Thank you for standing by, this is the con operator. Welcome to the Westport Fuel Systems Inc. First Quarter 2021 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].

I would now like to turn the conference over to Christine Marks, Westport's Investor Relations representative. Please go ahead, Ms. Marks..

Thank you and good morning everyone. Welcome to Westport Fuel Systems first quarter 2021 conference call, which is being held to coincide with the press release containing Westport Fuel Systems financial results that was distributed yesterday.

On today's call, speaking on behalf of Westport Fuel Systems is Chief Executive Officer, David Johnson; and Chief Financial Officer, Richard Orazietti. Attendance at this call is open to the public and to media but questions will be restricted to the investment community.

You are reminded that certain statements made in this conference call and our responses to various questions may constitute forward-looking statements within the meaning of the U.S. and applicable Canadian securities laws. And as such, forward-looking statements are made based on our current expectations and involve certain risks and uncertainties.

Actual results may differ materially from those projected in the forward-looking statements. So, you're cautioned not to place undue reliance on those statements. Information contained in this conference call is subject to and qualified in its entirety by information contained in the company's public filings. I'll now turn the call over to David..

Thanks Christine. Good morning everyone. Thanks for joining us today to review Westport Fuel Systems results for the first quarter 2021. This is David Johnson speaking. If you're new to our story, thanks for your interest and on this slide, you'll see a brief synopsis about our company.

Following a record fourth quarter close in 2020, we started 2021 with solid revenue growth, despite the ongoing challenges brought on by COVID-19. Our HPDI business is ramping well in Europe and our independent aftermarket delayed OEM, and electronics businesses are profitable.

We have a comprehensive global offering of [indiscernible] clean, affordable gas and fuel components and systems offered through a global network of distributors and partners. Pleased to continuing to gain confidence that our HPDI Solutions outperformed with demonstrated operational cost savings and reduced carbon emissions.

And as a result, our products are taking down an increasing role in large fleets and accelerating the global transition to cleaner fuels. We're driving innovation to power a cleaner tomorrow and changing the way the world moves people and freight.

I'll cover just a few highlights from the first quarter and then provide a business overview before handing over to Richard to go into more details on our financial performance. Our revenues were $76.4 million in the first quarter compared to $67.2 million for Q1 last year, a 14% increase.

Q1 sales revenue in our light-duty and heavy-duty OEM businesses also increased significantly, up 25% versus the year ago quarter. Like many OEMs, our HPDI launch partner is experiencing supply chain production issues due to global semiconductor shortages.

While our HPDI manufacturing has thus far been unaffected by this particular issue, global shortages are expected to impact revenues and margins through the second quarter. We do, however, expect the impact of this issue to decrease in the second half of 2021.

Our business mix is shifting with growing revenue for HPDI, hydrogen, and our light-duty OEM businesses, especially in India. But the ongoing COVID-19 pandemic effects and resulting shifts in sales mix, resulted in nearly flat performance of our IAM business. In total, gross margins are under pressure and not where we want them to be.

We ended the quarter with $59.7 million of cash and cash equivalents including gross proceeds of $13.2 million raised from our at-the-market equity offering in the three months ended March 31st, 2021, for a cumulative total of $27.6 million raised.

I'm immensely proud of the progress our global team has made towards sustainable profitability, which is the foundation upon which we'll continue to build success. Westport Fuel Systems is addressing a huge market, $100 billion annually of which roughly half is heavy-duty trucking and market share for gaseous fuel solutions is growing.

We have substantial regulatory, economic, and societal tailwind in markets around the world. Consumers buy our aftermarket conversion kits to save money, while using cleaner fuels and our products also help OEMs respond to regulations, while meeting their customers' demand.

We've worked hard to develop a solid reputation as an industry leader in gaseous fuels over the last two decades with sales in 70 countries. HPDI was launched in Europe in 2018 and our share of the market continues to grow. The EU market for alternative fuel trucks grew by 38% in 2020.

Despite the impact of COVID-19 and we finished last year with an HPDI sales rate almost double compared to 2019. Unless it's unclear, HPDI is not a concept demonstration, its product and with HPDI, OEMs can avoid penalties for CO2 non-compliance that are built into the regulations in Europe.

For example, if no improvements are made to today's European diesel-powered trucks, some of those trucks in 2025 will generate a penalty of €38,000 per truck sold payable by the OEM. This year, we expect to launch HPDI in China, the largest market for natural gas trucking.

