westportinnovaons:( · 2013. 4. 7. · ev/r 10.06 1.29 0.97 1.18 price/sales 10.57 1.24 0.88 1.24...

Westport Innova-ons: A Revolu-onary Project in an Underdeveloped Market

Presented by: Olivier Fioroni, Aneesh Shah, and Jessica Thornton

2 McIn%re Investment Ins%tute Stock Pitch 2013

Westport Innova-ons’ key sta-s-cs

Symbol NASDAQ: WPRT Price $28.85

Market Cap $1.6 B P/E Ra%o N/A 52 Week $21.93 -‐ 40.40


Westport’s business structure creates a capital efficient business model


Westport dominates the market in regards to patents

Westport is the Technology Leader

Global patent portfolio pivotal to Westport’s market leading position with OEMs Worldwide, Westport and its affiliates have filed over 700 patent applications relating to over 180 inventions in:

engine technologies fuel system components control methods vehicle integration other related technologies

Established strong development lead times and barriers to entry with over $390M in R&D and commercialization since 1995

6

* Based on the patent search results of publicly available data within the International Patent Classification F02, meeting the search term criteria: one of ("engine" or "combustion" or "injector" or "injection valve") and ("natural gas" or "methane" or "gaseous fuel") and not ("fuel cell" or "turbine"). This chart includes issued or granted patents from: Australia, Brazil, Canada, China, European Patent Office Grants, France, Germany, India, Italy, Japan, Poland, Russia, Spain, UK, USA, USSR, and pending published patent applications from: the European Patent Office, USA, and the World Intellectual Property Office.

as of January 22, 2013

121

141

142

158

162

167

169

191

218

325

0 100 200 300 400

DaimlerSiemens

HondaCATGM

FordBosch

FiatToyota

Westport

Top 10 Companies with

Natural Gas Engine Related Patents*

Top 10 companies with natural gas engine related patents

4


Westport’s sources of revenue will face many headwinds

HD division will suffer due to high switching over cost and lack of infrastructure

LD division will suffer due to high subs-tutability of bi-‐fuel conversion kits

Failing to achieve economies of scale


Natural gas availability is sca]ered across the na-on

There are around 560 public natural gas pumps in the US

*from cleanenergyfuels.com “Natural gas vehicles in America will have a hard 5me growing because of the lack of infrastructure”

Diego Goldin NGV Global


Natural gas sta-ons need to grow quickly

0

20000

40000

60000

80000

100000

120000

140000

Retail gasoline sta-on Natural gas sta-on US govt. advised number of natural gas sta-ons

Number of sta%ons


The switching over costs are exorbitantly high

Cost of a new NG truck: $ 210,000

Dimension of fleet: 15,000 heavy vehicles

Switching over cost: $ 3.15 B

Premium for natural gas fleet: $ 900 million

8-‐10 years to recoup the investment


The future of light duty natural gas vehicles is bi-‐fuel conversion kits

Bi-‐fuel conversion kit

“Consumers will not go to OEM’s to buy natural gas vehicles. Instead they will buy these conversion kits.”

Diego Goldin NGV Global


Star-ng to achieve diseconomies of scale

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1 2 3 4 5 6 7 8

Cost (in thou

sand

s)

Past Quarters

Cost Per Unit


The Effects of R&D

Year Research and Development

Cost Margin

2008 $23,026 34%

2009 $26,168 36%

2010 $26,213 34%

2011 $34,663 37%

2012 $72,915 33%

*Numbers represented in thousands


Our es-mated free cash flow is significantly lower than Wall Street’s

-‐70

-‐60

-‐50

-‐40

-‐30

-‐20

-‐10

0

10

2012 2013 2014 2015 2016

FCF (M

)

Year

Pro-‐Forma Free Cash Flow

FCF (Using Street Es-mates)

FCF (Using Our Es-mates)


Risks of shor-ng Westport Innova-ons

Form more key joint ventures

Price of gasoline sky rockets

New technology makes produc-on cheaper


Lack of infrastructure will nega-vely influence the adop-on of NG engines

Bi-‐fuel conversion kits are a cost effec-ve subs-tute

Going down the track of diseconomies of scale

Westport’s sources of income will suffer in the near future

Westport Innova-ons Inc. is an a]rac-ve short


Revenue distribu-on by area

Product Revenue by Geographic Region

2012 2011

Americas 50% 56%

Asia 24% 18%

Rest of the world 26% 26%


Cost per unit

Cost per Unit (in thousands) Quarter # of Units Cost of Sales Cost/Unit Q4 ‘10 1,036 $26,663.00 $25.74 Q1 ‘11 775 $20,499.00 $26.45 Q2 ‘11 1,073 $29,663.00 $27.64 Q3 ‘11 1,710 $55,236.00 $32.30 Q4 ‘11 2,181 $61,031.00 $27.98 Q1 ‘12 2,094 $60,114.00 $28.71 Q2 ‘12 2,047 $65,583.00 $32.04 Q3 ‘12 1,646 $54,980.00 $33.40


