Q1 2024 Ballard Power Systems Inc Earnings Call

Okay.

Operator: Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems first quarter 2024 results conference call.

Thank you for standing by this is the conference operator, welcome to the Ballard power systems first quarter 2024 results conference call.

Operator: As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero. I would now like to turn the conference over to Kate Igbalore, Vice President, Investor Relations. Please go ahead.

Speaker Change: A reminder, all participants are in listen only mode. The conference is being recorded.

Kate Charlton: After the presentation, there will be an opportunity to ask question to.

Kate Charlton: She joined the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal, an operator by pressing star Dunhill.

Kate Charlton: I would now like to turn the conference over to Kate <unk>, Vice President Investor Relations. Please go ahead.

Kate Charlton: Thank you, Operator, and good morning. This is the Ballard first quarter financial and operating results conference call. With us on today's call are Randy McEwen, Ballard's CEO, and Paul Dobson, Chief Financial Officer. Given that our 2023 year-end earnings call was only eight weeks ago, we will keep our scripted remarks today relatively brief. We will be making forward-looking statements that are based on management's current expectations, beliefs, and assumptions concerning future events, but actual results could be materially different. Please refer to our most recent annual information form and other public filings for our complete disclaimer and related information. I'll now turn the call over to Randy.

Kate Charlton: Thank you operator, and good morning, welcome to Ballard's first quarter financial and operating results conference call with US on today's call are Randy Macewen, Ballard's, CEO and Paul Thompson, Chief Financial Officer.

Kate Charlton: Given that our 2023 year end earnings call was only eight weeks ago. We are we'll keep scripted remarks today relatively brief.

Kate Charlton: We will be making forward 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 and other public filings for our complete disclaimer and related information.

Kate Charlton: Now I'll turn the call over to Randy.

Randy McEwen: Thank you, Kate, and welcome everyone to today's conference call. In our last earnings call, in addition to providing 2024 OPEX and CAPEX guidance ranges, we outlined four specific milestones that investors can expect from Ballard in 2024. We noted the following four milestones. First, continued growth in our order backlog. Second, a major order announcement from a bus customer. Third, a major order announcement from a stationary customer, and fourth, the announcement of our next manufacturing facility. In Q1, we delivered against each of these four milestones, highlighting our continuing journey to become a commercial products company. I would like to comment on each of them in turn.

Randy: Thank you Kate and welcome everyone to today's conference call.

Randy McEwen: On our last earnings call. In addition to providing 2024 opex and Capex guidance ranges, we outlined four specific milestones that investors can expect from dollar in 2024.

Randy McEwen: We noted the following four milestones first continued growth in our order backlog.

Randy McEwen: Second a major order announcement from a bus customer.

Randy McEwen: Third a major order announcement from a stationary customer and fourth the announcement of our next manufacturing facility.

Randy McEwen: In Q1, we delivered against each of these four milestones highlighting our continuing journey to our commercial products company.

Randy McEwen: I would like to comment on each of them in turn.

Randy McEwen: So first, on continued growth and or backlog. We're encouraged with our progress over the past six months on new order intake. After booking a record new order intake of $64.7 million in the fourth quarter of 2023, we booked another $64.5 million of new orders in Q1, bringing total new bookings over the past two quarters to almost $130 million, a Ballard record for a six-month period. Meanwhile, our order backlog grew by 38% since the start of the year.

Randy McEwen: So first on continued growth in our order backlog were encouraged with our progress over the past six months with new order intake.

Randy McEwen: After booking record new order intake of $64 $7 million in the fourth quarter of 2023, we booked another $64 $5 million of new orders in Q1, bringing total new bookings over the past two quarters to almost $130 million of Ballard record first six month period.

Randy McEwen: Our order backlog grew by 38% since the start of the year.

Randy McEwen: Second, on a major order announcement from a bus customer. Here we announced a multi-year supply agreement and the largest order of fuel cell engines in Ballard's history, supply of 1,000 engines through 2027 to Solaris for the European bus market. This landmark agreement is a testament to our collaborative partnership with Solaris over the past decade and the progress we've made with our fuel cell engines. We have proven our fuel cell engines to be safe, reliable, and durable. This agreement also reflects an acceleration in the adoption of fuel cell buses in Europe. The transition to zero-emission city buses is accelerating as the value proposition of hydrogen fuel cells is increasingly understood.

Randy McEwen: Second all of the major order announced her from a bus customer.

Randy McEwen: Here, we announced a multiyear supply agreement and the largest order of fuel cell engines in Ballard history.

Randy McEwen: The supply of 1000 engines through 2027 to Soliris for the European bus market.

Randy McEwen: This landmark agreement is a testament to our collaborative partnership with Soliris over the past decade, and the progress we've made with our fuel cell engines, we have proven our fuel cell engines at safe reliable and durable. This agreement also reflects an acceleration of adoption of fuel cell buses in Europe.