HPDI 2.0 is the only product in production at scale that can fully and cost effectively respond to the regulatory standards for commercial vehicles in Europe, India, and China. We've announced the initial demonstration of the efficiency of hydrogen HPDI and we've shown the cost effectiveness of hydrogen internal combustion engine using HPDI.

It's increasingly clear there is no panacea for zero-carbon transportation across all applications. Today there is and tomorrow there will be a diversity of technologies and diversity of fuels.

Gaseous fuels are cleaner, renewable, and go all the way to zero carbon-hydrogen and because our gaseous fuel systems are available and affordable today, we will lead the way.

For heavy-duty long-haul applications, the size, weight and cost of batteries, not to mention the recharge time make battery electric technology a non-starter for this application. Regarding fuel cells, the demonstration vehicle that OEMs have shown include not just the fuel cell, but significant batteries and of course, electric motors.

And for both of these concepts, investments required the industrial batteries, fuel cells, and motors and then to rearchitect vehicles is massive. In North America, vehicles using gaseous fuels are not so common. So, the existing and accelerating global adoption of gaseous fuels may be surprising to some of you.

With the increasing substitution of renewable fuels like biomethane, our products can further decrease the greenhouse gas impact of transportation, and they do so much more affordably than battery electric vehicles for example.

Against that bat backdrop, I also want to share with you the views of two global players, our customer Volvo and our partner Cummins.

As you can see, both companies forecast an ongoing important role for natural gas over the next two decades and an important role for hydrogen as key ingredients on the pathway to near zero carbon and fossil-free transportation. In the long-term view, the mix of products that will be sold is to be determined.

We already designed both produce and sell hydrogen components for transportation and industrial applications.

This area of our business saw substantial growth in 2020 and remained strong in the current quarter and we could see a pathway for continued growth, The potential for OEMs and others to avoid new and significant investments required to develop and manufacture fuel cells, electric motors, and batteries are incredibly compelling.

Like trucking, other high-load applications like mining, marine, and rail have come to rely on the efficiency, power, durability, and reliability of diesel engines and HPDI is the only alternative that offers the same performance and yet can leverage existing supply chain, manufacturing infrastructure, and economies of scale, and offer a roadmap on a technology platform that has a proven track record and longevity.

We believe the potential to use hydrogen with HPDI and to do so more cost effectively than fuel cells means there's a very large portion of the future product mix for long-haul transportation that will count on Westport Fuel Systems products.

In November, we announced new product development work to apply HPDI 2.0 to an updated base engine platform designed to meet Euro 6 [indiscernible] regulations that take effect in 2024.

We interpret this as our customers competence in our HPDI systems and increasing demand of their fleet customers who are already realizing the benefits of our HPDI solutions. In China, our JVs HPDI engine has been certified and we're pleased with the increased minimum volume commitment by Weichai Westport.

I'll go into more detail regarding China momentarily. For us, North America is next. UPS has already adopted natural gas announcing in 2019 that they're adding 6,000 natural gas vehicles to their fleet. In February, Reuters reported that Amazon ordered 700 CNG trucks. Fleets aren't waiting for technology breakthroughs.

They're acting now to reduce carbon and our solutions to save them money. With the path established by our JV with Cummins, HPDI in North American could take natural gas to the next level. The joint venture term is scheduled to end on December 31st, 2021 and we're evaluating our strategic alternatives in anticipation of this termination.

We see a growing opportunity to sell the supply our alternative fuel systems, especially our HPDI technology in heavy-duty applications in the North American market. We're making significant progress in China where our joint venture with Weichai Power secured certification for the WP12 natural gas engine, powered by HPDI 2.0.

As one of the largest suppliers of natural gas engines in China, our JV currently supplies engines to leading Chinese commercial vehicle OEM and they serve the largest natural gas trucking market in the world. The engine certification sets us up to serve that market as vehicle OEMs complete certifications to their vehicle offerings with our engines.

In the first quarter, we announced the co-investment agreement to expand the manufacturing footprint for HPDI 2.0 injectors in China and also announced amended agreement terms with Weichai Westport for the supply of a minimum of 25,000 HPDI systems through December 31st, 2024, which represents a 39% increase in the minimum volume compared to the original agreement.

China has already planned for technology, the largest LNG retailing infrastructure in the world and already has hundreds of thousands of natural gas trucks on the road. And we're bullish about the opportunity that's in front of us in China.

