Westport Fuel Systems Inc (WPRT) 2023 Q3 法說會逐字稿

Good morning. My name is Cynthia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Westport Fuel Systems Q3 2023 conference call. (Operator instructions) Thank you, Ms. astronaut, you may begin your conference.

Thank you. Good morning, everyone. Welcome to Westport Fuel Systems third quarter conference call for the 2023 fiscal year. This call is being held to coincide with the press release containing Westport financial form that was issued yesterday.

On today's call, speaking on behalf of Westport is Interim Chief Executive Officer and Director, Tony Guglielmin; and Chief Financial Officer Bill Larkin. Attendance on this call is open to the public, but questions will be restricted to the investment community.

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

With that, I'll turn the call over to you, Tony.

Great. Thanks, Ashley, and good day, everyone. I'm very pleased to join you on my first call as interim CEO of Westport. Today, I'll provide a update on our strategic objectives before I turn the call over to Bill to walk us through the Q3 results. I would also intend to keep our prepared remarks today brief so we can get to the Q&A.

I wanted to start off by hitting some of the key highlights that the top line numbers for the quarter. Our key to these is our excitement around our HPDI joint venture with Volvo to accelerate the commercialization and adoption of Westport's HPDI fuel system technology for long haul and off-road applications, which I'll provide an update on shortly.

Touching briefly on our financials, our third quarter results saw improvements in many of our key metrics. Westport delivered revenue of $77.4 million in the quarter, up over $6 million from the same quarter last year. In addition, we continued to deliver improved gross margins, both in dollar terms and as a percentage of revenue.

We also have improved our adjusted EBITDA to negative $3 million for the quarter from negative $4.5 million for the same period in 2022. I'll leave it there and let Bill elaborate in a moment on more detail on the financials.

On terms of our strategic priorities, we remain heavily committed to these priorities, including driving sustainable growth in our existing markets, unlocking new and emerging markets, driving operational excellence and extracting efficiencies through prudent capital management. Near term, the immediate priority is to finalize the HPDI joint venture with Volvo and to elevate the financial performance across all our businesses.

I also want to walk you through a couple of other recent progress as against these priorities. First, we entered new markets with our H2 HPDI fuel system solution with a proof-of-concept project with a leading global provider of locomotives and related equipment for the freight and transit rail industries.

Now this represents Westport's first application of the H2 HPDI fuel system for the locomotive sector. In our view, the hard-to-abate, medium and heavy duty as well as higher horsepower sectors where HPDI creates significant value. We believe this is an affordable path to decarbonize the rail sector without compromising performance or efficiency. And this two-year project will begin immediately and is fully funded by the OEM.

Second, consistent with our objective of improving profitability and strengthening our balance sheet. In September, we reorganized our business in India, including our partnership in India by reducing our stake in our joint venture, Minda Westport Technologies Limited from 50% to 24%. We expect to close this transaction by the end of Q1 2024.

In addition, we are amending our joint venture agreement to include hydrogen components in addition to CNG, LNG and LPG components and kits. Importantly though, the agreement will exclude any HPDI opportunities.

While this amended agreement will result in rationalization of local costs, we will maintain participation through the joint venture in a fast-growing market in India and at the same time, provide access to low-cost manufacturing footprint through the joint venture. Now Bill will provide additional details on the financial impact of this transaction in a minute.

And moving on to an update on the progress on the joint venture with Volvo. I personally had the opportunity over the last month since stepping into this role to meet with Volvo and with esport teams and can tell you that we are in a great place to bring the transaction to successful conclusion.

The teams have made great progress on all items, and I can say now with confidence, we plan to have the definitive agreement signed by the end of January of 2024, and have the joint venture closed and operational in the second quarter of next year. Volvo Trucks has been on the road for over five years utilizing our LNG HPDI system, and we look forward to a long and profitable future with the Volvo team.

Now. With that, I'll hand it over to Bill to walk you through our financial results.

Good morning, and thank you, Tony. This overview in our financial highlights for third quarter and third quarter of 2023, we generated $77.4 million in revenue. That's a 9% increase compared to $31.2 million in the prior year period. This increase was primarily driven by our core business with increased sales volumes and our delayed OEM. Electronics, fuel storage businesses, and also increased revenues from that heavy duty OEM business.