Randy McEwen: Supported by policy tailwind and regulations to Decarbonize public urban transport fleet, the transition to zero emission city buses has accelerated as the value proposition of hydrogen fuel cells is increasingly understood zero tailpipe emissions rapid refueling long daily arrange an all weather.

Randy McEwen: Zero-tailpipe emissions, rapid refueling, a long daily range in all weather conditions, and scalable refueling infrastructure as fleet sizes increase. Indeed, we believe we're on the road to achieving widespread deployment of fuel cell buses in the medium term, which is a critical lever to facilitate economies of scale and cost-down initiatives, driving improved economics and reduced emissions for fleet operators. Now I'd like to linger here for a moment on the boss mark.

Randy McEwen: Conditions, and scalable refueling infrastructure as fleet sizes increase indeed.

Randy McEwen: Indeed, we believe we're on the road to achieving scale deployment of fuel cell buses in the medium term, which is a critical lever to facilitate economies of scale and cost down initiatives driving improved economics and reduced emissions for fleet operators.

Randy McEwen: Now I'd like to linger here for a moment on the bus market.

Randy McEwen: Over the past five months, we've received orders for a total of 1,200 engines for fuel cell buses in Europe and North America. This is very, very exciting. We see a tripling of the existing operating fleet in these markets over the next two to three years. Now let's move to the third milestone, the announcement of a major order in the stationary market. We announced a multi-year supply agreement and the largest order in Ballard's history for the stationary market, for 150 engines totaling 15 megawatts of fuel cell systems from a UK-based customer specializing in renewable off-grid power generation. Again, this is a repeat order from an existing customer and reflects the scaling in their market opportunities.

Randy McEwen: Over the past five months, we've received orders all repeat orders from existing platform customers for a total of 1200 engines for fuel cell buses in Europe and North America.

Randy McEwen: This is very very exciting we see a tripling of the existing operating fleet in these markets over the next two to three years.

Randy McEwen: Now, let's move to the third milestone the announcement of a major order in the stationary market.

Randy McEwen: We announced a multiyear supply agreement and the largest order imbalance history for the stationary market in order for 150 engines totaling 15 megawatts of fuel cell systems from a UK based customer specializing in renewable off grid power generation.

Randy McEwen: Again this is a repeat order from an existing customer and reflects a scaling in their market opportunities.

Randy McEwen: Our customer is targeting the replacement of traditional diesel generators with fuel cell systems that can provide resilient, predictable, clean, and quiet solutions for on-site power generation in a variety of applications, including EV charging, filming, events, and construction. The customer also has an option to purchase an additional 296 engines by March 2026. Finally, to turn to the fourth milestone, the announcement of our next manufacturing facility. As context, as part of our local for local global manufacturing strategy, we conducted a comprehensive comparative analysis in 2023 of sequence production capacity expansion options in North America, Europe, and China. Based on our review, we determined to prioritize the U.S. as our next market for production capacity expansion.

Randy McEwen: Our customers targeting the replacement of traditional diesel generators with fuel cell systems that can provide resilient predictable clean and quiet solutions for onsite power generation in a variety of applications, including EV charging filming events and construction.

Randy McEwen: The customer also has an option to purchase an additional 296 engines by March 2026.

Randy McEwen: Finally to turn to the fourth milestone the announcement of our next manufacturing facility.

Randy McEwen: As context as part of our local for local global manufacturing strategy. We conducted a comprehensive comparative analysis during 2023 of sequence production capacity expansion options in North America, Europe and China.

Randy McEwen: Based on our review, we determined to prioritize the U S. As our next market for broad production capacity expansion.

Randy McEwen: We announced our plan to build a new manufacturing facility to be located on a parcel of 22 acres of industrial land within the Rockwall Technology Park in Rockwall, just outside of Dallas, Texas. The facility is expected to have an initial main plate production capacity of 8 million MEAs, 8 million bipolar plates, 20,000 fuel cell stacks, and 20,000 fuel cell engines per year, or the equivalent of 3 gigawatts of fuel cells. Dubbed Ballard Rockwall Giga One, we plan to manufacture next-generation fuel cell products incorporating the benefits of our work related to technology innovation and design changes, supply chain collaboration, and the introduction of volume production processes and advanced automation to drive down costs.

Randy McEwen: We announced our plan to build a new manufacturing facility to be located a parcel of 22 acres of industrial land within the Rockwall Technology Park in Rockwall, just outside of Dallas, Texas.

Randy McEwen: The facility is expected to have an initial nameplate production capacity of 8 million Emea's 8 million bipolar plates 20000 fuel cell stacks and 20000 fuel cell engines per year or the equivalent of three gigawatts of fuel cells.

Randy McEwen: Dumped Ballard Rockwell Giga, one we plan to manufacture next generation fuel cell products, incorporating the benefits of our work related to technology innovation and design changes supply chain collaboration and the introduction of volume production processes and advanced automation to drive down.