Recently, we presented with AVL, a leading independent engineering firm an analysis showing that the cost advantages of hydrogen-fueled HPDI equipped internal combustion engines for trucking. Next, we demonstrated that hydrogen with HPDI works very well, out-of-the-box delivering efficiency on par with fuel cells in heavy-duty applications.

And we presented that data at the Vienna Motor Symposium for review by industry experts just last week. Among the combustion systems we investigated, we determined HPDI combustion offers the highest power density, highest efficiency, and is most robust system for using hydrogen in internal combustion engines for heavy-duty applications.

We're in discussions with potential partners and customers to gain input and to further develop and validate this exciting opportunity. Although it's still early days, we don't think it's a stretch to say this could be a game-changer for the internal combustion engine and for clean transportation globally.

Before I hand back to Richard, I'd like to highlight our commitment to strong governance, social responsibility, and environmental sustainability. This is inherent in Westport Fuel Systems' DNA.

The strength and diversity of our Board is a critical asset that provides oversight and guidance to the implementation of our strategies and achieving our goals.

At the Board level, we have a 50/50 gender mix and more than one-third of our global workforce identifies as female, we're committed to our employees' health and safety, with 97% of our employee base being represented by joint health and safety committees.

Our major operational sites are also ISO-certified for Environmental Management and Product Quality. In 2018, we established the sustainability working group that reports directly to me. Our commitment to the environment is in our DNA. It's in our products, and we're committed to reducing the energy and carbon intensity of our global operations.

For those of you know the transportation sector well, they'll recognize some of the talented individuals who've joined our team and led their considerable expertise. On our Board, Dan Hancock, our Chair brings 43 years of experience GM to our company.

During his career, he was CEO of Allison Transmission and CEO of the Fiat-GM Powertrain joint venture. Rita Forst led vehicle and powertrain engineering during the 36 years career at Opel in Germany. Dr.

Karl Viktor Schaller, led Purchasing and Vehicle Engineering as a Board member at MAN and later was the Chief Technical Officer of BMW's Motorcycle division. Many of you will have also known Tony Guglielmin, retiring CFO of Ballard, who joined our Board earlier this year.

And on our management team, Jim Arthurs and Lance Follett have 30 years of Westport Fuel Systems leadership experience. Tim Smith joined us late last year bringing his 30 years of experience Daimler, Navistar, and Tier 1 automotive supplier, Dana.

Nicola Cosciani joined us from Italian automotive industry and leads our global manufacturing operations in Italy. And our CFO, Richard has extensive public company leadership experience with an international mining company and in the telecom sector, with Bell Canada earlier his career.

Our leadership team together represents impressive skills, experience, and rich geographical and cultural diversity and we're grateful for their commitment to excellence in the pursuit of our objectives. Now, over to you Richard for more detail on our Q1 financial results..

Thank you, David. As David mentioned earlier our revenues increased 14% year-over-year to $76.4 million compared to the first quarter of 2020, mainly due to the strong performance from our OEM businesses, driven by improving sales volumes and light-duty OEM and continued year-over-year growth in our HPDI product sales.

As much of our sales are in euros, revenues also benefit from a 9% increase in the average euro exchange rate period over the period.

Year-over-year gross margins increased to $13 million compared to $4.3 million, primarily due to a $10 million charge for the fuel service campaign for a pressure release device taken in the first quarter of 2020, which excluded the $7.7 million in insurance recoveries recorded later in the second quarter of the year.

Excluding this charge, gross margins experienced pressure this quarter due to the continued impact of COVID-19 on customer demand, primarily in our independent aftermarket business. And we also realized lower margins on HPDI products sales and engineering services than in 2020.

Equity income from the CWI joint venture increased $6.4 million, a year-over-year improvement of $1.2 million, primarily due to reduced R&D expenses. We recorded a net loss of $3.1 million, or 2% -- or $0.02 per share for the first quarter of 2021 compared to a net loss of $15.3 million or $0.11 per share for the same period in 2020.

Besides the positive change in gross margin and pick up in equity income from CWI, the current quarter benefited from a decrease in unrealized foreign exchange losses, due mostly to the strengthening of the Canadian dollar, partially offset by increasing operating expenses, including one-time severance expenses.

Notwithstanding the challenging business environment, we continue to generate positive adjusted EBITDA of $2.7 million compared to negative $3.6 million in the first quarter of 2020.