Now we were partially offset by lower customer sales in the eastern aftermarket in light to the OEM businesses. Gross margin increased to $13.2 million towards 17% of revenue in the quarter. This is up from $11.3 million or 16% of revenue in the third quarter of 22.

This improvement was mainly due to higher sales volumes across multiple businesses and increased gross margin in our heavy-duty OEM business, driven by higher engineering services revenue. However, our gross margin was negatively impacted from higher production cost to continue impact our business. Stemming from global supply chain challenges and inflation, specifically in logistics.

On the next slide, in the third quarter of 2023, adjusted EBITDA was a loss of $3 million. That's an improvement compared to a loss of $4.5 million in the third quarter of last year. Improvements in revenue and gross margin through the positive improvements in adjusted EBITDA, which were partially offset by higher selling, general and administrative expenses from increased tradeshow activity during which we highlighted our HPDI fuel system technology in North America and Asia.

We recorded higher service costs, increased consulting and legal fees related to the ongoing projects, including finalizing our HPDI joint venture with Volvo. We expect to see the higher consulting and legal fees trend continued through the fourth quarter as we move forward with setting up the JV.

On the next slide. Our full year revenue for the third quarter was up 20% to $52.9 million as compared to $44.1 million in the prior-year period. As a reminder, Q3 tends to be our seasonally slow quarter due to the annual summer production shutdown in Europe.

However, despite the seasonally slow quarter, it also as we expected, as discussed last quarter, our HPDI system by the third quarter significantly increased compared to Q2 of '23. And this was the result of Volvo's release of more powerful product offering with an extended range, and we expect to see volumes continue to increase in the fourth quarter.

We also delivered higher sales volumes in the late OEM business, increased sales volumes of electronic and fuel storage businesses and higher engineering services revenue and a heavy-duty OEM business. Offsetting these increases were lower sales to customers in India in the light duty OEM business.

Gross margin in our OEM business expanded in the quarter increasing to $7.8 million or 15% of revenue. This is an increase from $4.7 million or 11% of revenue in the third quarter of last year. The gross margin increase was largely correlated with the revenue improvements were partially offset by higher production input costs.

We expect to see gross margin improvement going forward as we achieve scale for HPDI fuel system. As no see fuel prices continue to trend positively against diesel and hope that the HPDI has become more available. We expect volumes to continue to improve with Q4 being a full quarter with higher volumes.

Moving to the LPG side of our business, our global OEM customer for Euro six and Euro seven LPG systems has adjusted their start date. As a reminder, this program includes both Euro 6 and Euro 7 deliveries and expected to generate approximately EUR255 million in revenue through 2028.

Affordability drives the buying decision in the LPG market. Currently on average, the cost of LPG in Europe, it's less than half the cost of petrol or diesel, and our products enable customers to take advantage with these price differentials.

On the next slide. Our independent aftermarket revenue for the third quarter was $24.5 million, down $2.6 million as compared to $27.19 in the third quarter of last year. Lower sales volumes in Africa and European markets drove the decline, partially offset by higher sales volume in South America. In line with the decrease in revenue, gross margin declined to $5.4 million or 22% of revenue in the third quarter as compared to $6.6 million or 24% of revenue in the prior year period.

Margins were negatively impacted by a change in sales mix and inflation and South American. (technical difficulty) has supported LPG pricing continues to boost demand in Europe, which is an important area of growth for our company in the years ahead.

On the next slide regarding liquidity. Our cash and cash equivalents decreased $8.3 million during the quarter to $44 million. Cash used during the quarter, primarily related to debt servicing payments in purchases of equipment. In the third quarter of '23, net cash provided by operating activities was $1.19. This is a significant improvement from net cash used of $8.6 million in the third quarter of last year.

The improvement in cash provided by operating activities was primarily driven by the change in working capital, specifically inventory, accounts receivable and prepaid expenses. As we previously discussed, we built up inventory to mitigate supply chain risks as well as shortages of raw materials and other components. We've had some success in reducing inventories during the quarter, and we continue to take action to monetize and optimize inventory levels to further free up cash. This will be a net positive for balance sheet going forward.

