WPRT

Business Context and Reporting Period

Company: Westport Fuel Systems Inc. (WPRT)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal Year Ended December 31, 2025
Business Overview: Westport designs, manufactures, and supplies advanced alternative fuel systems (natural gas, renewable natural gas, and hydrogen) for transportation and industrial applications. The company operates through two primary segments: High-Pressure Controls (components for fuel cells and hydrogen engines) and Heavy-Duty OEM (transitional services). A significant portion of its heavy-duty strategy is executed through Cespira, a 55% owned joint venture with Volvo Group focused on HPDI fuel systems.

Key Financial Metrics (Year Ended Dec 31, 2025)

Note: Total Net Loss includes a $(32.1) million loss from discontinued operations related to the sale of the Light-Duty segment.

Material Changes vs. Prior Period

• Revenue Decline: Consolidated revenue decreased 43% to $23.3 million. This was primarily driven by the cessation of the transitional services agreement with Cespira (Heavy-Duty OEM segment), which ended in Q2 2025, and a slowdown in the hydrogen industry affecting the High-Pressure Controls segment.
• Divestiture of Light-Duty Segment: On July 29, 2025, the company sold its Light-Duty segment (including operations in Italy) for a base price of approximately $79.5 million (subject to adjustments). This resulted in a $37.3 million loss on disposal recorded in discontinued operations.
• Cespira Performance: While Westport's consolidated revenue fell, Cespira's revenue grew 80% to $77.4 million. However, Cespira reported a net loss of $29.3 million, contributing a $15.8 million equity loss to Westport's results.
• Cost Reductions: Operating expenses decreased significantly due to cost-cutting initiatives, lower compensation costs, and the removal of the Light-Duty segment's overhead.
• Foreign Exchange: The company recorded a $5.4 million foreign exchange gain in 2025, compared to a $6.2 million loss in 2024, largely due to the remeasurement of U.S. dollar-denominated debt in Canadian entities.

Guidance, Outlook, Risks, and Unusual Items

Going Concern Warning

Management has identified a material uncertainty regarding the company's ability to continue as a going concern. Based on projected capital expenditures, debt obligations, and operating requirements, cash on hand ($27.2 million) is insufficient to fund operations for the next 12 months. The company plans to raise additional capital through public markets or debt, but there is no assurance of success.

Outlook and Strategy

• Manufacturing Expansion: Production commenced in Q1 2026 at new facilities in Cambridge, Ontario, and Changzhou, China, following the shutdown of Italian operations in late 2025.
• Cespira Funding: Westport and Volvo have committed to funding $20.0 million for Cespira in 2026 (Westport's share: $11.0 million), a reduction from 2025 contributions.
• Hydrogen Market: The company anticipates continued volatility in the hydrogen infrastructure development, impacting adoption rates.

Risks and Unusual Items

• Cybersecurity Incident: In Q1 2026, the company experienced a ransomware incident involving unauthorized access to systems. Management believes it has not had a material impact to date, but remediation costs may arise.
• Competition: Significant competition from battery electric and fuel cell technologies, as well as incumbent diesel improvements.
• Regulatory Dependence: Success is heavily dependent on government incentives, emission standards, and fuel price differentials, which are subject to change.

Investor Verification Checklist

• Liquidity Runway: Verify the status of capital raising efforts (Shelf Prospectus filed Sept 2025) and the timeline for securing additional funding to address the going concern warning.
• Cespira Financials: Review the detailed financial statements of the Cespira joint venture (Exhibits 15.1 and 15.2) to assess the sustainability of its losses and the necessity of future capital calls.
• Discontinued Operations: Confirm the final settlement of the Light-Duty segment sale, including the release of escrow funds and any potential earn-out payments.
• Cybersecurity Impact: Monitor for updates on the Q1 2026 ransomware incident, specifically regarding any material costs, data breaches, or operational disruptions.
• Manufacturing Ramp-up: Assess the production output and cost efficiency of the new Canada and China facilities compared to the previous Italian operations.