Darren Seed - VP, Capital Markets and Communications David Demers - CEO Ashoka Achuthan - CFO Jim Arthurs - EVP, Heavy Duty Systems.

Ann Duignan - JPMorgan Eric Stine - Craig Hallum Capital Group Rob Brown - Lake Street Capital Markets Moses Sutton - Cowen and Company John Quealy - Canaccord Genuity.

Thank you for standing-by. This is the conference operator. Welcome to the Westport Innovations Quarter Three 2015 Financial Results Conference Call. As a reminder all participants are in listen-only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. [Operator Instructions].

At this time I would like to turn the conference over to Darren Seed, Vice President of Capital Markets and Communications. Please go ahead..

Thanks you and good afternoon, everyone. Welcome to our third quarter of fiscal 2015 conference call. It’s being held to coincide with the disclosure of our financial results earlier this afternoon. For those who haven’t seen the release and financial statements yet they can be found on Westport’s website at www.westport.com.

Speaking on behalf of the company will be Westport’s Chief Executive Officer, David Demers; and Westport’s Chief Financial Officer, Ashoka Achuthan; and Westport’s Executive Vice President Heavy Duty Engine Systems, Jim Arthurs.

Attendance at this call is open to the public and to media, but for the sake of brevity, we are restricting questions to analysts. You are reminded that certain statements made in this conference call and our responses to various questions may constitute forward-looking statements within the meaning of U.S.

and applicable Canadian securities law and such forward-looking statements are made based on our current expectations and involve certain risks and uncertainties. Actual results may differ materially from those projected in the forward-looking statements.

Information contained in this conference call is subject to and qualified in its entirety by information contained in the company’s public filings and except as required by applicable securities laws, we do not have any intention or obligation to update forward-looking information after this conference call.

You are cautioned not to place undue reliance on any forward-looking statements. Now, I will turn the call over to David Demers..

Thanks, Darren good afternoon everyone and thank you for your interest and support of Westport. Q3 saw several important milestones including the announcement of a transformational merger with Fuel Systems Solutions.

So I’m briefly going to touch on what I see is the major strategic point during the quarter then we’ll turn the call over to Ashoka for the financial highlights.

Nancy is travelling in Asia this week so we’ve asked Jim Arthurs who is Chair of the Cummins Westport joint venture as well as EVP of our Heavy Duty business to comment on the operational highlights. So let’s start with the Fuel Systems deal which we announced on September 1st.

I’m sure many of you have seen the draft F-4 filings and the story of this transaction from the Fuel Systems side is laid out there. I think there are several significant benefits to the combination of Westport and Fuel Systems.

First the combined company will be one of the largest in the alternative fuel systems industry, providing the global reach, scale and expertise to compete effectively and ultimately grow and deliver strong shareholder returns as the markets improve.

Second, the combined company will benefit from a strengthened balance sheet and enhanced liquidity and will give decision for continued investment in long-term plan stability. Third, consolidation will produce cost efficiencies.

The transaction is expected to be accretive to the company’s combined adjusted EBITDA and earnings in 2016 excluding one-time costs with annual savings and merger synergies expected to reach $30 million by 2018.

And fourth and probably most important the transaction will combine our technology and expertise in medium and heavy duty and high horsepower applications with Fuel Systems’ core focus and development efforts in the light duty and industrial application.

Resulting combined company will have unique technological expertise and product development spanning from passenger cars and heavy duty trucks to locomotive marine and stationary power. Westport and Fuel Systems each bring long standing relationships with key global OEMs which will become strengthen as a result of this combination.

As you’ve seen we’ve now cleared antitrust review processes and we’re now on a review period with the security regulators, this time table will mean that shareholder meetings are expected to be held in January and we’ll close the transaction shortly thereafter. Before turning over to Ashoka I want to highlight three other items.

First, as you saw over the past few weeks we’ve completed a major milestone with our HPDI 2.0 development program and with our production partners we’ll be delivering B level production design and tank parts for innovative testing in the first half of 2016.

We’ve concluded commercial negotiations with our lead customers we’re making excellent progress with several other OEMs. Collectively this represents over 30% of the global production of diesel truck engines. Second, we saw the announcement of Cummins Westport’s newest engine, a near to zero emission solution for buses and [indiscernible] trucks.