Looking forward, we have multiple projects initiatives either announced or underway that will have a positive impact on our liquidity. First, are HPDI JV with Volvo, this is a flexing point for Westport financially and HPDI commercial. Global Payments for their 45% share of the joint venture includes initial $28 million in earn-out of up to $45 million, which is a clear signal of their commitment in the long term, improving efficiencies at scale. While in the short term, we have a partner to share in our record investments including working capital and capital investments. Westport will be receiving the initial $28 million following the closing of the JV.

Second, as Tony highlighted, we have reorganized our presence in India to streamline the business, consistent with our objective of improving profitability and strengthening our balance sheet. As part of the India transaction, upon closing, we expect to receive approximately $3 million from the sale. Also, we anticipate this reorganization of our presence in India will improve our cash flows going forward.

Moving forward, we will continue to be prudent in our liquidity management and multiple steps have been taken to do so. Nondilutive financing alternatives remain an option, as we look to solidify our balance sheet. We continue to do what is necessary to ensure we are adequately and fully capitalized. Based on the work we have done against some of the initiatives I've mentioned here by expect our cash balance at the end of 2023 to be above $50 million.

With that, thank you. I'll turn it back over to Tony.

Great. Thanks Bill. We've seen closing that our products are making a material impact on the decarbonization of the transport industry. And the magnitude of this impact will only grow as we get these products into the hands of more customers. While we've made significant progress against our key strategic priorities in the quarter. We recognize that we do have more work ahead of us.

Before we open the call to Q&A. I just wanted to provide a brief update on our CEO search transition. Getting the right person for the role is obviously a priority for the board, but this does take some time. The status is ongoing and we will have additional details for you as soon as we can.

I want to stress, though that through this transition as interim CEO, I'm fully committed to executing against our outlined priorities. And with that, I'll turn the call over to the operator to open the call for your questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (operator instructions)

Chris Dendrinos, RBC Capital Markets.

Yeah, good morning. Thank you.

Good morning.

I guess I wanted to begin with the locomotive opportunity, hopefully just get some more color around the opportunity here. How long have you been working on this agreement with this company? What's been the messaging from the OEM on their thought process around hydrogen in HPDI and then I kind of recognize that it's still very early in this process, but can you maybe discuss just any kind of unique design challenges that you might face with the adoption of HPDI for the locomotive setting. Thank you.

This is Tony here. Let me take a quick stab at the big picture, and I'll let Bill jump in perhaps on some more details. Just from a high-level point of view, I think what's very exciting for us and it's actually part, I would say, of a broader theme over the last year or so, which is the opportunity for hydrogen overall, obviously, the layout of the engines and so forth.

And that's an important point because for us, this is really an opportunity to retrofit existing locomotive fleets through some of the numbers we've seen there's probably about over a 100,000 installed base of locomotives about over 30,000 of those in North America. And there's only a few OEM's that do this. So what's unique here is and what this OEM is looking at is it effectively retrofitting existing locomotives, which will have some challenges. And fundamentally, that's really what the project's about over the next couple of years is to just to go through that process.

So it's a very exciting opportunity as part of that transition too, to a cleaner energy, which the locomotives either are very long-life assets, not dissimilar to some of the on-highway truck markets. This is where the hydrogen elements of HPDI, I think can be a quite unique proposition. So we're quite excited about the big picture opportunity, but this is a two-year program, and we'll both learn a lot about this going forward. That's kind of the big picture. I don't know, Bill, if you wanted to add any color on the specifics around how long has that been going on with the customer? Just answer some of Chris's other questions, but I'll leave it there at the high level, Chris.

We've been looking at the locomotive market for many, many years. And Wabtec we're excited to partner with them on this process. We've had deals, typically, these are fairly lengthy conversations before getting to this point, and you're aware, we're excited about the opportunity just to add a little bit more, as Tony mentioned this isn't going to be a new build, this would be would I expect to be a retro fits in here.

Typically, we know these engines, they get overhauled about every 14,000 to 15,000 hours and that's got every seven-ish years. So that's opportune time to be a retro fit and integrate our technology on the engine platform. So there's a natural cycle there to do the installations.

