,384 (year
ended December 31, 2021 - $8,645).
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 47
10. Intangible Assets
INTANGIBLE ASSETS
December 31, 2022
Patents and trademarks
Technology
Customer contracts
December 31, 2021
Patents and trademarks
Technology
Customer contracts
Notes to Consolidated Financial Statements
Gross Carrying
Amount
Accumulated
Amortization
Intangible
Assets, net
$
$
19,799 $
3,952
11,242
34,993 $
12,189 $
3,745
11,242
27,176 $
7,610
207
—
7,817
Gross Carrying
Amount
Accumulated
Amortization
Intangible
Assets, net
$
$
20,748 $
4,202
11,954
36,904 $
11,823 $
3,894
11,901
27,618 $
8,925
308
53
9,286
During the year ended December 31, 2022, amortization expense of $1,088 (year ended December 31, 2021 - $1,598) was
recognized in the statement of operations and comprehensive income (loss). The Company currently estimates annual
amortization expense to be for $1,159 for 2023, $1,159 for 2024, $1,118 for 2025, $892 for 2026 and $761 for 2027.
11. Goodwill
Changes in the carrying amount of goodwill are as follows:
GOODWILL
Balance, beginning of year
Impact of foreign exchange changes
Balance, end of year
December 31,
2022
2021
$
$
3,121 $
(163)
2,958 $
3,397
(276)
3,121
Goodwill of $2,958 (December 31, 2021 - $3,121), relates to the acquisition of Westport Fuel Systems Netherlands Holding
B.V. (formerly known as Prins Autogassystemen Holding B.V.) in 2014. The Company completed its annual assessment of
impairment and concluded that goodwill of $2,958 related to the independent aftermarket business segment was not impaired
as at December 31, 2022
12. Accounts Payable and Accrued Liabilities
ACCOUNTS PAYABLE & ACCRUED LIABILITIES
Trade accounts payable
Accrued payroll
Taxes payable
Deferred revenue
Other payables
48 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
$
December 31,
2022
2021
72,934 $
17,069
4,425
4,435
—
98,863
73,388
16,591
4,621
3,503
1,135
99,238
Notes to Consolidated Financial Statements
13. Operating Lease Right-of-Use Assets
The components of lease cost are as follows:
OPERATING LEASE COST
Amortization of right-of-use assets
Interest
Total lease cost
The maturities of lease liabilities as of December 31, 2022 are as follows:
OPERATING LEASE COST
2023
2024
2025
2026
2027
Thereafter
Total undiscounted cash flows
Less: imputed interest
Present value of operating lease liabilities
Less: current portion
Long term operating lease liabilities
14. Short-Term Debt
SHORT-TERM DEBT
Revolving financing facility
Years ended December 31,
2021
2022
$
$
3,529 $
717
4,246 $
3,620
891
4,511
$
$
3,379
2,838
2,473
2,332
2,143
13,908
27,073
3,614
23,459
3,379
20,080
December 31,
2022
2021
$
9,102 $
13,652
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. On December 22, 2021, the Company
and HSBC amended the revolving financing facility's advances denominated in U.S. Dollars' and Euros' interest rates to the
secured overnight financing rate plus 2.66% per annum and the Euro short-term rate plus 2.5%, respectively. As of
December 31, 2022, the amount outstanding for this loan was $8,308 (December 31, 2021 - $12,965). Revolving financing
facilities includes a new line of credit with Santander with the maximum draw amount of $800,000 and has a rate range of
2.02% - 3.04%. As of December 31, 2022 the amount outstanding was $794 (December 31, 2021 - nil).
The Company closed the existing revolving financing facility with Santander during the year, and as at December 31, 2022, the
amount outstanding for this loan was nil (December 31, 2021 - $687).
The Company has a revolving financing facility with ING. The maximum draw amount is $1,365. Advances under this financing
facility are denominated in Polish Zloty and bear interest at the Warsaw interbank offered rate plus 1.2% per annum. As of
December 31, 2022, the amount outstanding for this facility was nil (December 31, 2021 - nil).
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 49
Notes to Consolidated Financial Statements
15. Long-Term Debt
LONG-TERM DEBT
Term loan facilities, net of debt issuance costs (a)
Other bank financing (b)
Capital lease obligations (c)
Balance, end of period
Less: current portion
Long-term portion
December 31,
2022
2021
41,934 $
512
1,416
43,862 $
11,698
32,164 $
53,516
544
1,655
55,715
10,590
45,125
$
$
$
(a)
On December 13, 2021, the credit facility and non-revolving term facility with Export Development Canada ("EDC") were
refinanced into one $20,000 term loan. The refinanced term loan provides an extension of the maturity to September 15,
2026 and reduced the interest rate to U.S. Prime Rate plus 2.01% per annum with quarterly principal and interest payments.