We mark with this offering meaning that natural gas vehicles like transit buses will see NOx emissions that are indistinguishable from electric vehicles have much lower cost and if the operator is using renewable natural gas there’s a large greenhouse gas benefit as well.

This announcement has triggered significant interest all over the world as you can imagine. Finally I wanted to single our revolving currency who completed development of the first gasoline direct injection vital vehicles, which has recently resulted in the largest order in this team’s history.

Notably the team has also reached probability even at these low production volumes and we’d like to congratulate them.

Traditions around the world economy remain volatile and low oil prices continue to stress many of our markets, but the more important fact is that the most markets spread between natural gas and conventional fuels remains attractive and our business prospects remain strong.

Sales of our current progress including the Cummins Westport joint venture remains steady and prospects for our new product are encouraging. We continue to expect to see revenue for 2015 between $110 million and $125 million for the full year as we make progress toward our business development and product launch milestones in 2016. Over to Ashoka..

Thank you, David good afternoon, everyone. I’ll be providing you with some highlights of our third quarter, actions we’ve taken to addresses our expenses and cash position and we’ll then cover our financial outlook for 2015. As David noted we have completed another quarter of steady progress towards reaching our 2015 operational targets.

Despite continued economic weakness in certain markets. Westport reported strong results in the Cummins-Westport joint venture compared to last year and achieved significant milestones with a number of global OEM. Jim Arthurs will elaborate on this in his discussion on operational highlights.

Westport revenue from operations including our corporate and technology investment segment was $22.3 million for the quarter ended September 30th compared to $25.3 million for the same period last year.

The 12% decrease is due to the impact of low oil prices on some of our North American businesses such as the Ford QBM business, weakness in our iCE PACK business and the unfavorable impact of foreign currency translation from the euro to the US dollar.

Revenue from European operations including acquisitions in fact increased by EUR4.4 million, but were relatively flat on a US dollar basis.

Westport is reiterating its revenue outlook and expects consolidate revenue from Westport operations and consolidated and technology investments to be between $110 million and $125 million for the year ended December 31, 2015.

Cummins Westport or CWI’s revenue was $82.4 million on 2,343 units for the quarter ended September 30, 2015, an increase of 17% over the same period last year. Revenues increased on a year-over-year basis due to strong performance in North America in the core segments of transit and refuse.

Weichai Westport’s revenue however was $33.6 million on 2,992 units for the quarter ended September 30, 2015. A decrease of 81% over the same period last year. General economic conditions in China has resulted in an industry-wide softness in truck demand contributing to Weichai Westport’s weaker sales.

Moving on to operating expenses Westport consolidated reduced its combined operating expenses by $6.5 million or 20% for the quarter ended September 30, 2015 compared to the same period last year.

Primarily due to privatization of investment programs, cost discipline as well as the favorable impact of the foreign exchange translation from the Canadian dollar and the euro to the US dollar. Moving on to net income. Our income from CWI improved very significantly during the quarter.

Westport’s portion of CWI net income for the quarter was $3.5 million, nearly a threefold increase compared to the same period in 2014. This improvement was largely related to the resolution of warranty issues associated with the ISL G engine and the continued strength in sales in transit and refuse segments.

For Weichai Westport the net income for the quarter ended September 30, 215 was $400,000 a decrease of 88% over the same period last year, due to significantly lower units sold as a result of the reduction in industry-wide demand as I mentioned earlier.

From a consolidated view point of third quarter ended September 30th resulted in a net loss of $37.4 million or $0.58 loss per share. Included in these results are an $18.7 million goodwill impairment charge and a $5.5 million inventory write down. Combined these charges represent a $0.38 per share non-cash impact.

Excluding these charges our consolidated net loss would have been a loss of $0.20 per share. Moving on to our cash position. As of September 30th our cash, cash equivalents and short-term investment balance was $42.1 million.

Cash used in operations excluding changes in working capital plus dividends received from our joint ventures was $14.3 million compared with $25.3 million for the same period last year, an improvement of 44%. Note that this usage of $14.3 million includes cost related to the announced merger with Fuel System Solutions.