Actually, it's from a technical standpoint, we're just dealing with new bigger injectors, more fuel flow, so the packaging is not going to be that challenging is mere effect, it should be. It's easier because we're going to have a larger packaging to put up our technology. And then of course, you're ultimately going to store fuel probably in a tender car behind the locomotive. So yield from a fluid standpoint, I think it's less of a challenge to work. It's going [adjust] to your new projects in -- it could turn into a financial opportunity.

Great. Yeah, thank you for all that color. I guess as my follow-up and sticking with the HPDI here, you mentioned, volumes with Volvo or maybe picking up some -- I know previously, there were some dynamics around the changeover to a new model. And with that Volvo Truck and that was kind of weighing on things, maybe a little bit near term. Can you maybe just provide a bit more color on sort of what the messaging from Volvo has been as of late and sort of expectations going forward, if there's been any kind of changes in the past couple of months? Thanks.

I think Volvo is committed to HPDI, they're very excited about HPDI they feature a podcast. One of the technical leaders. And again, they mentioned HPDI in their technical podcast. And we're really excited and believe in the HPDI technology. It's one of the biggest takeaways is just having that vote of confidence in our technology is the right solution for decarbonizing in the specification industry.

So we as we mentioned, as we get kind of switchover, we did expect a lower decline in our unit volumes in the second quarter. We start seeing ramp up in the third quarter still kind of a partial quarter and also the new summer shutdowns. And so we expect that to continue to increase in the fourth quarter, even with the operator the slower holidays and slower sales during the last couple weeks of the year. We're really excited and motivated to continue to increase and drive demand for this product.

Great. Thank you very much.

Colin Rusch, Oppenheimer.

Thanks so much, guys. Can you give us an update on where things are with Weichai and the HPDI deliveries that you've had in queue here for a little while and how the Volvo relationship may change time for those guys?

First, I'll tackle the segment, the dynamics has incurred. I don't think it's going to change, that activity will go into the JV -- they'll be part of the JV. Their development activities around integrating HPDI, Neil, on certain engine platforms as well as certain chassis applications. And as of right now, we continue to support these initiatives.

And we're, of course, providing new pricing information. But as of right now, we don't have anything else to add other than we'll continue to support their initiatives and where their support will change, clients need clear systems and products when they're ready to launch.

Super helpful. Thanks. And the rail application is a nice win. I'm just curious about the maturity of any other customer conversations around stationary or marine applications. Obviously, there's going to be a role for hydrogen in a variety of areas of the economy and just want to get a sense of how robust the various applications can be for the technology?

I know you're there -- for the larger applications, the HPDI is ideal for those larger applications. We have had some conversations, but nothing substantial that leads to at some sort of proof-of-concept type work. You typically they get to the start line, they are very long years. you've had conversations with many of the engine manufacturers, the end users. There's a lot of education that goes into in terms of the overall system architecture technology and also benefits -- regulation also helps as well, kind of drive interest for you in HPDI technology.

No way as these larger engine applications displacements of the there's a huge push to decarbonize. And especially in the marine, there's been a big push, especially in the ports and minimize or essentially eliminate the use of bunker fuel just because of how due to pollution related to that. So there's always conversations going on. There's a lot of interest, but these are very, very long conversations.

If I could jump in and it's still going to hear Bill is in college. I just want just a quick two seconds on the marine market because it's a really interesting market, as Bill touched on. Obviously, there are one of the biggest polluters out there, particularly in the ocean going and bunker fuel. What's interesting, of course, in marine markets, there's sectors within so many subsectors. And as you kind of start at, the I'll say, the smaller to midsize, there's a lot of the suffice it to say some of the engine manufacturers and marine are some names that also were engine manufacturers in some of the heavy duty applications.

So meaning there starts to be some overlap at the smaller end of the space. So where HPDI, can make a fairly significant difference. So Bill's absolutely correct, early stage, but I think there's some interesting opportunities where there's potentially some OEM's who we know already or get to know particularly on the not so much on the ocean-going side at this point. But perhaps on the smaller end of the marine scale. So I think some very interesting opportunities there, but early days.

Thanks so much guys.

Eric Stine, Craig-Hallum.

Good morning, everyone.