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 December 31, 2022, the amount outstanding for this loan was $14,683, net of transaction costs (December 31, 2021 -
$18,583). 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 Euro denominated loan agreements with UniCredit
S.p.A. ("UniCredit"). On April 29, 2021, the Company and UniCredit amended the terms of these 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. As at December 31, 2022, the amount outstanding for this loan was
$8,044 (December 31, 2021 - $8,470).
On May 20, 2020, the Company entered into a 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 December 31, 2022, the amount outstanding for this loan was
$2,699 (December 31, 2021 - $4,000). 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 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 December 31, 2022, the amount outstanding for this loan was
$11,273 (December 31, 2021 - $15,335). There is no security on the loan as it was made as part of the Italian government’s
COVID-19 Decreto Liquidità.
On August 11, 2020, the Company entered into a Euro denominated loan agreement with Deutsche Bank. The effective interest
rate of this loan is 1.7% with a maturity date of August 31, 2026. As at December 31, 2022, the amount outstanding for this
loan was $5,235 (December 31, 2021 - $7,128). There is no security on the loan as it was made as part of the Italian
government’s COVID-19 Decreto Liquidità.
(b)
in 2027.
Other bank financing consists of an unsecured bank financing arrangement with an interest rate of 0.55% and matures
The Company has capital lease obligations that have terms of two to five years at interest rates ranging from 1.7% to
(c)
2.7%.
50 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Throughout the term of certain of these financing arrangements, the Company is required to meet certain financial and non-
financial covenants. As of December 31, 2022, the Company is in compliance with all covenants under the financing
arrangements.
Notes to Consolidated Financial Statements
The principal repayment schedule of long-term debt is as follows as at December 31, 2022:
LONG-TERM DEBT REPAYMENT SCHEDULE
Term loan facilities
Other bank financing
Capital lease
obligations
Total
2023
2024
2025
2026
2027 and thereafter
$
11,207
11,746
11,169
7,313
499
41,934 $
—
128
128
128
128
512 $
491
474
270
94
87
1,416 $
11,698
12,348
11,567
7,535
714
43,862
16. Long-term Royalty Payable
LONG TERM ROYALTY PAYABLE SCHEDULE
Balance, beginning of year
Accretion expense
Repayment
Balance, end of year
Less: current portion
Long-term portion
December 31,
2022
2021
9,947 $
791
(5,200)
5,538
1,162
4,376 $
16,042
1,356
(7,451)
9,947
5,200
4,747
$
$
On January 11, 2016, the Company entered into a financing agreement with Cartesian to support the Company's global growth
initiatives. The financing agreement immediately provided $17,500 in cash (the “Tranche 1 Financing”). In consideration for
the funds provided to the Company, Cartesian is entitled to royalty payments based on the greater of (i) a percentage of
amounts
received by the Company on select HPDI systems and CWI joint venture income through 2025 and (ii) stated fixed amounts per
annum (subject to adjustment for asset sales). The carrying value is being accreted to the expected redemption value using the
effective interest method, which is approximately 23% per annum. Pursuant to the sale of CWI, amounts due to Cartesian are
solely secured by an interest in the Company's HPDI 2.0TM 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 is paid 15% of the net proceeds from these asset sales to a
maximum of $15,000 with these payments being allocated on a non-discounted basis to future years' minimum payments.
As of December 31, 2022, total royalty payments to Cartesian as a result of the Consent Agreement were $11,912
(December 31, 2021 - $11,912).
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 51
The estimated repayments including interest are as follows, for the years ending December 31:
Financial Statements | Notes | 15. Long-term Royalty Payable
MINIMUM REPAYMENTS INCLUDING INTEREST
2023
2024
2025
2026
17. Warranty Liability
A continuity of the warranty liability is as follows:
WARRANTY LIABILITY
Balance, beginning of year
Warranty claims
Warranty accruals
Change in estimate
Impact of foreign exchange changes
Balance, end of year
Less: current portion
Long-term portion
1,162
1,637
2,270
2,851
7,920
$
Years ended Dec 31
2022
2021
$
$
$
18,791 $
(11,081)
4,338
3,559
(1,308)
14,299
11,315 $
2,984 $
18,936
(5,322)
7,025
(337)
(1,511)
18,791
13,577
5,214
The Company recorded an insurance recovery of $8,865 during the year ended December 31, 2020, including $3,521 in other
receivables and $5,344 in other long-term assets. As at December 31, 2022, the Company had a remaining balance of $2,937
and $4,122 in other receivables and other long-term assets, respectively, related to insurance recoveries.
