Westport Innova-ons: A Revolu-onary Project in an Underdeveloped Market
Presented by: Olivier Fioroni, Aneesh Shah, and Jessica Thornton
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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
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Westport’s business structure creates a capital efficient business model
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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
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* 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
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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
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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
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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
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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
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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
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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
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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
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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
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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)
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Risks of shor-ng Westport Innova-ons
Form more key joint ventures
Price of gasoline sky rockets
New technology makes produc-on cheaper
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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
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Revenue distribu-on by area
Product Revenue by Geographic Region
2012 2011
Americas 50% 56%
Asia 24% 18%
Rest of the world 26% 26%
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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
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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
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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
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Quick to recoup costs from purchasing bi-‐fuel conversion kit
0
1
2
3
4
5
6
7
8
9
10
USA China Europe
Years
Areas
Years to Recoup Costs
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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
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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
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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
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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%
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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
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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%
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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
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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%
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