Good morning.

I'm just curious, this process with Volvo and working towards finalization of the joint venture, I guess part one the question is anything you can share how the view of the opportunity has changed as you've gone through the process and then really interested in how it accelerates the business beyond Volvo. I know that it's become more commonplace for OEM's to collaborate together. And so just curious your thoughts on what this means more broadly for HPDI adoption.

Yeah, I think can you sort of mentioned it is this is about getting at the scale and scaling the technology and pulling out costs of the complete supply chain to make this technology even more and more affordable in the track compared to alternative or competing technologies like fuel cells or for electrification, that's where the huge benefit is.

And because when you look at the end users, the operators, they know their cost per mile. They're very economic driven. So they're looking at what is the upfront cost, what's the fuel price differential? Then ultimately, what's the payback period for converting or buying a truck with HPI system on it. And so it behooves us to scale, reduce costs, which ultimately reduce the cost of the customer to make it more attractive for them.

And I think that --

yeah, Bill told here, it was going to pile on. And that's absolutely spot on. I mean, the volume is what's going to drive this. The other dimension to this, if I may just jump in or it was the year beyond Volvo and we had the opportunity of the summer as we were, I say we the Board and management had an opportunity to spend some time with Volvo. I'm going back at one of our meetings in Europe and I'm just speaking from a personal point of view here I was actually very impressed with Volvo's vision for this. They to your point about there's a changing dynamic and our OEM's are working with each other.

And Volvo has a number of other partnerships. Other Europe there's many of these where shall we say, parties that you wouldn't normally expect to be doing business together or and Volvo at the most senior levels indicated to us that unequivocally their objectives is to make this joint venture a successful business, which would, by definition they're looking at the opportunity well beyond their own needs for their internal products.

So I can say with great confidence that Volvo is on the same page here, I want to make this up a global, make us this joint venture, a global leader in HPDI on both. So there will be other OEMs, obviously that we intend to take it to and we'll there's a number of them that we're talking to already who looked at this product. So no hesitation in saying this is going to be a well beyond just Volvo. But as Bill says, it's really at the end of the day, the more product that we can move, the better pricing that all of the OEMs and Volvo in particular can enjoy. So spot on this is a different model but one that we're well aligned with Volvo on.

Okay. Got it. That's helpful. And then maybe just specific to Volvo. I mean, good to hear the color, and thanks for it on the fact that you really just got a partial impact on the volume side from this new engine launch to the HPDI, growth going forward. I mean, obviously, with the joint venture, you're not going to have a much more motivated partner. And can you update on maybe Volvo's geographic expansion plans?

I know Canada was a spot that potentially might be a little easier to get into, just from a regulatory perspective, but maybe how vol was thinking about that as well?

I can take I know there are as we go through and you're working on the business plan for the JV. And this is a long-term business plan and in there we are looking at what are the opportunities? What are the various markets?

Yes, we're predominantly in Europe today. There's been a few trucks that have been imported into Canada that are running around, but we are continuing to evaluate all the markets globally and awareness of the opportunity. And together with our partner, we will feel baked those into our business plan. And so yes, we are looking at every opportunity and making that assessment.

Clearly, I know there are going to be opportunities in North America but feel that we're going to have to make an investment in the technology to bring that vehicle meal to bring a application to North America. And that's something that we'll have to work together with our partner and ultimately allocate capital.

For the next one. There's a lot of other opportunities out there that we will continue to evaluate with our partner. But again, as you mentioned, Eric, is we've got a motivated partner now, make this as successful, that's possible.

Okay. That's great. I'll take the rest offline and thanks.

Thank you.

Sameer Joshi, H C Wainwright

Yeah, good morning, Tony. Bill, in terms of on improving margins on the OEM businesses, can you give a little bit more insight into how the discussions on price increases are going? And also what if prices are increased, when should we see the impact of that on the gross margins going forward?

Okay. I think it was a little bit hard to hear, but mid to improving margins in the OEM business. Big chunk of that is just mix, where our revenues are generated. And that's one, as I mentioned, with the heavy-duty OEM, we did have quite a bit of engineering services revenue, which helps improve margin. We are looking through our supply chain to one trying to reduce cost and trying to mitigate any potential future cost increases, but also having conversations with our customers about price increases.