18. Share Capital, Stock Options & Other Stock-based Plans
In the first quarter of 2021, the Company issued 1,819,712 common shares at weighted average share price of $7.26 per
share for gross proceeds of $13,211, net of total transaction costs of $405, including commission of $264, resulting in net
proceeds of $12,806. The at-the-market ("ATM") Program was completed as of March 20, 2021, and the Company raised a
total of $27,586 gross proceeds through this ATM Program.
On January 21, 2021, Cartesian exercised its option to convert a principal amount of $2,500, plus accrued and unpaid interest
on such principal amount, into 1,815,117 common shares of the Company.
On June 8, 2021, the Company completed a marketed public offering of common shares for gross proceeds to the Company of
$115,115. The Company issued a total of 20,930,000 common shares at $5.50 per common share, including 2,730,000
common shares following the exercise in full by the underwriters of their over-allotment option. Total transaction costs of
$7,194 were incurred and deducted from the gross proceeds for net proceeds of $107,921.
On August 31, 2021, the Company exercised its option to convert the final principal balance of $2,500, plus accrued and
unpaid interest on such principal amount, into 1,836,750 common shares of the Company. As at December 31, 2021, the
convertible note was fully repaid and converted into common shares of the Company.
During the year ended December 31, 2022, the Company issued 503,840 common shares, net of cancellations, upon
exercises of share units (year ended December 31, 2021 – 327,774 common shares). The Company issues shares from
treasury to satisfy share unit exercises.
52 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Notes to Consolidated Financial Statements
(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 vested and the underlying shares are issued from treasury of the Company, the value is reclassified to share capital.
During the year ended December 31, 2022, the Company recognized $2,066 (year ended December 31, 2021 - $1,911) 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:
UNIT ISSUED SUMMARY
December 31,
2022
2021
Outstanding, beginning of year
Granted
Vested and exercised
Forfeited/expired
Outstanding, end of year
Units outstanding and exercisable, end of year
1,866,433 $
2,541,098
(503,840)
(729,370)
3,174,321 $
— $
2.98 1,452,378 $
1.83
3.19
1.28
2.41 1,866,433 $
61,086 $
875,703
(327,774)
(133,874)
—
Weighted
average grant
date fair value
(CDN $)
Number of
Units
Number of
Units
Weighted
average grant
date fair value
(CDN $)
3.29
4.87
3.86
1.62
2.98
2.84
During the year ended December 31, 2022, 2,541,098 share units were granted to directors, executives and employees (year
ended December 31, 2021 - 875,703). This included 994,700 Restricted Share Units ("RSUs") (year ended December 31,
2021 - 417,719) and 1,221,398 Performance Share Units ("PSUs") (year ended December 31, 2021 - 457,984) and 325,000
Deferred Share Units ("DSUs") (year ended December 31, 2021 - 0 DSUs). Values of PSUs awards are determined using either
the Monte – Carlo averaging technique or the Black Scholes model. 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. Vesting of DSUs shall occur, immediately prior to the
resignation, retirement or termination of directorship, in accordance with the terms of Westport's Omnibus Plan.
As at December 31, 2022, $4,134 of compensation expense related to Units has yet to be recognized in results from
operations and will be recognized ratably over two years.
(b)
Aggregate intrinsic values:
The aggregate intrinsic value of the Company’s share units are as follows:
AGGREGATE INTRINSIC VALUES OF SHARE UNITS
Share units:
Outstanding
Exercisable
Exercised
December 31,
2022
CDN$
2021
CDN$
$
3,310 $
—
524
5,434
173
—
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 53
Financial Statements | Notes | 18. Share Capital, Stock Options & Other Stock-based Plans
(c)
Stock-based compensation:
Stock-based compensation associated with the Unit plans is included in operating expenses as follows:
STOCK-BASED COMPENSATION
Cost of revenue
Research and development
General and administrative
Sales and marketing
Total
Years ended December 31,
2022
2021
$
$
$
184 $
336 $
1,638
232
2,390 $
91
217
1,502
101
1,911
Stock-based compensation settled in shares $2,066 and $324 settled in cash for the year ended December 31, 2022.