Working capital changes generated $2.6 million this quarter. We have ongoing initiatives in place to continue improving upon our working capital performance over the upcoming quarters. We also have an active term sheet related to non-core asset sales and have additional strategic initiatives underway.

Our target is to complete these transactions by year-end. Moving on to adjusted EBITDA and key steps on our path to profitability, adjusted EBITDA from our operations segment for the quarter ended September 30th was a loss $1.8 million compared with a loss $5.4 million for the prior year period.

This is a result of operational improvements and cost management initiatives across our businesses globally. Consolidated adjusted EBITDA improved 56% in the third quarter compared to the same period last year. Adjusted EBITDA for the third quarter was a loss of $9.7 million compared with a loss of $22 million in the prior year.

This was due to overall improvement in our cost structure, privatization of investment programs and higher CWI net income to Westport.

We are facing some headwinds from lower oil prices and economic turbulence in certain markets, but have made the necessary adjustments to be able to capitalize on opportunities as they arise when industry conditions improve.

We are making significant progress towards our goal of our consolidated positive adjusted EBITDA by mid-2016 and I look forward to bringing you further updates on our progress in the next quarter. With that I will pass the call out to Jim Arthurs to discuss our operational highlights. .

Thank you, Ashoka and good afternoon, everyone. I’m going to focus on providing some operational highlights for the company. Our operations team has completed another strong quarter delivering on targets on a variety of natural gas technology programs.

Despite the economic weakness in certain markets we continue to make a number of product announcements in the quarter including the announcement of the dedicated liquid propane system for the 2016 Ford 5.0L F-150 pickup truck, it will join our dedicated and bi-fuel CNG with the Westport WiNG Power System that we announced in May also using a 5 liter engine to provide F-150 customers with a wide range of alternative fuel solutions.

All three systems will launch in 2016 and add to our full range of trucks from the F-150 to F-650 offered through our QBM program with Ford. We introduced the Cummins Westport ISB 6.7 G mid-range natural gas engine for the type C school bus market, this will also launch in mid-2016.

As David mentioned, we certified the Cummins Westport ISL G engine to near zero NOx emission standards 90% below current regulated levels and I’ll talk a little bit more about that in a minute.

And finally we delivered the first 2016 Volvo V60 direct injection Bi-Fuel Cars to a key customer Sunfleet in Sweden and as you heard from David we’re seeing good growth in our Volvo Car business.

In addition to these announcement we made significant progress our HPDI 2.0 programs as we progress from design and development phases to final testing and validation. Our team is dedicated to continuing our advancement towards commercialization of HPDI 2.0 technology with a strong focus on component readiness.

Since the announcement of HPDI 2.0 system in September last year we’ve worked with our development partners and suppliers to complete the design of all HPDI 2.0 components and to make good progress on testing and system validation. A key partner is Delphi who is producing our fuel injection system components.

The latest generation of HPDI fuel injectors were developed under the joint development agreement we have with Delphi and feature a new direct connected architecture and incorporate technologies from both Westport and Delphi. The injector provides higher performances, lower cost and much easier packaging on the engine than prior HPDI systems.

We’ve also developed a new fuel rail, which is the component that supplies fuel to the injector and incorporates both natural gas and diesel fuels into a single rail. This also provides lower cost and easier packaging than earlier generation designs.

Our HPDI 2.0 components including these latest generation fuel injectors and fuel rails from Delphi are undergoing engine and truck testing here at Westport and will be deliver to OEM customers for the validation and testing early in the first quarter of 2016.

We expect to deliver B level production design and 10 components to our OEM customers in the second quarter of 2016. A, B level component is the final design component that uses materials from the production intent material suppliers.

So this is the final stage before we get into manufacturing testing, were used for vehicle integration engine testing and certification and customer fuel testing. We’re also working on our injector production facility to be located at a Delphi plant in the UK with production equipment now on order.

Full commercial production will fall in accordance with our OEM customer launch plans. Cummins Westport had a strong quarter with significantly reduced warranty claims on the ISL G engines and strong sales in the transit and refuse markets.