So your mix does have big impact on that. Also, organizationally and operationally, we are looking internally at our operations and we are taking steps to reduce our cost structure. Primarily in Europe, where a lot of our manufacturing activities are. We're also looking at where we are essentially our manufacturing footprint, and we've done some consolidation of smaller operations into our existing facility. So we're tackling it from multiple angles from supply chain to internal production in delivering the product and also pricing. So that's an ongoing effort.

Thanks, Bill. It's Tony and Sameer, I just wanted to I'll just add a little color to I certainly, you know, over the last 12, 18 months we have supply chain has been an issue. Cost pressure has been an issue. Some of those supply chain pressures. Some of them continue to exist, but that's starting to alleviate somewhat. I think the other point that I want to make and hid it, I kind of commented in my highlights, the two big priorities for the Company in the near term. What of course, is the Volvo getting the Volvo JV closed, as I mentioned.

And the other one is improving the financial performance and margins. There is a discipline it needed while we're certainly seeing good revenue growth. We're not and never were chasing revenue at the expense of margin. But Bill, I got to say Bill and his team have done a great job of instilling and changing a bit the discipline around pricing in terms of ensuring that we're working with our customers, but ensuring that we can push through as much of the price pressure we've seen.

And that really, frankly, has had as much as the biggest impact and all including mix, but also the biggest impact in the last year has been on having some hard conversations with customers. And I can say that we're starting to see the benefit and we'll continue to do so. But having said that there has been a bit of an alleviation on the supply chain. And as Bill said, we're taking some have taken steps and will take steps to further improve our manufacturing footprint and efficiency, which will help gross margin as well.

Maybe I missed it, but was there anything more details given on what level of savings you expect from the India JV sort of reduced responsibilities in terms of dollars and when should we see that?

I'll take that there's not much time in Tony, we haven't -- we didn't put out a specific dollar amounts. It's we've had a long relationship with our partner in looking at the market is a very attractive market. We've got a great partner there. And you know, we looked at how do we invest in smart market to take advantage of the growth opportunity. And hence, we did the restructuring and in your relationship with Minda to take advantage of that and the leverage, which will help improve our cash flows net essentially going to I think Niels will start seeing some benefit in Q4, but and we will be that, we'll start seeing the true benefits next year in that new relationship.

And just one last one, maybe I know the delay from November to January '24 is not a not a significant delay, but is there any reason for that?

And what is the level of confidence that in January the LPG systems were HERO6, will start production?

It's sort of surprising happens all the time and it is a two-month delay, you know, trying to get production up and running. You're trying to do all the validation. It just takes time to get through that process. So I don't have any concerns here with this short delay in terms of our confidence that it will start delivering the components to our OEM partner again early next year.

Got it. Thanks. Thanks. That's it from me, good luck.

Rob Brown, Lake Street Capital.

Good morning. The heavy-duty OEM business, you've got the model changeover, you've got kind of the improved feeling the price spread environment. I just want to get a sense of how you see that. And maybe in terms of market share gains or penetration gains into next year, how do you see that kind of turning around any sense on and the direction?

I think there's a couple of market drivers when we talk about the economics, but also the other side equation regulation and you're trying to get to really kind of a net zero carbon, you're seeing a broader use of biogas in addition to just LNG, and I think that will drive a lot of adoption. We're in -- getting more and more broader market share, new adoption of HPDI and gaining traction in more markets in Europe.

So you haven't given a formal partner, leveraging their marketing and sales machine will help you drive the app. But also regulation is our friend as well in today's environment in driving that adoption in, from our side from a cost perspective, it's in our best interest to continue to pull costs out of the system. So it's going to be really from me a couple of different angles that we'll have a really a positive benefit on the HPDI adoption.

Okay, great. Thank you. And then just back to the Volvo kind of JV closing and timing clarifies that as that comes through, you get the cash from them and then additional path cash through earnout activity? And are there other cash contributions that you need to make ultimately to that JV? Or would this be a kind of a net cash positive to esport?

and so you're right. So we'll get the upfront $28 million upon closing, and we will launch JV in India. The earn out the $45 million will be based on achieving certain milestones, and we're actually going through that process right now and standing up the JV now working with our partner on the business plan, we into a really detailed roll up budgets for '24 and beyond. And you adapt business plan would determine you how much cash will be needed in the JV?