19. Income Taxes
The Company’s income tax provision differs from that calculated by applying the combined enacted Canadian federal
(a)
and provincial statutory income tax rate of 27% for the year ended December 31, 2022 (year ended December 31, 2021 –
27%) as follows:
INCOME TAX PROVISION
Expected income tax expense (recovery) expense
Non-deductible stock-based compensation
Other permanent differences
Withholding taxes and other foreign taxes
Change in enacted tax rates
Foreign tax rate differences, foreign exchange and other adjustments
Non-taxable income from equity investment
Change in valuation allowance
Expired Losses
Bargain purchase gain
Tax realignment due to Italian tax law changes
Income tax expense (recovery)
Years ended December 31,
2022
2021
(8,446)
233
(58)
621
294
392
—
(3,249)
11,562
63
—
$
1,412 $
1,492
389
4,559
76
61
457
(8,902)
2,970
—
(1,579)
(7,654)
(8,131)
54 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
(b)
The significant components of the deferred income tax assets and liabilities are as follows:
Notes to Consolidated Financial Statements
DEFERRED INCOME TAX ASSETS & LIABILITIES
Deferred income tax assets:
Net loss carry forwards
Intangible assets
Property, plant and equipment
Warranty liability
Foreign tax credits
Inventory
Research and development
Tax realignment due to Italian tax law changes
Financing and share issuance cost
Other
Total gross deferred income tax assets
Valuation allowance
Total deferred income tax assets
Deferred income tax liabilities:
Intangible assets
Property, plant and equipment
Other
Total deferred income tax liabilities
Total net deferred income tax assets (liabilities)
Years Ended Dec 31
2022
2021
208,399 $
4,015
18,392
3,631
620
1,933
5,001
7,713
1,106
8,859
259,669
(249,239)
10,430
(430)
(15)
(2,837)
(3,282)
7,148 $
223,129
4,571
18,225
4,785
620
1,614
7,537
8,705
—
10,858
280,044
(268,391)
11,653
(430)
(12)
(2,950)
(3,392)
8,261
$
$
The valuation allowance is reviewed on a quarterly basis to determine if, based on all available evidence, it is more-likely-than-
not that some or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax
assets is dependent on the generation of sufficient taxable income during the future periods in which those temporary
differences are expected to reverse. If the evidence does not exist that the deferred income tax assets will be fully realized, a
valuation allowance has been provided.
The deferred income tax assets have been reduced by the uncertain tax position presented in note 19(f).
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 55
Notes to Consolidated Financial Statements
(c)
The components of the Company’s income tax expense (recovery) are as follows:
INCOME TAX EXPENSE (RECOVERY)
Year ended December 31, 2022
Italy
United States
Canada
Netherlands
Poland
Other
Year ended December 31, 2021
Italy
United States
Canada
Netherlands
Poland
Other
Income tax expense (recovery)
Net income
(loss) before
income taxes
Current
Deferred
Total
$
$
$
$
1,023
15,136
(46,657)
3,103
3,002
(6,890)
(31,283) $
921
31,476
(35,809)
3,843
1,966
3,130
5,527 $
20
6
372
601
512
341
1,852 $
1,417
(3)
69
704
351
(366)
2,172 $
(511) $
—
—
(25)
118
(22)
(440) $
(10,373) $
—
—
33
14
23
(10,303) $
(491)
6
372
576
630
319
1,412
(8,956)
(3)
69
737
365
(343)
(8,131)
The Company has loss carry-forwards in the various tax jurisdictions available to offset future taxable income that
(d)
expire in the following years, as follows:
LOSS CARRY-FORWARDS
Expiring in:
Canada
Italy
United States
Sweden
China
Other
Total
$
2023
— $
2024
— $
2025 2026 and later
— $
616,437 $
—
—
1,528
—
—
948
—
—
2,267
$
1,528 $
948 $
2,267 $
90,475
10,656
1,994
7,382
731,853 $
Total
616,437
—
90,475
10,656
6,737
7,382
736,596
Certain tax attributes are subject to an annual limitation as a result of the acquisition of Fuel Systems which constitutes a
change of ownership as defined under Internal Revenue Code Section 382.
The Company has not recognized a deferred income tax liability for certain undistributed earnings of foreign
(e)
subsidiaries which are essentially investments in those foreign subsidiaries and are permanent in duration.