Turning to our business segment performance, OEM revenue for the first quarter of 2021 was 42.79%, which was a 25% increase year-over-year in revenue that was primarily driven by increased light-duty OEM sales volumes to Russia and India OEMs growing sales in our electronics business and higher year-over-year HPDI product sales, more than offsetting a decline in the OEM business has been affected by the impact on customer demand due to COVID-19.

As David mentioned previously, global supply chain issues related to a lack of semiconductors have been impacting production and creating bottlenecks in the automotive industry, including our HPDI launch partner.

Although the demand for our HPDI technology continues on a positive trajectory, our HPDI product sales were lower than in the second half of 2020 due to the supply chain challenges that have affected the production of trucks that are HPDI launch partner.

These shortages do not currently affect manufacturing of the HPDI system directly and demand for HPDI product has increased even more significantly and is reflected in the year-over-year increase in revenues.

Gross margin for OEM increased by $11 million to $4.9 million, or 11% of revenue for the current quarter compared to negative $6.1 million in the same period of 2020. Gross margin in the prior period reflects the aforementioned $10 million charge for the fuel service campaign.

Excluding this charge, gross margin for the current quarter increased by $1 million at a consistent gross margin percentage of 11%. This increase in gross margin was largely due to the higher sales in light-duty OEM, as discussed previously, more than offsetting the pressure on margins and HPDI product sales.

OEM recognizing operating loss of $6.5 million compared to $14.5 million for the same period of 2020. Normalizing for the $10 million charge, the operating loss in OEM increased by $2 million year-over-year, due to the increase in the average euro exchange rate and higher compensation expense.

Turning to independent aftermarket, revenues for the current quarter increased modestly year-over-year by 2% to $33.7 million, primarily due to the higher average euro exchange rate, which offset comparatively lower customer demand from our Western European customers affected by the continuing impact of COVID-19.

Notwithstanding the comparable sales performance, gross margin decreased by $2.3 million to $8.1 million in the current quarter, due to the increase in sales mix from lower margin emerging market customers and the challenging recovering in Western Europe.

Besides the gross margin impact, operating income decreased $3.2 million to $1.6 million due to some one-time severance expenses. CWI revenue for the first quarter 2021 was $82.3 million, a 7% increase compared to the first quarter 2021. Unit sales for the first quarter were 18,173, compared to 15,113 for the first quarter of 2020.

The increase in unit sales in the current year largely reflected the timing of sales and an increase in demand. Parts revenue decreased from $21.1 million to $25.8 million due to fewer parts purchases for repairs reflecting improving product quality.

Gross Margin decreased by point 0.6 million to $21 million or 26% of revenue compared to $21.6 million or 28% of revenue in the prior year period. The decrease in gross margin and gross margin percentage, primarily reflects product mix, and a $1.9 million warranty provision.

Operating income for the first quarter 2021 increased by $3.7 million year-over-year to $17.1 million, primarily reflecting lower R&D expenses. As mentioned at the outset, our share of CWI net income for the first quarter of 2021 increase to $6.4 million from $5.3 million in the same period last year. Turning the balance sheet and our liquidity.

Cash at the quarter end was approximately $60 million, a decrease of $4.5 million compared to the fourth quarter 2020. The decrease in cash was primarily due to debt repayment, cash uses in operations and capital expenditures and a lower euro exchange rate on our cash held in Euro.

This was partially offset by proceeds of $13 million from equity issue from our ATM program during the quarter and $7.9 million in dividends received from our CWI joint venture.

At the quarter, our total debt stood at $62 million down from $85 million in the fourth quarter 2020 largely due to the repayment of debt on our revolving receivables credit facility from our collections, scheduled debt repayment on our term loans and a partial conversion of $2.5 million convertible notes.

We are continuing our efforts to strengthen our balance sheet and ability to fund our long-term growth and financial stability. Two UniCredit loans refinance subsequent to the quarter and with principal increased from €5.4 million to €7.5 million maturing in the first quarter of 2027 at lower cost of borrowing.

Further, we are also actively discussing with our lenders about refinancing other terminals extend maturity and improved borrowing rates based on our investment horizon and improving credit profile. With that, I would like to turn it back to David..

Thanks, Richard. In 2021 our focus remains on continued growth at scale in key markets for HPDI that means Europe, China, and the North America.

And for our light-duty business, profitable growth through the aftermarket and OEM channels and markets like Turkey, Russia, Egypt, India, and other cost sensitive markets where our products resonate strongly with the need to deliver affordable transportation and reduce carbon. And we're continue our development work with Hydrogen HPDI.