Despite the current low fuel price differential between diesel and natural gas in North America Cummins Westport’s unit sales and revenue grew year-over-year in the third quarter and year-to-date. David mentioned the new near zero NOx technology that’s being incorporated onto the 8.9 liter Cummins Westport ISL G engine.

We’ve received a very positive reaction in some markets particularly California where this new technology that reduces emissions of oxides of nitrogen or NOCS to 0.02 grams per horsepower hour, which is almost unmeasurable and 90% below regulated levels for heavy-duty and medium-duty vehicles.

NOx is the toxic pollutant that contributes the smog formation and has negative health affect and has been getting a lot of news coverage lately.

California’s Air Resources Board has defined our certified Near Zero NOx emissions level as equivalent to a 100% battery power truck using electricity from a modern combined cycle natural gas power plant, equal to electric is what they say. This is a powerful statement and is getting a lot of attention.

The Near Zero NOx ISL G also features post [indiscernible] which reduces engine related methane emissions by 70% and the engine meet 2017 EPA greenhouse gas emission requirements.

So it’s even better when fueled with renewable natural gas, which the ISL G is fully capable of using and ISL G Near Zero NOx vehicle can deliver greenhouse gas emissions reduction of up to 80% compared to the conventional petroleum based fuels.

This makes it one of the most environmentally friendly commercial vehicles available at a cost much lower than electrical alternatives.

Now some people may consider renewable natural gas as a niche fuel, but according to Air Resources Board’s low carbon fuel standard reports in the first half of 2015 42% of the natural gas used in transportation in California was renewable. We’re very excited about this new technology and expect to launch the ISL G Near Zero NOx engine in April 2016.

As Ashoka mentioned at Weichai Westport we faced economic challenges that have put downward pressure on sales that said our HPDI 2.0 development program continues to move ahead in China.

We’re delivering the latest generation HPDI 2.0 components to Weichai Westport right now and we expect to have fuel cuts units running in the first half of 2016 to complete validation and durability testing and for customer fuel testing. Overall our third quarter has been very busy and we’re pleased with our progress across many product lines.

At the same time our team is keeping a watchful eye on expenditures and is ensuring overhead SG&A and R&D expenses are carefully aligned to ensure we meet our business objectives. As a team we’re pushing hard to meet our publicly stated goals on time and look forward to sharing with you the completion of further milestones to come.

With that I will pass it back to the operator for questions. .

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Thank you, our first question is from Laurence Alexander from Jefferies. Please go ahead. .

Hi this is Jeff [ph] filling in for Laurence.

Cummins Westport units are running about 6% above 2014 year-to-date, but that number would need to increase 25% sequentially to be flat on a unit basis year-over-year, can you talk about what you’re seeing on the demand side that gives you these expectations that maybe units could more than flat year-over-year and maybe what you’re seeing into 2016?.

Yeah Jeff. I know what we’re not able to do which is give guidance on Cummins Westport. I think the only thing unfortunately we can’t do and provide is what we’re seeing in the stability more or so in the refuse market and the transit market.

I think so for this year obviously a lot of volatility in energy price, a lot of pressure but from our side it could be some international market effects muting of international sales. and don’t forget Jeff too we -- as we actually did last year we did get some fairly lumpy orders I know you are familiar with that term from international orders.

So I mean obviously our revenue is up so there is a function of product mix and where the units are going I think again given that we don’t consolidate the -- if I want to maybe stress the important point that because we don’t consolidate the revenue Cummins Westport it really is about the income, the net income it delivers.

As you saw in this quarter we had a fantastic income from Cummins Westport. So that’s obviously we want to see the business maintain if not grow, but fundamentally we’re happier seeing the net income and the positive effects on our income statement..

That’s helpful.

And if I can just expand on that CWI gross margins improved as you mentioned is this a fair run rate to assume going forward or is there anything favorable or unfavorable that might impact this in Q4?.

Yeah, the gross margins are impacted by warranty accrual reversals. So there is an element of that in the current quarter’s gross margin percentage and as we’ve always said a mid-20% range is a reasonable expectation for gross margins within this business..

Great, thank you..

Thanks, Jeff..

The next question is from Ann Duignan from JP Morgan. Please go ahead..

Hi, good evening everybody..

Hi Ann..

