Q1 2020 Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the Ballard power systems first quarter 2020 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 a question.
The joined the question Q you May Press Star then one of your telephone keypad.
Should you need assistance during the conference call you may signal, an operator by pressing star zero.
I would now like to turn the conference over to Guy Macquarrie Director of Investor Relations. Please go ahead.
Thanks, very much and good morning, everyone welcome to the Ballard first quarter 2020 financial and operating results conference call.
With us today on the call we'd have Randy Mcewen dollars, President and CEO and 20, Google in our Chief Financial Officer.
We're going to be making.
Looking statements that are based on management's current expectations beliefs and assumptions concerning future events actual results could be materially different.
Please refer to our most recent annual information form another public filings for a complete disclaimer and related information.
Just want to note as well that we're planning an investor and analyst day on September 29 later this year.
Our real intent was to hold this is a face to face event in New York City.
However in view of the cold with 19 pandemic, we're now planning to host a virtual investor and analyst day that with a live video stream.
We're going to be confirming additional details once arrangements are finalized.
On today's conference call Randy is going to provide his perspective on the covert 19 situation and notable industry developments. Tony will then review first quarter 2020 financials and will follow that by the QNX session I'll pass the call over to Randy though.
[noise], Thanks, Guy and welcome everyone to today's conference call.
Today I'd like to spend some time, providing an update on the cold the 19 situation at Ballard discussing recent noticeable in this industry development and then providing some initial thoughts on longer term structural implications for our industry as a result of the cobot 19 pandemic.
I want to start today by commenting on the status of our business in operations in the face of this extraordinary environment.
Our top priority always is the health and safety of our people customers and partners.
We continue to monitor comply with the most conservative public health guidelines, we've taken decisive action implemented important measures to mitigate the impact.
The cobot 19 pandemic on our people and on our business.
We also remain firmly committed to serving our customers and meeting their needs. This means we have taken actions that align with employee safety and risk mitigation well also preserving business continuity to support a customer deliverables.
So why we have about two thirds of our global workforce working productively from home. We also continue to operate are essential manufacturing and testing operations in Burnaby and could you provide essentially essential field service support to our customers in China, Europe and North America.
In our facilities, we've implemented precautionary and prudent measures, including really into hygiene, sanitization procurement and supply P. P E temperature screening and physical distance it.
We've made certain changes in our facilities in operations in Burnaby, and in Hobo, Denmark to support physical dispensing and employee safety.
We've also been busy stabilizing our supply chain to understand potential disruptions and choke points.
Well some of our critical suppliers temporarily suspended operations almost all of them have resumed operations already or expect to be resuming production shortly.
We have taken a number of steps to support our supply chain partners and mitigate risks during this period, including by increasing certain stock levels, increasing the frequency of deliveries for certain materials, obtaining commitments on supply minimums and delivery timing flexing, our production schedule and accelerating activity just a quick.
We'll fight additional suppliers.
Based on me information, we haven't its time, while we see some impacts in Q2, we're not expecting any major supply chain disruptions that should impact our overall expectations for full year 2020.
However, as we've seen the situation remains fluid and geographic specific.
We will continue to closely monitor and manage our supply chain.
Moving from the supply side of the demand side, we're not seeing any demand pull back as a result of Colgate 19 in fact, we're experiencing high levels of quoting activity.
Further we believe our long term markets and business opportunities, maybe stronger, giving some of the long term implications we've seen a rising from Colgate 19.
More on this in a moment.
In the near term there are potential cobot 19 risks on the timing of new deployments for our customers and front end customers.
Number of our customers have had their operation suspended and certain customers remain shut down at this time.
Visibilities, even murkier and the uncertainties further exacerbated as you move to the end customers and tried to determine when their operations will stabilize when hydrogen refueling infrastructure will become available when deliveries of new zero emission fuel cell buses and other vehicles will occur and therefore when deliveries of Ballard Maher.
It was our wage <unk> dollar JV modules to customers will be Nate.
Well, we don't have any information today on material delays there is uncertainty on the delivery schedule.
[noise] when you when taken together the <unk> dynamic environment presented by Cobot 19.
Potential customer delays the potential for additional supply chain challenges and even potential disruption or an old operations. We believe the responsible and prudent approach is to withdraw our 2020 revenue outlook.
Now we entered the Kobin Nike pandemic composition of financial strength, and we added to that strengthen the first quarter.
Notwithstanding the Colgate 19 backdrop, we delivered record Q1 revenue of $24 million up 50% from last year gross margin of 22% and ending cash reserves of $181.6 million.
We further fortified our balance sheet with the execution of an aftermarket equity program.
As you would expect near current environment. We have also been reviewing our cost structure.
While toggling certain costs with market conditions and prudent cost management. We're also continuing to move forward with critical investments for long term competitive positioning, including our people technology products product cost reduction customer experience advanced manufacturing and our wage hike dollar joint.
Venture.
We believe this will further strengthen our position as the economy emerges post cobot 19, and its de Carbonization again take center stage.
And I want it turned out your recent notable industry developments.
Well the world has understandably been focused on the coded 19 news feed there've been important industry developments each in China, Europe in California that we want to draw your attention too.
As they've been on your reported to date, we want to put a spotlight on these items.
Let's start with China will be continue to have conviction that our joint venture partnership with weight shy provide the dalai with a strong competitive advantage in the Chinese market.