Looking further ahead, we believe $1 billion in annual revenue is a very attainable goal and expect the margins to improve as we gain economies of scale and operational leverage, closer in line with industry standard performance. The market fundamentals are in place and the next catalyst for growth are clear.

We have a talented team dedicated delivering continued value affordable and sustainable transportation solutions. With that, I'd like to turn it back to the operator for your questions..

Thank you. [Operator Instructions] The first question comes from Eric Stine with Craig-Hallum. Please go ahead..

Good morning, everyone..

Good morning..

So, I would love if you could just expand a little bit on your commentary on HPDI in North America.

Just in the context I know it's a different market, especially the standpoint of not as vertically integrated as say Europe is you know, just maybe some things we should look for as part of that, because clearly, you're focusing on North America more than, you know, we've heard on past calls?.

Yes, thanks for the question, Eric. We're really inspired by the opportunity in North America. And I would say, most importantly, what we see is the success in CWI over a long stretch of time to bring natural gas engines to the marketplace.

And then that creates, from our perspective the opportunity for HPDI which is that that next level, better performance. So as the infrastructure is built out, and customers have gotten more comfortable with natural gas.

The benefits of HPDI now being demonstrated in Europe, we think, this sustainability movement that is added to the other benefits, the environmental benefits, the economic benefits of our products, were really helped the market to develop and flourish in North America. As you know, the OEMs we work with around the world, all of them are global OEMs.

And so, when we have a product in one location, bring it to another one is a little easier than starting from scratch. And so, we see a big opportunity, big markets, and we think that the move to clean up transportation on a global basis is in fact a global trend.

And so, we're prepared and eager to serve the North American market with our security technology..

Got it.

Is this something that we should think about, a 2021 event or something that, I mean, I guess it's up to your OEM partners, but something that if not in 2021, at the very least it is a potential near-term event?.

We see it in our sights, but I have to be, let's say, pragmatic and reasonable about the timeframe. The emissions regulations in North America are different than the emissions regulations in Europe. And so, some work has required, the vehicles are different. There's a fair number of differences.

It's not just to roll the product off the ship and start selling. Having said that, we don't frequently get the chance to talk about our development contracts in advance of actual production start and so I'm going to leave the announcements to our customers.

And so, I can't give you any like, forward looking on when we when we might expect those announces. Sorry for that..

Right. No, I understand that. Encouraging nonetheless. Okay. Maybe just last one for me, this billion dollar target by the decade, nice to see that just maybe a little more in depth to your thought process, obviously HPDI heavy.

But you know, whether it's that or how that breaks down between your segments, from a high level, and then also, how you kind of foresee the mix. When you're at that level by geographic area? It would be great..

Yes, absolutely. So clearly, our HPDI product is a very important part of that equation. And it's off to the strongest start already -- or essentially, this is the market for us in Europe today with HPDI in our lead customer.

We do expect the Chinese market to be very important as this equation, we're very pleased to announce the contract amendments that we made with our JV Westport, which are Westport, to increase the minimum volume commitment. And I want to reinforce that it's a minimum volume commitment. So, we're talking to 25,000 units through 2024, at a minimum.

So that I think, and we're going into the largest market, for natural gas in the world with a superior product. So, I think Europe and China are very, very important. And we expect North American to come along. But perhaps in that kind of context of mid-decade, may not be the biggest piece, of course.

Also, I want to say that while HPDI is critical to this growth trajectory, and our targets of a billion dollars by mid-decade, it's not the only ingredient.

We do have a comprehensive portfolio of products and ways to go to market, the OEM channel, the aftermarket channel, and I expect growth at all those aspects of our business growth, growth and volume, revenue and profitability. And those are our targets is to do that. So, it all adds up.

And we're very excited about the prospects for the company in total, but there's lots of work to be done to realize it..

Okay. Thanks a lot..

Thank you, Eric..

The next question comes from Colin Rusch with Oppenheimer. Please go ahead..

Thanks so much, guys.

Can you speak to the timeframe for the next several kind of important benchmarks around, proven out the hydrogen technology? And how you guys are progressing along that timeframe?.

Yes. Thank you. This is a, I think, a really exciting development for the corporation. Fundamentally, as you know, Colin, we had an analysis late last year that showed that it would work well. We put an engine or test cell and set it some hydrogen and it worked very well, exactly in line with our analysis.

