Westport Fuel Systems Reports Second Quarter 2016 Financial Results

Q2 2016 FINANCIAL HIGHLIGHTS

• Consolidated revenues for the quarter ended June 30, 2016 were $44.4 million compared with$27.8 million for the same period last year mainly due to the addition of Fuel Systems' revenues of$20.8 million for the month of June. Westport revenue for the quarter ended June 30, 2016 decreased by $4.2 million or 15.2%, mainly due to a large service contract completed in Q2 2015.
• Consolidated gross margin for the quarter ended June 30, 2016 was $10.0 million or 22.5% of revenue, compared with $9.3 million or 33.4% of revenue for the same period last year. The decrease in Westport gross margin percentage was mainly due to a large service contract completed in Q2 2015. Excluding this, Westport gross margin would have been 26.3% in Q2 2015. 
• Consolidated operating expenses were $34.2 million for the quarter ended June 30, 2016, an increase of $8.4 million from $25.8 million in the same period last year primarily driven the addition of Fuel Systems' expenses of $5.6 million. Westport operating expenses increased by$2.8 million or 10.9% year-over-year, primarily due to additional one-time costs related to the merger with Fuel Systems and the Cartesian financing.
• Net income for the quarter ended June 30, 2016 was $3.7 million, or $0.05 per share, primarily due to a one-time non-cash gain on the bargain purchase transaction related to the merger of$42.9 million. Excluding the bargain purchase transaction and Fuel Systems' June 2016 net loss of$0.1 million, Westport Fuel Systems net loss for the quarter ended June 30, 2016 would have been $39.1 million.

CUMMINS WESTPORT INC. HIGHLIGHTS

• Revenue was $73.6 million on 2,061 units for the quarter ended June 30, 2016, a decrease of 20.9% in revenue over the same period last year primarily due to macroeconomic conditions including sustained low oil prices and weakened truck industry volumes. However, this was offset by growth in the transit market with year-to-date shipments up 45% year-over-year.
• Gross margin during the quarter ended June 30, 2016 decreased by $3.7 million from $24.7 million to $21.0 million when compared to the same quarter last year. The margin decrease was primarily as a result of lower unit sales. The increase in gross margin percentage year-over-year for the quarter ended June 30, 2016 was primarily due to due to year-over-year favorable warranty adjustment.
• CWI operating income attributable to Westport Fuel Systems for the quarter ended June 30, 2016 was $1.5 million compared with $3.4 million for the same period last year. This is primarily due to a decrease in unit sales and higher engineering expense mainly related to new products and compliance costs for upcoming regulations.
• The Cummins Westport ISB6.7 G natural gas engine was launched in Q2, with 200hp and 220hp rating for the Type C school bus market.  The ISB6.7 G meets U.S. Environmental Protection Agency ("EPA") and California Air Resources Board ("ARB") 2016 emissions regulations; ARB's optional low oxides of nitrogen ("NOx") standard of 0.1 g/bhp-hr; and 2017 EPA GHG requirements a year ahead of schedule.
• According to Fleets & Fuels article published on July 5, 2016, a recent study commissioned by LA Metro found that the Cummins Westport ISL G Near Zero NOx natural gas engine, when powered by renewable natural gas ("RNG"), will allow California to meet its goal of zero-emission transit buses more quickly and for less money than it will with battery electric or hydrogen fuel cell buses. Fleet costs would rise by just 1% with low NOx+RNG, as compared to 8% to 14% for all-electric buses or 9% to 13%, according to a presentation by Dana Lowell of M.J. Bradley & Associates andJulia Lester of Ramboll/Environ for LA Metro.

MERGER TAX TREATMENT UPDATE

As a result of the merger, each share of Fuel Systems common stock was exchanged for 2.4755 Westport common shares.  Following the closing of the merger, the company is required to report to the shareholders on any organizational action that may affect the basis of certain specified securities which includes the common stock of Fuel Systems. It has been determined that any gain realized by stockholders from the Merger will likely be ineligible for non-recognition treatment under Section 367 of the Internal Revenue Code.  Consequently shareholders are required to recognize a gain, if any, (but may not recognize a loss) realized upon the transfer of Fuel Systems common stock to Westport in exchange for Westport common shares.  The fair market value of Westport common shares on NASDAQ (based on the average of the highest and lowest trading price) at the time of the merger was $2.195.  Former Fuel Systems shareholders are urged to consult their own tax advisor regarding the particular consequences to you, including the applicability and effect of all U.S. federal, state, and local tax laws and of the tax laws under any other non-U.S. jurisdiction.  For more information please refer to our website at: http://www.westport.com/company/investors/irs-form-8937.

GAAP and NON-GAAP FINANCIAL MEASURES

Management reviews the operational progress of its business units and investment programs over successive periods through the analysis of the net income, EBITDA and Adjusted EBITDA and as a long-term indicator of operational performance since it ties closely to the business units' ability to generate sustained cash flow. Westport Fuel Systems defines Adjusted EBITDA as net income (loss) attributed to the business unit or the consolidated company excluding expenses for (a) income taxes, (b) depreciation and amortization, (c) interest expense, net, (d) non-cash and other adjustments, (e) amortization of stock-based compensation, and (f) unrealized foreign exchange gain or loss. Adjusted EBITDA includes the company's share of income from the joint ventures.