We believe we're well positioned in a large try to market, where there appears to be continued strong government support for new energy vehicles, including FCB.
Although our way try Ballard JB facility in Shandong Province has experienced some construction in program work delays, resulting from cobot 19 construction in staffing levels of the JV have resumed to pre cobot 19 levels, we're making great progress and expect commissioning of stock and module assembly lines around mid year 2020.
Most of the major manufacturing equipment has been installed and is currently undergoing qualification and commissioning.
Importantly on the 20 April 20, Threerd, China's government announced immediate changes should do energy vehicle. The NPV subsidy programs, which include both fuel cell electric vehicles as well as battery electric vehicles. The overarching goal of any programs. This for 20% of vehicle sales to be new energy vehicles like 2025.
Hi.
And he be subsidies will be extended until 2022 with no decline this year for public transportation vehicles, including transit buses and commercial trucks.
We expect further favorable policy developments in China with specifics on future F.C.E.V. sports games to be released by Q3.
Over the past few months away tried dollar joint venture has worked with four vehicle Oems you tall, Joan Tong Asia Star and Sino truck to certify new buses and trucks powered by our JV F.C. moved fuel cell module ended the China and my eye cheap program promotion catalog, bringing that told.
Oh vehicle models powered by Ballard technology to 55.
At this time dollar technology can be found in approximately 50% of this 6300 plus fuel cell electric vehicles registered in China.
Vehicles powered by dollar have now accumulated over 23 million kilometers of service by public transportation and logistics vehicles operators.
We expect the deployment FCB is to continue to accelerate with 16, new hydrogen refueling stations expected to be put in service in 2020, doubling the current service capacity.
Next let's move to Europe.
Since the start of the year, we've been pleased to receive some exciting new orders in Europe, including 45 fuel cell modules to power Solaris bosses 25 buses for deployment in Germany, and 25 and 20 for deployment in the Netherlands.
In a few weeks ago three fuel cell buses started operation outboard, Denmark, which is about 30 minutes from our facility at whole broke.
We've also been excited with the European commissions posture on moving to carbon neutrality and the important role of hydrogen in Decarbonizing mobility, decarbonizing industry, and serving as an energy storage medium for renewable energy.
European commissions Green deal is is a so policy measures and actions with the aim of transforming the U.S economy for sustainable in climate neutral future by 2050.
This is Matt accelerating Europe's 2030 emission reduction targets to at least 50% and towards 55%.
There are eight specific priorities, including from mobilizing industry for clean and circular economy to accelerating this shift sustainable and smart mobility.
On March 4th You Commission proposed that you climate law, which we didn't shrine to 2050 climate neutrality objective into legislation.
On March 10, you commissions set a new European industrial strategy, but an aim to maintain European industries global competitiveness and ensure that industry paves the way to climate neutrality.
The strategy expressly includes in his top priorities measures to modernize and Decarbonize energy intensive industries as well as to support sustainable mobility.
As part of this strategy to commission announced the creation of a clean hydrogen alliance to accelerate the de carbonization of industry.
The alliance will bring investors together with governmental institutional and industrial partners building on the successful template of existing industrial alliances and the and the great work that's been done under the framework of the F. C. H Jay you.
And finally, let's move on to California.
Carve it already started statewide goal for public transit agencies to gradually transition to 100% zero emission bus fleets by 2040.
And now card is released a final draft of the advanced clean trucks standard.
This standard as part of California's proposed approach to a large scale transition to zero emission medium and heavy duty vehicles.
The proposed regulations have a manufacturer sales requirement and a reporting requirement.
Similar to what happens with passenger cars manufacturers, who certify medium and heavy duty chassis or complete vehicles with combustion engines would be required to sell zero mission trucks as an increasing percentage of their annual California sales starting in 2024.
The final drop is much stronger than previous drops doubling the number of zero mission trucks, we acquired through 2035.
The final draft increased a percentage requirements between 2020, 420, 30 and extended the requirements the 2035 and beyond.
Zero emission sales targets were increased across all vehicle categories and now with the continued increases through 2030 to 2030, rather than flattening out in 2030.
The final drop is now proposing that for model year 2024, 9% of all on road class four to eight truck sales must be zero mission vehicles scaling up to 50% of sales for 2030, and 75% for 2035 and beyond.
For the class seven to eight tractors group the requirements or 5% for 2024, 30% for 2030, and 40% for 2035 and beyond.
The sales requirement for class seven to eight tractors were increased to better align with the clean Air action plan for the ports of Los Angeles in long Beach, which has a goal for 100% zero emission tractors for the population drayage trucks at the ports currently at about 16000 expected to increase overtime.
Zero emission tractor deployments will also benefit disadvantage communities burdened by truck in freight initiatives.
The policy will apply to truck manufacturers that sell more than 500 trucks annually in California.
And these are the categories of trucks that were focused on it Ballard medium and heavy duty mode.
In December 2019 report it was estimated that America's 28 million trucks and buses make up 10% of all vehicles, but are disproportionately responsible for 28% of total carbon emissions and the transportation sector with heavy duty vehicles, contributing 45% of Nox and 57% a direct.
T M 2.5.
So those are some notable regulatory updates from China, you in California.