And for us with HPDI hydrogen is a great fuel, just to make it clear for a spark ignited engine, it's actually problematic that the fuel has the flammability properties that it does. But for HPDI, it's absolutely fantastic. Because we introduced the fuel electric combustion started. And so that really is very much in our favor.

We demonstrated that in the engine. Where we go from here, you know about the project we have a Scania, we expect and we're in discussions around other projects like that, that will take our hardware or HPDI hardware, put it on others engines, and then demonstrate the technology first and dyno then vehicle.

And really, that's I would say, kind of a normal development process. And so, we look forward to getting out of that early demonstration phase and into the product development phase. No important ingredient actually for bringing it all the way to production will be, how does the infrastructure develop.

And so, this is a very important role for governments around the world to play. So, there are a lot of ingredients. But I think you are well aware that around the world, hydrogen is clearly established as these zero-carbon fuel for long-haul heavy-duty transportation going forward.

And we think that hydrogen has a tremendous potential, we've demonstrated our engine. So, we're looking forward to those next projects with customers to further develop it, further validate it, and bring it to production..

Perfect.

And then just around the current supply chain and what's going on kind of globally at this point, I know that you guys had kind of proactively your -- but what's your sense of how things are trending in terms of procurement, availability of components, and kind of just fundamental availability of hardware as you try to go through the second and third quarters here?.

Yes. I've been reflecting on this column, because it is a global problem. It's not a Westport Fuel Systems specific problem. But of course, we face it too. And it comes at us in a couple of different ways, affects our customers, as we talked about this months ago. And so far, hasn't so much affected us in terms of our ability to get components.

But of course, if our customers affected that affects us kind of the same way. And I look back actually at, what we were doing this time last year, which was as the pandemic started in China, and then moved to Italy, we were trying to build those inventories.

And so, we were ordering more than we needed to build up an inventory to have some buffer stock. And I can only imagine this scenario that basically everybody was doing that. So, there was a huge wave of orders. And then all of a sudden, factories shut down and then everybody stopped their orders.

And so, I think, as a world globally, we have perturbed the supply lines in a very unnatural way as a result of the actions taken to try and manage through COVID. And so, it's going to take some time to work through this.

And somebody's supply lines are very long, I was reading recently about the supply lines for chips and how long back in the supply chain it is where you actually make the silicon wafer and then go through that, it's not my area of specialty, it was very interesting this long supply chain. So, we've disturbed that.

I don't think it's anything that we can't recover from it, we will recover from it, but it does take some time. In the meantime, it affects our operations. Hopefully, not too much. So far, not so much. But our customers operations are unfortunately, already, and also hopefully not too much.

But from my perspective, it is just something we have to work through caused by the pandemic and the supply and demand disruptions that pandemic. To some degree, it's still impinging upon us. As you heard from our commentary, we have some markets that aren't as strong as we'd like them to be, because COVID is still causing lockdown.

If you have red and orange zones, we have problems in India, of course. So, all these things around the world are unhelpful to running the business and cause a fair bit of work. But so far, we've been able to manage them fairly well, but not without impact..

Thank you so much..

My pleasure..

The next question comes from Amit Dayal with H.C. Wainwright. Please go ahead..

Thank you. Good morning, guys.

Looks like we're bracing for some variability in sort of how the quarterly results may come through for the remainder of 2021, compared to say, the historical periods? Could you give us some sense of the revenue cadence, potentially, that you have visibility on floor for the rest of the year on a quarterly basis?.

Yes. Amit. It's a fact that the visibility is not so great, as we just talked in the Colin in the last question, that supply chain, I would say is only big variables. And the second big variable is the ongoing impact of COVID.

So, India is an important market for us, as you know, and right now that’s severely affected and frankly, Europe is still working through getting the vaccine out and recovering. A fair bit of our revenue stream and profitability stream is from consumer products in our aftermarket business. So that does have a lingering and continuing impact.

Turkey had a shutdown. So, you can hear some of the countries and some of the markets that are important to us are still severely affected, even though here in the US, we've got our vaccines and people that are opening up, and we're trying to get back to normal. So, there are different scenarios around the world and that does affect us.

And we don't have a crystal ball on it. And so, this is hence the lack of guidance for the year. But in the long-term, we see that -- and I'm really quite thrilled to see our revenue up 14% over last year, which was almost unaffected by COVID last year.