Can you just give us some more color on the inventory write down and on the impairment charge on the Italian business can you just remind us how much you spend on buying that Italian business?.

I’ll need to get back to you on the exact number Ann, but it was what year that we buy it then. We’ll get back to you on that but there was an 18.7% goodwill impairment write down we essentially wrote down all the goodwill that was left that was related to that business and yes it is the Italian business.

On the inventory we took a $0.5 million inventory write down all I can tell you here is it was in the North American space and it was after a thorough review of our carrying cost of certain inventories here..

Okay.

And then just separately on the Chinese business, we’ve been hearing from our Chinese contacts that the Chinese government is deemphasizing natural gas as a fuel particularly in public transportation and really trying to push for electric vehicles, can you talk about that and the impact that might have on Weichai and your joint venture over the near to mid-term?.

Yeah Ann its Jim.

We don’t really see that so much and in fact we could hope our Near Zero NOx technology provides a better alternative to electric buses in emission sensitive places like Beijing and certainly for the heavier transport, which is the 10 and 12 liter Weichai engine that form the majority of our volumes that’s not going electric any time soon that will be LNG powers for quite some time.

So we’re not seeing that as being something that’s affecting our business..

And we also directly to your question on government policy and shifting standards that’s definitely not we’ve actually seen the opposite.

We’ve seen government activity that suggest in fact the opposite in fact they are still supporting natural gas and still want to see significant portion of transportation go to natural gas by 2020 definitely in the trucks sector..

Okay, I’ll leave it there and circle back. thank you..

Okay and we’ll back to Ann on the historical purchase price for acquisition such as [indiscernible]..

The next question is from Eric Stine from Craig, Hallum Capital Group. Please go ahead..

Hi everyone..

Hi, Eric..

Hi, Eric..

Maybe good detail and good progress on HPDI anyway to estimate or just thoughts on 2Q as it sounds like final product designing components maybe what you would expect if you are able to share what the time would be manufacturing and then what that means in terms of a commercial launch? Is that something you can share or is that something still in the category or if it’s up to the OEM?.

Yeah so Eric, so we can’t really talk about that our OEM customers are the ones that make those decisions and we got to through lots of validation before they are ready to go. So I would suggest you ask them..

Right, okay. But I mean at least the progress you’ve made and the announcement you had with Volvo, I guess that would imply sooner rather than later..

Yeah, we are just... what we are focused on production readiness. So as I mentioned we are into the product design is finalized now we are just into durability testing as this particular type of steel exactly, proper usage, getting the manufacturing capability in place.

So we are heading down all that passage there is lots of work being done and we are happy with the progress..

Okay.

Maybe just turning to the asset sales you called that out that you still expected by year-end, I mean active term sheet is that something where you’ve got multiple parties involved or is it something where you’ve kind of narrowed it, narrowed the list quite a bit and is it still $50 million, is that still kind of the target by year-end?.

Yeah Eric its Darren. We are and have an active term sheet we have a few parties interested in some non-core asset. So we have reiterated our line that we do expect to have something announced this quarter. So I think we are kind of hoping obviously we’ve only got a few weeks left and should be able to identify that shortly.

And it’s still the targeted amount, I think we still identify roughly $50 million in non-core asset sales we’ve got some strategic initiative, we’ve got on the go as well. They have progressed since our last conference call and hoping here in the next two weeks or three weeks or a few weeks before Christmas you can see a press release..

Okay.

And then you touched on the additional strategic initiative, I mean is that something that would be above and beyond that $50 million target that you talked about?.

No, I think right now Eric we are just looking at them as multiple ways to hit $50 million for now..

Okay. Maybe last one from me and this is just thinking about what fourth quarter looks like you. If my math is write $32 million or so to get to the bottom end of the range it’s a pretty big step up.

So just visibility you’ve gotten to that and then also just thought process that you kept such a wide range, I mean are there things that potentially get you to the top-end of that or what was your thought process there?.

Eric, your math is correct. It is $32 million that we need to get to the bottom of the range and yes we have a fair degree of visibility to get there and we expect that we will.

No real magic or secret to leaving the broad end the higher end of the range intact we just some of the events that we are working on and some of the programs we are working on tend to be a little binary and lumpy. So in the absence of better information we decided to leave the range untouched..