We previously discussed many an important commercial announcements that have happened over the past eight quarters, including the announcement from way Chilean Ballard and subsequent announcements from major players like Botch Cummings Iveco Michelin if ratio to name a few.
We can now add to more blue chip names, making highly visible investments in the hydrogen fuel cell industry for commercial trucks.
In April Daimler truck and Volvo Group signed a preliminary non binding agreement to establish a 50 50 joint venture focused on developing producing and commercializing fuel cell systems for heavy duty vehicle applications in particular commercial trucks.
All Daimler fuel cell activities will be consolidated in the new JV, which has an initial evaluation of 1.2 billion euros.
This is an exciting development that will increase momentum in the adoption of fuel cell solutions for the global trucking market.
In the press release announcing that deal the parties noted that CEO to neutral transport. It can be accomplished to electric drive trains with energy coming either from batteries or by converting hydrogen onboard into electricity.
For trucks to cope with heavy loads and long distances, they see fuel cells and as an important answer.
They noted that electrification of road transportation is a key element of delivering the green deal.
Further they noted that using hydrogen as a carrier of green electricity to power electric truck trucks in long haul operations is one important part of the puzzle and a complementary battery electric vehicles and renewable fuels.
By forming this joint venture Daimler truck involve a group are clearly showing that they believe in hydrogen fuel cells for long term.
Commercial vehicle applications. We believe this is yet another strong validation of balanced strategy to focus on medium and heavy duty motive use cases.
As Oems and tier one suppliers further develop their strategy decarbonize their vehicles and powertrain offerings. We believe valley will be viewed as an attractive fuel cell technology partner for commercial vehicles.
I also want to take a few minutes discussing possible long term implications of cobot 19 on our industry.
Well coated 19 is a clear priority for governments incorporates at this time, we still see the fundamental drives of sustainability as motivating change in the background.
And while it's still early we wanted to share some initial thinking on the new normal postcode it.
These are some potential trends to watch for over the next six to 24 months.
First we do not expect any deferrals of softening of C. O. Two emission targets. We believe the transition agreement billing he will forge ahead.
Second recent studies have found a correlation between long term exposure to PM 2.5 encoded 19 mortality rates. We believe this will be another factor pushing cities to aggressively promote and accelerate the year omission mobility to improve urban air quality, including further restriction.
And bands on P.M. 2.5, admitting diesel trucks.
Third.
The increase in E Commerce string co bid 19 will lead to higher penetration of online shopping in the new normal. We believe this will result in more commercial trucks to support deliveries of online purchases, which has traditionally been a challenging segment of mobility for emissions abatement.
Fourth.
We're seeing positive signs that stimulus packages in the EU.
And the U.S. will include infrastructure spend.
We view hydrogen refueling infrastructure as a potential beneficiary in these infrastructure stimulus and green recovery plans.
We may also see new subsidies to support the purchase of zero mission vehicles as part of the Green recovery package.
Fifth.
Given the economic strains, resulting from cobot 19, and contraction in your near term new vehicle demand. We believe many of the vehicle Oems and tier one suppliers will have insufficient budgets to continue fully investing in internal combustion engines as well as the ace is trends.
This presents opportunities for technology companies.
They may continue investing battery electrification for passenger cars, while seeking to collaborate with fuel cell technology partners for commercial vehicle markets. For example in addition, we expect copas 19 to accelerate industry consolidation among the Oems and tier one suppliers.
Six.
The long term growth trajectory for renewables should remain intact with growing support for electrolysis, we see continued cost reduction nonrenewable strengthening the hydrogen opportunity.
[noise] seven.
We do not expect the current temporary low oil prices to present long term barriers to the adoption of your mission solutions Interestingly. The current oil shock has laid bare the challenge in the oil industry around storage.
We believe it low oil prices the energy majors will increasingly invest more in low carbon energy and hydrogen.
We know recent announcements by BP in shell.
On their net zero carbon targets.
And eight we believe cobot 19 will cause many countries to become more protectionist and reconsidering National Security energy security and supply chain security in critical industries, not just in food supplies healthcare and pharmaceuticals, there'll be increased pressure on domestic supply change with me.
More focused on security and resiliency.
On a relative basis, we believe green hydrogen fuel cells offer important advantages from a supply chain perspective compared to battery electrification, we see a brighter spotlight on the vulnerability of the supply chain for critical minerals and rare Earth met materials used in consumer goods.
Larry applications and electrification.
Again, it's still early and these ideas represent some of our initial thinking on potential long term implications for our industry from cobot 90.
Now let me conclude the two final remarks.
First we believe we're taking the right steps to build a great business that will drive long term growth improved financials and value for our shareholders.
Second as a final word I'd like to thank each of our global Ballard team members, who demonstrated to valid resilience and dedication to safety and our customers during this challenging period.
With that I'll turn the call over to totally to briefly review the Q1 financials.
Thanks, Greg Good morning, everyone.
As Randy mentioned topline revenue in the first quarter was Q1 record of $24 million up 50% year over year.
In the quarter power products revenue was up 95%.
Technology solutions revenue increased 20%.
It's in power products.
Do you motives was up $7.8 million to $10.4 million.
Was largely due to a year over year increase in sales of module parts gets in EMEA is to the wage dollar joint venture in China.
The increase in technology solutions revenue to $11.6 million.
Primarily to the Audi program.
Technology transfer program with our we tried valor JV.