We just had the tail end of March where COVID started to close our factories and have other negative effects, but 14% year-over-year improvement and our OEM business up by 25%.

So, we do see a number of very positive signs in total, and have a strong outlook for the good year in total, but the quarter-by-quarter is very, very tough to call at this moment..

That's understandable. Thank you, David. With respect to some of the same challenges, on the margin and OpEx front, I mean, factories et cetera are open now compared to being shut at last year.

How should we think about some of these expenses moving higher for you this year versus last year?.

Yes. So, I'll come in on the mix, maybe Richard, can give you a little insight on our OpEx view. On the mix right now, some of our most important markets are still significantly depressed. So, Italy, for example, is significantly depressed in terms of our aftermarket business.

And you can easily imagine that India is facing some challenges and striptease gets shut down I just mentioned. So, we face these things. And I think the quarter-over-quarter for second quarter will be a really great story, because we are so bad last year with our shutdown, but that really isn't any solid.

We'd like to see quarter-over-quarter improvement, sequential quarter improvement as opposed to year-to-year. But I don't have a number to share with you our forecast, but we're working very hard to manage all the challenges, and to be ready for our customers when they're ready to buy our products..

Understood..

Yes. And just I think David….

Go ahead, Amit, go ahead..

Sorry, sorry. No. Go ahead. Richard, please go ahead, sorry..

Yes. No, I was just going to say the, one of the challenges we're facing is the lingering impact of COVID. And so, the market where we had a lot of profitability and our independent aftermarket in Western Europe, it's just a market that is just recovering. And now we're seeing we'll call it the beginnings where those markets are starting to reopen.

And so, we'll call it, profitability will start improving with regards to that side of the house. With regards to our heavy-duty OEM business HPDI sales, I mean, that's a temporary thing right now that our launch partner is dealing with and, we're seeing -- we’ll call it a lot of interest that they're receiving for their truck.

That it's just a question of wait time right now. But that profitability, we're hoping that get back on the right trajectory in the second half of the year. But one thing that you will notice that there's going to be different with regard to and you saw it, it's a little bit foreign exchange the other thing is subsidies.

Last year, in the first half of your -- the second and third quarter, last year, there was a lot of wage subsidies coming from the Italian government, and we had another lens and the Canadian -- in Canada as well, that those numbers year-over-year will be our operating expenses, and some of our SG&A will be somewhat higher because there'll be less of those subsidies this year, because the we'll call it the businesses are starting to return..

Okay, yes. That's helpful. Thank you, Richard. Just one last one, I was going to ask David, maybe, any favor on who that deal one partner is with -- you're expanding the HPDI production in China? Is that the same partner in Europe, but the facilities are in China? I don't know if you can share this, but it would be helpful. Thank you..

Yes. We have a longstanding partnership with Delphi, which is now BorgWarner, our injector, and they are our global partner for this production and realization of the injector. So, we're very happy to be working with them and bringing this product to the market and expanding that capacity to respond to the demand that's in our forecast.

So, yes, happy to be partnered with such a capable company..

Understood. Thank you for that, David. That's all I have..

Thanks, Amit..

Next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead..

Hi. Good morning. I'm just wondering if you could expand a little bit on your comments around the demand with your European launch partner, you're seeing kind of good order activity even though it's maybe not coming through the production line yet.

What are you sort of seeing in the demand trends there?.

Yes. Overall, Rob, the demand looks good to us. So, we're very encouraged by the order book. The challenges that we're facing right now, I would say, with our partner relate to the supply of components, the ability to keep their lives running, because of other components. We can make necessary HPDI products and the order book looks good.

So, as I've described before, the market that we see is a really strong and the growing market.

We've seen it since we launched in 2018 through 2019, and frankly, to have a volume up so significantly in 2020, a COVID year with the shutdown just reinforced our view that this is a growth product, it's extremely important in the compliance scenarios that the OEMs are calculating all the time for the CO2 regulations in 2025 and 2030.

The build out of the infrastructure supports that. We're now over 400 LNG stations in Europe. So, that's a doubling in just the time up and with the Westport Fuel Systems so early great expansion that fully response to the increasing pool of vehicles in marketplace.

We see good market share results of our partner in the marketplace for natural gas vehicles in the European Union. And so frankly, all the elements are lining up and the order book looks stronger, and we’re looking forward to getting through the supply chain issues and serving our customers and serving their customers..

Okay. Thank you. And then in terms of China, I think you're waiting for vehicle certifications at this point, where is that at? And obviously, that playing out at this point..