The Company records uncertain tax positions in accordance with ASC No. 740, Income Taxes. As at December 31,
(f)
2022, the total amount of the Company’s uncertain tax benefits was $5,352 (December 31, 2021 - $5,152). If recognized in
future periods, the uncertain tax benefits would affect our effective tax rate. The Company files income tax returns in Canada,
the U.S., Italy, and various other foreign jurisdictions. All taxation years remain open to examination by the Canada Revenue
Agency, the 2019 to 2022 taxation years remain open to examination by the Internal Revenue Service, the 2017 to 2022
56 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Notes to Consolidated Financial Statements
taxation years remain open to examination by the Italian Revenue Agency, and various years remain open in the other foreign
jurisdictions.
20. 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 $3,974 of accounts receivable
as at December 31, 2022 (December 31, 2021 - $1,593). During the year ended December 31, 2022, the Company sold
inventory to Minda Westport Technologies Limited for $10,473 (year ended December 31, 2021 - $2,232).
21. 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.
22. Segment Information
he Company manages and reports the results of its business through three segments: OEM, Independent Aftermarket ("IAM"),
and Corporate. This reflects the manner in which operating decisions and assessing business performance is currently
managed by the Chief Operating Decision Maker ("CODM").
As discussed in note 7, the CWI joint venture ended as at December 31, 2021 and the Company's 50% share in the joint
venture was sold to Cummins on February 7, 2022. The Company recorded the gain on sale of investment during the three
months ended March 31, 2022 and no longer considered it as an operating segment; however, the income from the investment
in the CWI joint venture remained as the Corporate equity income in 2021.
Financial information by business segment as follows:
OEM
IAM
Corporate
Total consolidated
Year ended December 31, 2022
Revenue
Operating
income (loss)
Depreciation
& amortization
Equity income
$
198,036 $
107,662
—
$
305,698 $
(32,000) $
2,340
(20,606)
(50,266) $
8,205 $
3,162
433
11,800 $
930
—
—
930
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 57
Notes to Consolidated Financial Statements
OEM
IAM
Corporate
Total consolidated
ADDITIONS TO LONG-LIVED ASSETS
Year ended December 31, 2021
Revenue
Operating
income (loss)
Depreciation
& amortization
Equity income
$
195,476 $
116,936
—
$
312,412 $
(22,259) $
2,046
(10,333)
(30,546) $
8,654 $
5,113
268
14,035 $
773
—
32,968
33,741
Total additions to long-lived assets, excluding business combinations:
OEM
IAM
Corporate
Total consolidated
Years ended December 31,
2022
2021
$
$
11,178 $
2,754
597
14,529 $
9,878
2,493
1,787
14,158
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:
REVENUE BY REGION
Europe
Americas
Asia
Africa
Others
% of total revenue
years ended December 31,
2022
2021
64 %
12 %
15 %
5 %
4 %
66 %
11 %
12 %
7 %
4 %
During the year ended December 31, 2022, total revenue of $43,265 (year ended December 31, 2021 - $49,683), or 14%
(year ended December 31, 2021 - 16%) of total revenue, was generated from the Company's OEM launch partner.
As at December 31, 2022, total goodwill of $2,958 (December 31, 2021 - $3,121) was allocated to the IAM segment.
As at December 31, 2022, total long-term investments of $1,972 (December 31, 2021 - $1,972) were allocated to the
Corporate segment and $2,657 (December 31, 2021 - $1,852) to the OEM segment.
Total assets are allocated as follows:
TOTAL ASSETS BY OPERATING SEGMENT
OEM
IAM
Corporate
Total consolidated assets
58 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT
Years ended December 31,
2022
2021
$
$
241,795 $
145,377
20,279
407,451 $
193,928
148,745
128,640
471,313
The Company’s long-lived assets consist of property, plant and equipment, intangible assets and goodwill.
Long-lived assets information by geographic area:
LONG-LIVED ASSETS BY REGION
Notes to Consolidated Financial Statements
December 31, 2022
Italy
Canada
Rest of Europe
Asia Pacific
Total consolidated long-lived assets
December 31, 2021
Italy
Canada
United States
Rest of Europe
Asia Pacific
Total consolidated long-lived assets
23. Financial Instruments
(a)
Financial risk management:
Property, plant
and equipment
Intangible
Assets and
Goodwill
Total
$
$
$
$
20,382 $
25,199
9,032
8,028
62,641 $
21,140 $
29,095
—
9,480
4,705
64,420 $
7,688 $
129
2,958
—
10,775 $
9,131 $
155
—
3,121
—
12,407 $
28,070
25,328
11,990
8,028
73,416
30,271
29,250
—
12,601
4,705
76,827
The Company has exposure to liquidity risk, credit risk, foreign currency risk and interest rate risk.