Despite the temporary slowdown in China.
The activities in the quarter.
Gross margin was 22% Q1 up eight points year over year.
Improvement was the results of the 50% increase in total revenues combined with a shift in mix to higher margin products and service revenue.
Josh operating cost increased 31% year over year to $12.2 million, primarily attributable to increased expenditures through technology and product development.
These increases largely from new hires need through 2019.
Or investments in our next generation fuel cell products.
Adjusted EBITDA in Q1 was negative $9.1 million, an increase of point $5 million compared to the same quarter last year.
This included dollars $2.5 million your losses related to the weak dollar JV.
Knowledge that lawsuit Q1 was negative $13.5 million.
$12 million during Q1 last year.
Earnings per share was negative six in Q1 compared to negative five cents in Q1 2019.
The net losses.
Numbers include the Ballard's your losses from the we enjoyed dollar JV.
Cash used by operating activities was $10.1 million in Q1.
Listing of cash operating losses of $7 million and working capital outflows of $3.1 million.
In terms of liquidity.
During March we began executing or $75 million.
Program.
During the quarter. This generated net cash proceeds of just to $2.6 million.
We ended the quarter with Josh reserves of $181.6 million, 10% higher than the same juries last year.
33% higher than the end of the prior quarter.
We also added an additional $12.3 million to Josh users on April under the ATM program in total the ATM transactions have added $64.9 billion to cash reserves to this point engine twentytwenty.
And this was accomplished with no price discount.
Relatively modest transaction fees and limited dilution to existing shareholders.
Finally, we ended Q1 with an order backlog of $169.5 million.
12 month order book of $105.8 million.
Our sales pipeline remains robust with significant qualified commercial sales opportunities.
And with that let me turn the call back over the operator for questions.
Okay.
We will now begin the question and answer session.
To join the question Q you May Press Star then one telephone keypad.
Most undercar acknowledging northwest.
If you are using his speakerphone, please pick up your handset so far pressing any keys.
To withdraw your question. Please press Star then too.
Well pause for a moment of colors join the queue.
Our first question comes from Rob Brown with Lake Street Capital markets. Please go ahead.
Good morning.
Randy I just wanted to clarify what you said on the the JV operation with wage high I'd say that was going to be running kind of mid year here and then maybe could you clarify the steps that need to happen thereafter to kind of ramp [laughter].
[laughter].
Great. Thanks for the question Robin Good morning, Yeah. So we had in the last conference call identified we expect the JV to start a and b fully commissioned mid year, so that timeline hasn't changed.
When when we had the call a last time, we didnt know that there was a.
Some delays that wouldn't that was occurring we basically had a contractor that was adequate may province that.
I wasn't able to support the JV construction for a period of time wage high and the way tried dollar JV is back to full staffing now for some time.
And in fact, we haven't JB Board call Tonight and.
The debt facility is basically fully constructed all of the equipment almost all the equipment has arrived I believe now.
And as in the process of being commissioned.
So achieving mid year and there are really a lot of long pulls in the 10 at this point, it's really a matter of optimizing getting equipment fully commissioned.
And optimizing.
Doing sample runs and stuff like that so I think we're in very good shape. In fact that was that kind of a preliminary a soft opening of the JV there are some.
Activities currently underway.
On on some temporary line. So there is a theres a lot of work going on there, including with the vehicle Oems and.
In terms of qualifying new vehicles on new platforms and on the sales side and.
We're expecting a.
Good finished 2020 with the JV as well as a very strong 2021 with the JV.
Okay. Good. Thank you and then in the U.S. market you mentioned, some some pull from California or some.
Moving toward regulatory pool.
One of the steps the U.S. market that you sort of few playing out as a result of that.
And sort of the timeline should kind of thing.
Develop better.
Yes, I think they the highlight that we wanted to focus on was the clean truck standard and we've been actively involved.
Helping kindness shape, this legislation, California, as well and still up.
Final drop so it's not law yet of course, but I think the direction, we're seeing any change from the previous version to this final draft are very.
I think supportive of.
Strong outcome.
And so you know moving to a regime in some way similar to what Europe did last year, where you have very clear emission reductions for class eight trucks.
Here in California, now, we're talking about from from to be all the way up to a class eight trucks.
We see.
This annual increase from 2024 through to 2035 isn't very powerful requirement.
And I think companies like Daimler truck involve all these type of announcements are you know while there are initially going to be focused I think on Europe. There's clearly a requirement for these truck Oems to meet the requirements that are coming in California, and what we've seen in the us of course, while well.
We don't necessarily have good visibility, what's going to happen at the national level. What we see is at California is a very significant influence on.
You know climate policy and.
Air emission policy and in the U.S. and typically some of that.
Good regulatory work that's done in California is adopted eventually another state. So we think it's really important what California is doing we're very supportive of the activities. There I believe we'll we'll likely see a favorable outcome on this front in 2020.
And starting to get very clear requirements for these truck Oems to start decarbonizing their platforms for 2024. So if you kind of look at that time line of 20 to 24 to 2035.
And you look at the increasing percentage requirements each year.
Not just for the class 72, attractors, but class four through eight.
We see lots of opportunity there for fuel cell technology.
I think uniquely satisfies their requirements, particularly for for long pay long and heavy payloads, a long roots and having payloads and we believe Ballard is very well position then.