Westport is over-‐valued when compared to compe-tors

Company Names: Westport Innova-ons BorgWarner

Delphi Automo-ve PLC

Cummins Incorporated

P/E Ra%o -‐ 18.3 12.98 13.09

EV/R 10.06 1.29 0.97 1.18

Price/Sales 10.57 1.24 0.88 1.24

Market Cap (B) 1.57 8.84 13.62 21.37

Revenue (M) 155.6 17,330 15,520 7,180

Beta 1.45 1.74 1.07 1.74

Weight -‐ 40% 40% 20%

Expected EV/R 1.14

Expected Price/Sales 1.1 www.finance.yahoo.com


Appendix – bi-‐fuel data

http://www.cngunited.com/ndex.php/?option=com_content&view=article&id=112

http://www.drive-alive.co.uk/fuel_prices_europe.html

Cost of Bi-‐fuel Conversion Kit $4,528.00 Average miles driven 15,000

Average miles per gallon of CNG 31 Cost per gallon of CNG $2.00(USA), $1.30 (Europe) & $2.28(China) Cost per gallon of gasoline $3.70(USA), $2.38(Europe) & $4.87(China) Cost saved per year (USA) $822.58 Cost saved per year (China) $1,253.23 Cost saved per year (Europe) $ 522.58 Years to Recoup Costs (USA) 5.505 Years to Recoup Costs (China) 3.613 Years to Recoup Costs (Europe) 8.665


Quick to recoup costs from purchasing bi-‐fuel conversion kit

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9

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USA China Europe

Years

Areas

Years to Recoup Costs


Using bi-‐fuel conversion kits creates significant savings in the long run

$-‐

$2,000.00

$4,000.00

$6,000.00

$8,000.00

$10,000.00

$12,000.00

$14,000.00

USA China Europe

Savings

Areas

Average Savings


Revenue Growth

Revenue % change

2012 $176,305.00 19%

2011 $148,062.00 22%

2010 $121,653.00 11%

2009 $109,211.00 53%

2008 $71,536.00 18%

2007 $60,480.00 33%

2006 $45,552.00


Cost of goods sold

COGS % change

2012 $127,237.00 40%

2011 $90,982.00 10%

2010 $82,979.00 2%

2009 $81,337.00 66%

2008 $49,023.00 28%

2007 $38,381.00 34%

2006 $28,642.00


EBITDA per division

Cummins HD LD total Units 6635 423 0 Rev 192 38 86 316 GP 80 10 20 110 R&D 9 26 16 Adj EBITDA 40 -‐32 -‐11

Rev per unit 2.89 8.98 Rev mix 61% 12% 27% GP mix 73% 9% 18% Gross margins 42% 26% 23% R&D/sales 5% 68% 19% EBITDA margin 21% -‐84% -‐13%


Free cash flow – Wall Street 2012 2013 2014 2015 2016

Revenue 176 203.25 287.47 475.99 661.13

COGS -‐127 -‐146 -‐182 -‐232 -‐297GP 49.28 57 106 244 364

SG&A -‐59 -‐59 -‐78 -‐114 -‐139R&D -‐53 -‐57 -‐80 -‐119 -‐152

EBITDA -‐62 -‐59 -‐52 10 73

D&A -‐9 9 11 19 26

EBIT -‐71 -‐50 -‐41 29 100taxes 24.77 17.53 14.28 -‐10.26 -‐34.84NOPAT -‐46.01 -‐32.56 -‐26.52 19.06 64.71

D&A 9 -‐9 -‐11 -‐19 -‐26Change nwc 4 4 6 10 14capex 21 15.5 17.0 18.5 19.5FCF -‐62.14 -‐61.41 -‐61.35 -‐28.86 4.30


Free Cash Flow-‐ Wall Street (cont’d)

AssumptionsRevenue growth 15% 41% 66% 39%COGS % rev 72% 66% 64% 63% 61%SG&A % rev 33% 29% 27% 24% 21%R&D % rev 29% 28% 28% 25% 23%D&A % rev 4% 4% 4% 4% 4%Capex 12% 7% 6% 5% 4%

Street estimates 176 203.25 287.47 475.99 661.13street growth expectations 15% 41% 66% 39%Our estimates 26% 28% 30% 32%


Free cash flow – Our es-mates 2012 2013 2014 2015 2016

Revenue 176 221.76 283.8528 369.0086 487.0914

COGS -‐127 -‐153 -‐182 -‐225 -‐287GP 49.28 69 102 144 200

SG&A -‐59 -‐67 -‐77 -‐89 -‐102R&D -‐53 -‐62 -‐79 -‐92 -‐112

EBITDA -‐62 -‐60 -‐54 -‐37 -‐15

D&A -‐9 9 11 15 19

EBIT -‐71 -‐51 -‐43 -‐22 5taxes 24.77 17.85 14.90 7.75 -‐1.70NOPAT -‐46.01 -‐33.15 -‐27.68 -‐14.39 3.17

D&A 9 -‐9 -‐11 -‐15 -‐19Change nwc 4 5 6 8 11capex 21 15.5 17.0 18.5 19.5FCF -‐62.14 -‐62.40 -‐62.28 -‐55.68 -‐46.47


Free cash flow – Our es-mates (cont’d)

AssumptionsRevenue growth 26% 28% 30% 32%COGS % rev 72% 69% 64% 61% 59%SG&A % rev 33% 30% 27% 24% 21%R&D % rev 29% 28% 28% 25% 23%D&A % rev 4% 4% 4% 4% 4%Capex 12% 7% 6% 5% 4%

Street estimates 176 203.25 287.47 475.99 661.13street growth expectations 15% 41% 66% 39%Our estimates 26% 28% 30% 32%

westportinnovaons:( · 2013. 4. 7. · ev/r 10.06 1.29 0.97 1.18 price/sales 10.57 1.24 0.88 1.24...

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