Yes. We see good progress. And so, we're encouraged by the outlook to get the product to the marketplace into customer’s hand. And I think that was best represented -- excuse me, represented in a public way by the announcement that we had recently that we've rewritten that contract to expand the minimum commitment.

My view is anytime a customer is willing to sign up to a minimum commitment, that means they're planning to build themselves even more than that they're confident in the product, and they're confident in their plans. And so, I'm really excited to get the product into the marketplace.

There's multiple OEMs working to integrate these engines into their trucks and bring those trucks all the way to fruition to their customers. The market in China, as you know is on the order of 100,000 natural gas trucks per year with spark ignited engines from our joint venture being main component of that those sales.

And so, we think when HPDI is added to the mix through our which is Westport JV that that will really grow the market. So, increase the share beyond the 10% that it is today of -- trucking, and it will start grabbing that share of the mix between spark ignited and HPDI. And so, we'll see a mix shift from 0% HPDI to something much more interesting.

And you can kind of track that as what's happened with our lead customer in Europe versus their spark ignited engine competitors and sky --. So, we're really excited about it. And we're really eager, but we'll wait for the announcements from the decal OEMs regarding their launches and their ability to project to our customers..

Okay. Thank you. I'll turn it over..

Thanks, Rob..

[Operator Instructions] The next question comes from Thomas Boyes with Cowen and Company. Please go ahead..

Great. Thank you for taking my questions. Just two quick ones for me.

The first one would be is could you just have a -- give us quick update on what you're seeing in the passenger car market in places like Italy or maybe some other key geographies?.

Yes. What we see in passenger car in total, maybe just to start with the, actually the market in India has been very strong. This is a really important part of the story that that was seeing some headwinds of the COVID challenges here, COVID challenge they're facing. But surely, that's temporary, and we wish them all the best and stay safe in India.

But the market itself in India adopted new regulations in April of last year. And so, our customer and the leading passenger car OEM in India, Maruti Suzuki dropped the offering of diesel engines, because basically with the new emissions regulations, they just got too expensive for the marketplace.

And they're pivoting to natural gas vehicles to replace those diesel vehicles. That's kind of the most affordable alternative with respect to low cost of acquisition and low -- with low cost of operation. And even better that their clean vehicles. And they have this building infrastructure of natural gas, and that's very strong for us.

In Europe, I would say that the market is still under some substantial depression, if you will, from the COVID pandemic. So, although, we're seeing some increase in I think Western Europe, Italy and other markets, it's rather modest. And what we see is stronger responses in places like Russia and India, for example.

So, we do expect the market in Western Europe to come back. And we're looking forward to that. And that's where our predictability about Q2 and Q3 when it comes back. And what the numbers are -- is very, very challenging..

Great. I appreciate the color there. And then just the last one for me. I was wondering maybe what the next steps were around service support for the Cummins Westport JV the longer-term.

What -- what's being communicated to fleets that maybe would be reluctant to buy in the last year of the JV to give them kind of some confidence there?.

Yes, I think, we've been pretty clear within the JV that there won't be any disruption to service support to customers don't need to be worried about that aspect of whether or not they should purchase a Cummins Westport engine in Q2, Q3 or Q4 of this year.

So, while we continue to evaluate the strategic alternatives, as Cummins does in terms of what comes next. Our view is collectively between ourselves and Cummins that customers will not be disrupted in any way shape perform. So, I think that's something that's not to be worried about.

And I'm sure that the customers are hearing that message from Cummins Westport, Cummins and us quite clearly..

Great. Thanks again. I appreciate it..

Thanks, Thomas. It's good to hear you..

And this concludes the question-and-answer session. I would like to turn the conference back over to Westport management for any closing remarks..

Yes. Thank you very much everybody for joining us. I'm really quite pleased and proud of what we accomplished in 2020. And pleased to put up a year-over-year performance improvements in terms of the top line for the company. We have some ongoing headwinds in terms of COVID for sure.

But the fundamentals of our company and the products we bring to the marketplace and the way the marketplace is developing now in Europe, next in China, and already in North America with respect to natural gas, and just really tells the fundamental story that gives us the competence around our $1 billion target for mid-decade.

The story of Westport Fuel Systems, the products we bring to the market is a growth story. And we're hard at work to support that growth story and realize that in the coming years. Thanks again for your time and attention and all your support. You all have a good day..

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