We need to do continue to great work on collaboration as well as.
Continuing to progress the technology and the products includes including a importantly product cost reduction, which is a very big emphasis for us here in 2020.
Great. Thank you I'll turn it over.
Our next question comes from a meat dialogue with H.C. Wainwright. Please.
Please go ahead.
Good morning.
Yes.
We do.
No there too.
It is in line and then shaping up Randy could you talk about you know how difficult. It means they need the there was nothing going into this market to grow around your IP in your history in this space.
Yes, good morning amended thanks for the question I apologize, maybe I'm going ask you to repeat the question was very difficult to hear you.
Yes, I was just asking how you guys are positioned competitively.
There's a lot of these positive longer term industry developments taking place.
How difficult it would it be of course newcomers in the space to grow around your IP and your history.
In June.
Yes so.
Great question. So I think there are new companies coming.
To the hydrogen fuel cell space.
I think when you look at kind of it was interesting to me I was listening to the you know the conference call between Daimler trucks, and all but if you had a chance to looking at listen to that call.
And then just highlighted how difficult it is FERC, they said, making fuel cell technology work is no small undertaking for any company and.
You know we've had this a lot longer and they highlighted that they have a have a history of a couple of hundred pass cars and some buses.
You know kind of millions of kilometers driven just in China alone, we have over 23 million kilometers, but service with vehicles that have behler technology inside and outside of China of course, we've got a long history and the largest fleet of fuel cell buses.
So I think from a competitive positioning when you look at talent when you look at technology leadership, whether its durability and power density reliability.
Uptime and availability in the field when you look at a product offering.
With the characteristics required to meet the market requirements.
When you look at service support that we have Oh, we have very high uptime or availability of our vehicles in the field, we do an excellent job on the service side as well.
And then when you look at a brand and reputation.
And importantly partnerships and you know on the supply chain side, we've been working with a lot of key partners there to qualify materials and we're very encouraged with the opportunity for product cost reduction going forward.
At this system level at the stock level at the level a plate level. So a lot of work being done with the supply chain.
And then when you think about partners on the market access side and strategic partners like weighed shy.
We have I believe the strongest possible platform in the China market in a huge competitive advantage because of our relationship and our joint venture with wage hike, so very compelling company.
And they did they continue to prove that every week so I.
I think overall, we have a very strong position and aligned with a lot of these I believe long term implications for structural industry change as a result of cobot 19, we do believe that decarbonization will be front and center.
And we're very well position, we've been talking about the medium and heavy duty motive industry for a number of years now weve always highlighted.
The three key reasons to be focused on that industry is the value proposition for fuel cells are strongest where you have long range a need for fast refueling and heavy payload.
Number two these are markets, where you typically see typically can have opportunities for return to base refueling. So solving the refueling side is much easier than say on the passenger car market, we need to distributed we feel it fueling infrastructure.
And then third a you're hitting a a market segment, that's very difficult to update I don't believe batteries, you're gonna be able to satisfy the use cases for a number of these class.
Heavy duty trucks.
And fuel cells really offer the only viable solution in my opinion at this time for a zero emission decarbonization of these vehicles and these are the vehicles as we pointed out that have disproportionate contribution to emissions. So I think we're very well position, we still have lots of work to do.
We're continuing to improve our operations were investing in advanced manufacturing and I think we ended this year hopefully some of the travel restrictions will abate, but you know amid if you had the opportunity for example to come out in late in year, I know, we invite others as well.
We're making great changes in our facilities here in terms of how we manufacture our products that you know it increasingly robotics.
Shrinking tack times.
Really compressing steps and expanding capacity lowering costs were very excited about what's going on not just technology improvement, but on an advanced manufacturing and all the operation side as well so still a lot of work to do to meet the demanding requirements for for these markets in in high volume commercialization, but we.
Believe we're making the right investments and engaging the right partnership to them to make it happen.
The new maybe this one will from leases.
New launches development business within many of you you assume in the early stages I wouldnt taken shifts but are you seeing a big change in bonds are getting with requests to test store environment. Some of your offerings.
Yes, so I.
What's been surprising frankly is that.
We knew.
For a long time that the bus and truck markets, we're going to be very important markets. There are large addressable markets. We have a very good positioning in these markets, which surprised me frankly is the activity levels were also seeing in some of the other market segments. So rail.
Marine.
You know forklift.
It also even stationary power.
Increasingly there's more activity on the DG side.
And so I think there were a number of markets that are going to surprise to the upside and.
I would probably put a spotlight on and in each of these markets will take time.
They're not going to you're not going to see high revenue values next quarter from these markets to be clear, but I'd say the level of quoting activity in the level.
Pose a little that we're looking at a and the customer collaboration opportunities were negotiating are very exciting and we're seeing new geographic markets pop up as well. So I think there's a there's a lot happening that are in my mind has been accelerated I don't know if it's a who bid 19 necessarily.
We started feeling this just before late 2019 in early 2020, but it's really accelerated in the last few months as well.
And.
My other questions. Okay. Yeah. Thank you on that.
Our next question comes from Matt Marie well with Cormark Securities. Please go ahead.
Hi, Good morning, when you mentioned Randy about the hedging programs in China expecting some developments to be.
Revealed in Q3, I can you speak first of all whether there's any involvement of Ballard and wait shy or the JV yeah.