The term Adjusted EBITDA is not defined under U.S. generally accepted accounting principles ("U.S. GAAP") and is not a measure of operating income, operating performance or liquidity presented in accordance with U.S. GAAP. Adjusted EBITDA has limitations as an analytical tool, and when assessing the company's operating performance, investors should not consider Adjusted EBITDA in isolation, or as a substitute for net loss or other consolidated statement of operations data prepared in accordance with U.S. GAAP. Among other things, Adjusted EBITDA does not reflect the company's actual cash expenditures. Other companies may calculate similar measures differently than Westport Fuel Systems, limiting their usefulness as comparative tools. The company compensates for these limitations by relying primarily on its GAAP results and using Adjusted EBITDA as supplemental information.

*Non-cash and other adjustments include impairment of long-lived assets, provision for inventory purchase commitments, intangible impairment, goodwill impairment, one-time inventory obsolescence charges, loss on sale of long-term investments, one-time costs related to the merger between the company and Fuel Systems and one-time costs related to the Cartesian financing. The three months ended June 30, 2016 includes a $42.9 million bargain purchase gain, offset by a $6.3 million loss on sale of investments, $4.5 million in merger and financing costs, and other one-time costs of $4.8 million.

• Consolidated Adjusted EBITDA for the quarter ended June 30, 2016 was negative $10.3 million, a decrease of 33.8% compared to the same period last year, due to lower revenue and income generated from joint ventures.

FINANCIAL STATEMENTS & MANAGEMENT'S DISCUSSION AND ANALYSIS

To view Westport Fuel Systems' full financials for the quarter ended June 30, 2016, please visitwestport.com/company/investors/financial

CONFERENCE CALL PRESENTATION

Westport Fuel Systems is providing conference call presentation containing financial information based on the most recent reporting structure that was implemented in the second quarter of 2016. The company is providing this presentation as a guide to its financial information in a quick reference format and it should be read in conjunction with Westport Fuel Systems' full financials for the quarter ended June 30, 2016 and full financials for the year ended December 31, 2015.

LIVE CONFERENCE CALL & WEBCAST

Westport Fuel Systems has scheduled a conference call for today, Tuesday August 9, 2016 at 7:00 am Pacific Time (10:00 am Eastern Time) to discuss these results.  The public is invited to listen to the conference call in real time by telephone or webcast. To access the conference call by telephone, please dial: 1-800-319-4610 (Canada & USA toll-free) or 604-638-5340. The live webcast of the conference call can be accessed through the Westport Fuel Systems website atwestport.com/investors.

REPLAY CONFERENCE CALL & WEBCAST

To access the conference call replay, please dial 1-855-669-9658 (Canada & USA toll-free) or 604-674-8052 using the pass code 00673. The replay will be available until August 16, 2016. Shortly after the conference call, the webcast will be archived on Westport Fuel Systems website and replay will be available in streaming audio and a downloadable MP3 file.

About Westport Fuel Systems

Westport Fuel Systems engineers, manufactures and supplies the world's most advanced alternative fuel systems and components. More than that, we are fundamentally changing the way the world travels the roads, rails and seas. Our innovative and cost-effective solutions maintain performance while improving efficiency and reducing emissions. Offering a variety of leading brands for transportation and industrial applications, we serve customers in over 70 countries, including some of the world's largest and fastest growing markets. To learn more about our business, visit westport.com.

Cautionary Note Regarding Forward Looking Statements

This press release contains forward-looking statements, including statements regarding revenue and cash usage expectations, the effect of and timing of  reorganization and restructuring of our business, the anticipated benefits of the merger with Fuel Systems, the timing and ability to recognize synergies as a result of the merger with Fuel Systems, future rationalization of operations and reduction of overhead expenses, continued research and development investment, future of our development programs (including those relating to the referenced HPDI injector program), timing for launch, delivery and completion of milestones related to the products referenced herein,  Westport Fuel Systems' expected actions, future sales of non-core assets and the benefits therefrom, the demand for our products, the future success of our business and technology strategies, investment in new product and technology development and otherwise, cash and capital requirements, intentions of partners and potential customers, the performance and competitiveness of Westport Fuel Systems' products and expansion of product coverage, future market opportunities, speed of adoption of natural gas for transportation and terms and timing of future agreements as well as Westport Fuel Systems management's response to any of the aforementioned factors. These statements are neither promises nor guarantees, but involve known and unknown risks and uncertainties and are based on both the views of management and assumptions that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activities, performance or achievements expressed in or implied by these forward looking statements. These risks and uncertainties include risks and assumptions related to our revenue growth, operating results, industry and products, the general economy, conditions of and access to the capital and debt markets, solvency, governmental policies and regulation, technology innovations, fluctuations in foreign exchange rates, operating expenses, the availability and price of natural gas, global government stimulus packages, the acceptance of and shift to natural gas vehicles, the relaxation or waiver of fuel emission standards, the inability of fleets to access capital or government funding to purchase natural gas vehicles, the development of competing technologies, our ability to adequately develop and deploy our technology, the actions and determinations of our joint venture and development partners, as well as other risk factors and assumptions that may affect our actual results, performance or achievements or financial position discussed in our most recent Annual Information Form and other filings with securities regulators. Readers should not place undue reliance on any such forward-looking statements, which speak only as of the date they were made. We disclaim any obligation to publicly update or revise such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in these forward looking statements except as required by National Instrument 51-102. The contents of any website, RSS feed or twitter account referenced in this press release are not incorporated by reference herein.

SOURCE Westport Fuel Systems Inc.