Just consistency Eric, for us it’s been very consistent for the last several years. We just don’t change the range until there is absolutely necessity to do so..

Right. Okay, thank you very much..

Thanks, Eric..

The next question is from Rob Brown from Lake Street Capital Markets. Please go ahead..

Good afternoon.

Could you talk a little bit more about HPI customers I know you can’t talk about the specific, but what target markets are they going after and what sort of the time line and other OEMs that you haven’t announced what sort of the thinking on when they switch over to HPI?.

The target market is heavy-duty trucking. So in Europe and North America and China that’s the core market we are going after. As we have as David mentioned we’ve got work going on with OEMs that represent kind of the third of the marketplace and we really can’t talk about timing as I said earlier that’s up to the OEM..

So the commercial development programs are targeted both Europe and the U.S.

market, is that right?.

Europe primarily and China, those are the first two..

That’s only publicly disclosed with the OEMs to-date..

And again just clearly the natural gas truck business in China is the biggest in the world and a big focus area for us. So we’ve got a great joint venture there that’s the leading player and in Europe what we see is lots of countries in Europe where there is still a very, very good differential between natural gas and diesels.

So we’ve got lots of demand from customers in those markets for heavy duty offerings at Euro 6 levels, which really aren’t available. .

Okay, great thank you.

And then on the Q4 question, do you have a chunk of development revenue and R&D revenue coming-in in the quarter or is it are you thinking primarily product revenue that makes up the step-up?.

Which quarter, which quarter Rob. .

In the fourth quarter. .

No there is no service revenue of any significance that we expect..

Okay, thank you. I’ll turn it over..

Thanks, Rob. .

The next question is from Jeff Osborn from Cowen & Company. please go ahead..

Hi this is Moses on for Jeff Osborn. Where in the U.S.

are you still seeing solid diesel gas spread if any with possibly more stable demand?.

Well the biggest thing right now where we’re seeing the most growth for Cummins Westport is where customers are tying into the pipeline. So you can see prices online where you can see CNG and LNG prices that are posted prices at the fuel stations.

But we have a lot of customers that are taking advantage of the gas pipeline often runs right in front of their location. So you can -- you see CNG and LNG prices in the low $2 range which is just kind of right below where diesel is in a lot of markets right now.

But we’ve got many customers who are buying a gas from the utility compressing it themselves. And they’re seeing natural gas pricing in the $1.30 a diesel gallon equivalent range. So there is still a really good price reduction or cost production there. And so that’s where we’ve seen most of the activity in 2015..

Thanks, it’s very helpful. .

The next question is from John Quealy from Canaccord Genuity. Please go ahead..

Hey, good afternoon folks.

I’m sorry if you covered this, but in terms of the light duty Italian write-off how does that product line overlap or not with the pending fuel systems deal coming up?.

There is very little overlap John was it. Okay, very little overlap. John our focus is primarily on the OEM side of the market and fuel systems that has substantially strengthen the aftermarket side. In terms of tiering and in terms of positioning within the light duty space we addressed different segments of the market.

So in our view that is very little overlap quite to the contrary, I think we both bring in OEM, deep OEM and aftermarket and distributor relationships that are complementary as well and will broaden our distribution base. .

Okay.

So the right off was legacy OEM stuff is that what it was?.

Substantially yes. .

Okay, thanks. And then lastly in terms of the visibility for Q4 and the range I understand the methodology and things like that. But can you talk about visibility in Weichai I’m sorry I think there were some mix things there that the heavy duty side seems to be stronger again I’m sorry could you recap Weichai and visibility in Q4? Thanks guys. .

John actually it was in the product mix actually from the bus sector is actually doing better for Weichai Westport right now. It’s just the truck market, the heavy duty truck market which took the bunch of the economic hit for the majority of this year and it’s obviously from visibility standpoint we’re probably looking to 2016 for better results..

This concludes the time for question-and-answer. I will now hand the call back over to Mr. Seed for closing comments..

Thanks very much everyone. And we look forward to speaking to everybody in February or late February-March for the year-end financial conference call. Thanks very much..

This concludes today’s conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day..