In shaping that program and and whether there's any sort of insight you can provide in terms of the size of the timing of that that's the type stuff.
Hello.
Yeah. Good morning knock thanks for joining and thanks for the question so I.
I think what we'll likely see and it could be as early as June or July when always reluctant to seek to give a time, particularly when you're talking about regulatory environments. They always seem to take longer in Ah. We actually expected these to be in place earlier this year, but of course opened 19.
You know a has caused some delays on that front. So we might see something happened as early as June or July and but.
To be cautious I think I've kind of think about it as Q3, so thats the timing in terms of the announcement you know any theres a lot of discussion in the market about what may or the new fuel cell subsidy scheme may look like and I think a number of parties have been influential in helping shape. This odd.
So there are there are industry groups and there are companies that have access to our regulatory authorities at the national leveling provincial level on.
I don't want to get into deep detail on on how we.
Get to influence this or how our partner influences. This but I believe that we try it has a very loud voice in the market they're the largest.
Manufacturer of diesel engines in China and.
You know the fuel cell.
Platform that they they are building out with Ballard is I believe is going to be the leading fuel cell business and in the country, but I think there's a lot of support for our weight shy in terms of transitioning overtime their portfolio to to provide for zero mission solutions.
In terms of what the scheme might look like.
We are understanding of that they're likely will be five or six key regions that are identified as regions, where us there will be significant policy support and subsidy support and.
These regions are clusters or will have kind of special fuel cell in hydrogen recognition.
A lot of subsidy support that will support not only the adoption of fuel cell vehicles, particularly in heavy duty motive bus and truck.
But also hydrogen refueling infrastructure. So they were going to need to wait to see this come out, but I believe that will be highly highly supportive of long term growth in this market and I believe there'll be long term visibility I don't think this is something where every six or 12 months.
We need to wonder what the policy is going to be I think they'll they'll provide sufficient visibility so companies can make the appropriate investments.
So I think I think it's going to be highly supportive and.
I'm quite excited about it I think you'll also see following that a number of provinces also come out with cascading subsidy announcements as well and I believe shangdong. In particular is as is going to be a very strong advocate for the adoption of hydrogen fuel cell solutions not just because.
We try located there, but shangdong has some unique attributes including access to hydrogen that positions us very well and they have 15 cities are so that I would expect to see some fuel cell activities.
Coming out so we're pretty excited about the national level support that the industry is likely to see Neil can be a firm on this but we're optimistic and excited about it.
And we believe will be some cascading provinces as well that come out with some policy updates that will be very supportive too.
Okay, and then just following up on visibility on the 2000 unit committed by weight Shai do you have any additional insight into where they will be deployed or by whom are what the plan is that.
We do we're going to follow away Chinese lead on their communications on this Max so.
They have commented publicly that they expect these primarily to be buses they will be some trucks as well.
And bill.
Different regions that they'll go into but primarily in Shandong province.
Okay, and then just a couple of things perhaps from Tony just in terms of modeling me over the next couple of quarters.
If we were to see revenue pushed out can you remind us out fixed versus variable overhead and sort of the cost of goods sold whether we'll see a big jump in the burn rate because there will be fixed overhead not being covered I'm wondering about that and then second question is just can you go over the anti dilution rights that.
Wait shy has given the a how that works with the aftermarket financing.
Sure. So let me thanks, Matt Let me deal with the second question first this is the large user wayside anti dilution rights. So we've tried does have.
The right to top up.
With regard to any new financing public market or private financing, we do talk bucks to 19.9% related to that financing so with regard to the gym specifically.
This is the 75 million dollar program. It away choice has indicated to us they do intend to talk to.
To managing or 19.9%.
So that would be also will offer thus far would be about $16 million relative to what we did should thus far and if we complete deprogrammed up might move that 16 to 17 or $18 million of addition, this you know this would be funded under private placements, which wage I. So at this point each other they have indeed.
It is they will top up is just really right now of course unit of timing.
We expect that to close sometime to look likely in the second quarter.
But.
At this point, we don't have for window on that so those are the answer dilution rights, specifically that they have and we do expect him to exercise.
So that's that's on the wage I'm sorry, the things all your other question with regard to the cadence or revenue and fixed and variable overhead I honestly I don't have the numbers in front of me right now, but it will say Q1 is somewhat illustrated.
Got it at a revenue number of around 25 million about jumped 24 $25 million as was highlighted worse as you see we did see a bump up in gross margin from Q4 last year, particularly where we were at a lower level of revenue and certainly Q1 of the of night, a 29 gene. So we're already.
22% gross margin in Q1, we're already starting to see that site. The absorption of the of the overhead <unk> if I if I could find that the numbers I'll certainly get back to you on the call if not we'll take it offline, but as we think about Q2.
And the rest of the year, we that's obviously signal that we expected to see a decent Q1, which I think we which we've seen a little bit below I think where consensus was but all things considered we are expecting to see some improvement into the second quarter notwithstanding some of the delays that Randy mentioned.
And of course, we would expect as we signaled the pass a fairly strong second half the year of course, assuming that there isn't.
Sort of around two if you will have any togut situation. So let me get back to you on a little bit of the numbers, but I would expect to see the gross margin that you see I saw you Q1 out that revenue level will will that's you know we expect to see that actually improves slightly as revenue goes off of your absorbed more.