Yeah. And the other partners will contribute their portion on a pro rata basis. So we're going through that process right now. So I would expect there would be some level of cash contribution, both from both the us and Volvo to make sure the JV fully funded.

Yeah, Rob, it's Tony. Yeah, I'll just pile on to say absolutely. I appreciate a bit of patient. Certainly we talked about getting through the signing of definitive agreements and closing bill spot on one of the mutual deliverables as a detailed business plan, which we presented our first draft. So we'll have I think it's safe to say when we'll have a bit more color at year end and going into early next year on the business plan, maybe a bit more color on the burn. But yeah, there will be some mutual investment as we stand this up and get it up and running. But it is expected. It will assume based on the business plan, it won't be protracted.

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

Bill Peterson from JPMorgan.

Yeah, hi. Good morning. And thanks for taking the questions. You discussed the cash, I guess, exiting the year at $50 million. I guess within that, how should we think about the drivers, especially including working capital here into the fourth quarter, and I guess you mentioned some of the cash things. I know in the prior question. How should we think about working capital or use of cash at least at the start of the year before the JV is consummated?

Yes, I can't comment right now on next year's, but I can talk about to the end of the year. I mentioned this earlier, we do, but we have multiple initiatives in place to be trying to enhance convert our working capital and the cash. And so you'll continue to bring down our inventory levels. We are seeing some easing in the supply chain, and I think we're looking at our purchasing and trying to bring down the inventory levels and convert that to cash. Same thing with receivables.

We're trying to shorten the cash conversion on that and drive down receivables and drive down our DSO's. We look at that very closely. Also, you as I mentioned, we do are looking at some debt financing opportunities over in Europe, and we have a couple of term sheets session multiple term sheets in hand that we are working through that process that will provide you additional debt funding now to support the operations.

Okay, thanks for that. And I guess just coming back to the JV so I was wondering if you can provide more information, I guess, is what remains to be ironed out here in the next few months? And I presume these are straightforward based on their commentary and confidence that that's going to be signed early next year.

But I guess how should we think about a plan B, if for whatever reason this doesn't work out and you know, along those lines, that would then be the best means to commercialize and scale HPDI I mean, are there other OEMs that can build may be interested in stepping in and maybe even similar to what I guess, this rail OEM did in terms of funding the efforts?

So Bill, it's Tony here. I'm not going to take the bait on what happens with doesn't close by that per se. But I say that I think it's with confidence. I don't think there's any concern that we're not going to get to closing the signing of definitive agreements, which is really that we'll call it a signing and closing is really a two step. The definitive agreements we're very close on the and there's not a lot, there's a couple of issues we need to work through, but I would expect we're very close on those.

And the reason why for the delay in closing is not it's not nothing to do with any additional negotiation EBITDA. And it's just going to be literally working through the carve out of the business out of Westport, including the our large engineering team that would be moving over setting up the legal entities, getting the getting the assets transferred in.

So that delay, let's say, the delay the timeframe between today and closing in Q2 next year is frankly, just the time it's going to take to execute on it. And now I said I wouldn't take the bait on it. We have all the confidence that we're going to close with Volvo. But like theoretically Sure, there's lots of other OEMs who are who were interested to see what we've done, and I'm sure that wouldn't be a concern. We would continue to execute and grow this business with or without, but I just wanted to say unequivocally we have promise we're going to get there.

Okay. Thanks for sharing the insights.

Thank you.

There appear to be no further questions. So I'll return the conference back to the speakers for closing comments.

Well, great. Thank you, operator, and it's Tony here again. I want to thank you all for joining us today. As you gathered here, I'm very excited about -- not just a future business, but we're seeing improvements in our current business. And I and we are executing. We intend to execute against our key strategies, and we'll look forward to providing you further updates over the course of the next few months. And beyond that, we'll look forward to speaking you again at our year-end in the new year. So thank you very much for joining us.

Thank you. This does conclude today's conference. Thank you all for attending. You may now disconnect your line and.