(b)
Liquidity risk:
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they are due. The Company has a
history of losses and negative cash flows from operations since inception. At December 31, 2022, the Company has $86,184
of cash, cash equivalents and short-term investments, including of $98 restricted cash (see note 3(c)).
The following are the contractual maturities of financial obligations as at December 31, 2021:
CONTRACTUAL OBLIGATIONS
Carrying
amount
Contractual
cash flows
< 1
1–3
4–5
5+
Years
Accounts payable and accrued liabilities $
Short-term debt (note 14)
Term loan facilities (note 15(a))
Other bank financing (note 15(b))
Capital lease obligations (note 15(c))
Long-term royalty payable (note 16)
Operating lease commitments (note 13)
98,863 $
9,102
41,934
512
1,416
5,538
23,459
$ 180,824 $
98,863 $ 98,863 $
9,102
48,260
518
1,441
7,920
27,073
9,102
14,235
—
516
1,162
3,379
— $
—
25,942
262
744
3,907
5,311
— $
—
8,083
256
181
—
—
—
—
—
2,851
4,475
13,908
193,177 $ 127,257 $ 36,166 $ 15,846 $ 13,908
Credit risk:
(c)
Credit risk arises from the potential that a counterparty to a financial instrument fails to meet its contractual obligations and
arises principally from the Company’s cash and cash equivalents, short-term investments and accounts receivable. The
Company manages credit risk associated with cash and cash equivalents by regularly investing primarily in liquid short-term
WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT | 59
Notes to Consolidated Financial Statements
paper issued by major banks. The Company monitors its portfolio and its policy is to diversify its investments to manage this
potential risk.
The Company is also exposed to credit risk with respect to uncertainties as to timing and amount of collectability of accounts
receivable and other receivables. As at December 31, 2022, 76% (December 31, 2021 - 83%) of accounts receivable relates to
customer receivables, and 24% (December 31, 2021 - 17%) relates to amounts due from related parties and income tax
authorities for value added taxes and other tax related refunds. In order to minimize the risk of loss for customer receivables,
the Company’s extension of credit to customers involves review and approval by senior management as well as progress
payments as contracts are executed. Most sales are invoiced with payment terms in the range of 30 days to 90 days. Refer to
note 3(d) for the Company's policy with respect to an allowance for credit losses.
(d)
Foreign currency risk:
Foreign currency risk is the risk that the fair value of future cash flows of financial instruments will fluctuate because of
changes in foreign currency exchange rates. The Company conducts a significant portion of its business activities in foreign
currencies, primarily the U.S. dollar and the Euro. The Company are subject to foreign currency exchange rate risk to the extent
that our costs are denominated in currencies other than those in which the Company earn revenues. In addition, since the
Company's consolidated financial statements are denominated in U.S. dollars, changes in foreign currency exchange rates
between the U.S. dollar and other currencies have had, and will continue to have, an impact on the Company's results of
operations, financial condition and cash flows.
Cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and long-term debt that are
denominated in foreign currencies will be affected by changes in the exchange rate between the Canadian dollar and these
foreign currencies. The Company’s functional currency is the Canadian dollar.
The fluctuation in the average U.S. dollar in recent years has resulted in material impacts on our revenues in those years. If the
U.S. dollar continues to fluctuate against other currencies, the Company will experience additional volatility in our financial
statements.
A 5% increase/decrease in the relative value of the U.S. dollar against the Canadian dollar and Euro compared to the exchange
rates in effect for the year ended December 31, 2022 would have resulted in lower/higher income from operations of
approximately $1,129. This assumes a consistent 5% appreciation in the U.S. dollar against the Canadian dollar and the Euro
throughout the fiscal year. The timing of changes in the relative value of the U.S. dollar can affect the magnitude of the impact
that fluctuations in foreign exchange rates have on our income from operations.
(e)
Interest rate risk:
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in
market interest rates. The Company is subject to interest rate risk on certain short-term and long-term debt with variable rates
of interest. The Company limits its exposure to interest rate risk by continually monitoring and adjusting portfolio duration to
align to forecasted cash requirements and anticipated changes in interest rates.
If interest rates for the year ended December 31, 2022 had increased or decreased by 200 basis points, with all other
variables held constant, net loss for the year ended December 31, 2022 would have increased or decreased by $476.
60 | WESTPORT FUEL SYSTEMS INC. 2022 ANNUAL REPORT