Okay. Okay. Yeah, we could we can do that off by that and just as well probably have a question about the pricing that which I will get like whether all match.
The average sort of prices set that market was buying that.
Yes, I could touch I'm not grip wages I just that is an important points in the agenda adult is all titles to timing. So we try it has the right to top up routes, we enter during our Investor rights agreement back we've offered them the ability to the top off at the end of the quarter or at the end of the ATM program.
Depending on which option they choose yes, they do get the benefit of the weighted average price under the ATM, but there is a.
Next restriction on pricing, so if they close or they just that.
If the closing is delayed in the stock price rises appreciably then there would have to do subject to whatever restrictions that she FX has on maximum allowable discounts to the closing dates but in theory, they would get the benefited the D wells and.
The numbers can be figured out with the did well but for the.
Im shares that were issued thus far is a bit over $8.
13, if I recall was to be well.
Under the under the shares issued today, but in order to Jeff that we'd have to close fairly quickly so whether they enjoy that are not as good a function we're closing.
Yeah, Matt guys, Randy just wanted to supplement that so what weather.
I do believe the which I will top up and whether it's at the a 13 d. white or some higher price because of the TSX restrictions.
It's a really good signal in my mind, you think about they invested back in in.
Late at 20, 20-F, 18, where they invested at 354 U.S., so with them topping up at these levels. It's a very good indicator on the value they place on valor.
Yes. Thanks, I should have said that 13 by the way of course, that's U.S. dollar price as well as was the 354 that originally invested so those are off of mass stock prices.
Okay excellent. Thanks.
Our next question comes from Jeff Osborne Cowen <unk> Company. Please go ahead.
Yeah. Thanks.
It's been discuss Randy, but maybe just on.
On China is there any update outside of weight shy in the JV.
Share with any other potential customers are avenues to to revenue growth.
Thanks traffic question guys. Thanks for joining yes, so on the rail side.
It was just late December early January when the first tramline in the World really started to commercial operation in a on the galvanizing line info, Sean long Dong Province, and so we are there was some disruption to the operation of that.
Tramline during the cold 19 situation.
So you know that will be I'll call. It the activities from CRC event, a kind of on pause while the continue to want to get data off the first install in deployments there. So.
There is a I think increasing investment likely to occur in China on the rail side.
And we see zero mission rail as a key part of that so I do believe there's lots of opportunity not just in Europe with Siemens.
But also in China with CRC on the rail side of course, that's outside of the joint venture.
And then the pass car market is another market that we've been looking at and we've had discussions with a number of different vehicle Oems as well as a a tier one suppliers on the opportunity for the Chinese out passenger car market.
So evolving slowly, particularly with the last few months, but we'll see how that shapes. We do think there are opportunities in that market.
And then the other thing that's interesting in my mind. A this is in the joint venture is material handling market is a market segment that we're seeing.
And some interest in globally. So we have kind of three key projects, we're working on in material handling side.
For fuel cell power forklifts.
And I believe that.
China is a market longer term, what we're going to see some traction for fuel cell forklifts as well, particularly as logistics increasingly becomes so important there.
So I would just point to rail.
And the passenger car market outside of the JV inside the JV, we haven't talked much about a material handling market, but I do view that as a long term market of course.
We try with the something around 45, 47% ownership position of kion.
As a good partner there for the European market as well.
So.
You know kind of other markets that we see in the China market are off road markets. So a construction equipment.
And mining equipment, we've got some activities in other jurisdictions in these markets as well, but these are markets that we see potentially working with weight try in the.
Some of these off road markets as well because they have a strong competitive position in those markets too. So those are some additional markets and then of course, we still have our legacy not necessarily technology.
That is being used at the synergy valor JV, a and there are continuing sales by the JV to users of the nine SSL stack.
So that's a another revenue source of opportunity going forward as well.
Got it allows for a detailed real quick as you know with the Green deal and Europe, and obviously a lot of moving parts there, but is there any risk to the Jive program may be slowing down and then things like that that are one offs getting rolled into a broader infrastructure package or vision.
That's a possibility I think what we've seen is that and you know it's every time there our European boss demonstration programs. It always takes longer than that party live like a and you know we're seeing progress of course, we announced some some of the orders obviously in.
Passed the 120 days, particularly on on with Solaris, we're seeing lots of opportunities in the European market.
And that are kind of bubbling below the surface, where the volumes look to get to that next stage on the bus side and then of course, the commercial truck market is going to be huge market I believe in Europe.
But I do think you're going to see more announcements on the bus side.
Both in a I'll call it mainland Europe as well as in the UK.
Got it that's all I have thank you.
Thanks, Jeff.
Our next question comes from Joseph Osha with JMP Securities. Please go ahead.
[noise] Hello, everybody long time Randy.
Hi.
Just fine.
I'm I'm curious about what you think of some of the I'll call them the soup to nuts competitors Nicolas brings to mind there there are some others that.
Seem to believe they can do everything from the fueling today.
So the truck to the powertrain through the fuel cell good for those companies.
Ultimately represent potential customers or do you see them.
Beginning with the kind of the not invented your mentality.
Yeah, I won't comment specifically on Nicola, but just that overall model, we are seeing others potentially talk about these models, where you are basically offer.
You know transportation.
That is based on our per kilometer driven or a lease rate.
And then they say, we will take care of designing and manufacturing a vehicle will take care of supply and the hydrogen refueling infrastructure.
And we'll take care of the financing.
It takes a lot of capital in a lot in that business complexity to deal with all those variables and.
Wondering is a very key way to mitigate that risk and I think a very important driver of whether or not that type of model is going to be successful and I think as companies look at this space or the technology on fuel cell is not easy if it was easy would have been commercialized a long time ago.
And so a yield dollar isn't a leadership position on the technology front and I think as companies are you know scratched the surface and invest time understanding.
Where the challenges are on on that.
Really commercializing hi, durability high power density high performing fuel cell technology.
I believe they're going to need partners at night.
Going back to the vehicle Oems.
Whether it's.
Trucks buses pass cars.
Going back to the tier one suppliers for all of these markets, including the commercial vehicle market a number of them I think are going to be looking at Ballard as a company that has technology it would make sense to partner rather them for to try and do it in house.
And particularly as they look at trying to invest in autonomy in connectivity and electrification on the battery side shared mobility and even you know continued investments internal combustion engines. So I think companies are going to recognize like I believe Daimler and at Daimler trucks and Volvo.
Andrew the collaboration is it is perhaps a more powerful model than trying to do it all yourself.
And even in these type of organizations that that do believe they're going to be able to accomplish everything internally.
I think over time, a ballot will have opportunities in those companies you know the number of kilometers were getting is just increasing everyday in the field.
Uptime availability rates is increasing everyday in the field.
Our technology is getting more mature our products are getting more mature and customers that are putting.
End customers or users, who have whether its third brand on the on the front of the truck on the front of Abbas or their brand on a promising delivery of materials or are people.
You know this durability and reliability is going to be very important.
Thanks, and then just a follow on it said or I guess kind of related question I'm wondering if you've had any conversations with some of the folks looking ads.
Electrolysis in particular I'm hearing from new fortress Energy and then and then some other folks about this idea of doing hydrogen production was zero or even negative cost a wind power in particular on the middle of the day, what what what potential exists for your business to cooperate with where some of the.
[music] wing infrastructure businesses. Thanks, Yeah. So great question, we've long been looking at electrolysis technology. Our our belief is that there are two homerun opportunities in the hydrogen fuel cells. So there are of course, others, but the two home run opportunities, we see the hydrogen fuel.
So industry is fuel cell technology for medium and heavy duty motive applications number one number.
Number two is electrolysis.
To generate green hydrogen and really support the Paris climate cord objectives, and so yes, we follow in track electrolysis very closely we're familiar with all of the companies in this space.
You know and it's been it's been kind of interesting to see some of the positioning that's happened over the last year, where you had you know Commons acquiring hydrogenics not just for the fuel cell technology, but for the electrolysis erlick heat and invested in a hydrogenics just before that as well.
You've got to lend day, and and other gas companies, making investments in electrolysis companies and setting up joint ventures. So I'd say the gas Giants are increasingly getting more invested in electrolysis, a and C opportunities. There you have jurisdictions like.
Strayer, who are a in Saudi Arabia, who are really looking at.
Electrolysis in green hydrogen as ways to Decarbonizing, and even economic development opportunities.
I mentioned earlier BP in shell looking at a net carbon zero mandates over the long term.
I think you'll see aramco are starting to join this type of course looking at hydrogen roadmaps in the future.
And electrolysis going to be a key part of this and so we don't have any proprietary technology and Ballard focused on electrolysis. There's always been the theory that fuel cell technology and electrolysis is reversible technology. It hasn't really proven out to be that way practically there a lot of challenges with that there.
Our lot of core competencies and a lot of technology know how that are directly relevant to both of those technologies, though.
And.
It is a strategic area of opportunity as we think about things like M&A opportunities that it's one of the topics that we look at a frequently.
I do think that we've been focused on partnering for that part of the value chain ecosystem and it's really important that we're focusing on the E.
Mobility ecosystem in bringing to bear not just a.
Fuel cell technology, but solutions for end customers and that's why for example, as illustrated example last year, we announced the each to bus Europe program that brought together a consortium.
Okay provider hydrogen fuel cell technology from about Ballard and.
And also a electrolysis technology in hydrogen refueling infrastructure solutions.
And on the bus side with the right bus. So you know we do partnering collaborate and this is strategic area that I think there's going to be a lot more emphasis in a if you look at the Mckenzie report that came out with the hydrogen council in January.
Therefore casting something like a 40 to 50 ex increase and electrolysis.
For the next four to five years with most of that but already.
Really identified projects and a lot of cases significant order. So electrolysis is going to scale up a you know in the next five plus years.
And we're going to see massive cost reduction and I think those that have the leading electrolysis technology, you're going to have a lot of value.
Excellent thanks for the insights.
Thank you Joe.
This concludes the question answer session I would like to turn the conference back over to Randy Mckee when the CEO for any closing remarks.
Great. Thank you for joining us today, we look forward to speaking with you again in August we will discuss results for Q2 2020. Thanks again.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
[noise] [noise].
[music].
And.
[music].
[noise] [noise].
Oh.
[music].
[noise] [noise].
[music].
HM.
Mhm.
HM.
Yeah.
[noise] [noise].
[music].
Okay.
[noise] <unk>.
[music].