Randy McEwen: Costs.

Randy McEwen: We also recently announced two separate non-dilutive funding awards to Ballard totaling up to $94 million, consisting of $40 million in expected grants from the U.S. DOE Hydrogen and Fuel Cell Technologies Office and up to another $54 million in expected Advanced Energy Project Tax Credits, known as 48C, funded under the Inflation Reduction Act. Our capacity expansion plan comes at the very time that platform customers are being clear about what they need from Ballard in the future. They're counting on us to be there for them in volume and at the right cost.

Randy McEwen: We also recently announced two separate non dilutive funding awards to Ballard totaling up to $94 million consisting of $40 million of unexpected grants from the U S. D O hydrogen and fuel cell technologies office and up to another $54 million.

Randy McEwen: In expected advanced energy project tax credits known as 40 H C funded under the inflation reduction Act.

Randy McEwen: Our capacity expansion plan comes at the very time that platform customers are being clear about what they need from Ballard in the future, they're counting on us to be there for them at volume and at the right cost.

Randy McEwen: The ability for us to demonstrate a clear roadmap to high production volumes at significantly reduced cost is critical to customers transitioning from demonstrations to future scaled deployment. With Ballard-Rockwell Giga One, we plan to bring scaled, advanced manufacturing of next-generation fuel cells online in late 2027, at the same time as we expect to reach capacity constraints of our existing North American production facilities based on our forecasted growth and production volume. We expect to make a final investment decision on this facility later in 2024 pending completion of certain customary conditions, including necessary approvals and definitive documentation, including with Rockwall and with U.S. funding sources.

Randy McEwen: The ability for us to demonstrate a clear roadmap to high production volumes at significantly reduce cost is critical to customers transitioning from demonstrations.

Randy McEwen: Future skilled deployments.

Randy McEwen: With Ballard Rockwall Giga, one we plan to bring scaled advanced manufacturing of next generation fuel cells online in late 2027 at the same time, when we expect to reach capacity constraints of our existing North American production facilities based on our forecasted growth in production volumes.

Randy McEwen: We expect to make a final investment decision on this facility later in 2024 pending completion of certain customary conditions, including necessary approvals and definitive Doc documentation, including with Rockwell and with the U S funding sources.

Randy McEwen: Accordingly, we will provide a detailed review of the plans for Ballard Rockwell Giga One during an earnings call later this year. We also want to provide two interesting updates on the rail market so far in 2024. First, one of our customers in the commuter rail market, Stadler, revealed that its FLIRT H2 train, powered by Ballard fuel cell engines, has been entered in the Guinness Book of World Records for the longest distance achieved by a pilot hydrogen fuel cell electric multiple unit passenger train without refueling or recharging, an impressive 1,742 miles.

Randy McEwen: Accordingly, we will provide a detailed review of the plans of Ballard Rockwall Giggled won during an earnings call later this year.

Randy McEwen: Second, and importantly, on April 16th, CSX unveiled its first fuel cell locomotive, developed through its partnership with CPKC, where CPKC provides CSX with a powertrain conversion kit using Ballard fuel cell engines to refurbish diesel locomotives. We view this as a very exciting development. We believe hydrogen fuel cells are the only viable zero-emission powertrain solution to replace or refurbish diesel locomotives in North America. The total North American fleet is estimated to be around 40,000 locomotives, and notably, CPKC has approximately 2,500 diesel locomotives, and CSX has approximately 3,500 diesel locomotives, with high-power line haul locomotives using 2.4 megawatts of fuel cells, which is the equivalent of the amount of fuel cells required to power about 24 buses.

Randy McEwen: We want to also to provide two interesting updates on the rail market so far in 2024.

Randy McEwen: First one of our customers and the commuter rail market Stadler.

Randy McEwen: Revealed that it's flirt HQ train powered by Ballard fuel cell engines has been entered into the Guinness book of World Records for the longest distance achieved by a pilot hydrogen and fuel cell electric multiple unit passenger train without refueling or recharging and impressive 1742.

Randy McEwen: Two miles.

Randy McEwen: Second and importantly on April 16th <unk> unveiled its first fuel cell locomotive developed through its partnership with CP, Casey, where CP KC provides <unk> with a powertrain conversion kit using ballard fuel cell engines to refurbish ease of locomote.

Randy McEwen: We this we view this as a very exciting development.

Randy McEwen: We believe hydrogen fuel cells offer the only viable zero emission powertrain solution to replace or refurbish diesel locomotives in North America.

Randy McEwen: The total North American fleet is estimated to be around 40000 locomotives are notably <unk> has approximately 2500 diesel locomotives and see FX is approximately 3500 diesel locomotives.

Randy McEwen: With high power align whole locomotives using two four megawatts of fuel cells, which is equivalent of amount of fuel cells require to power about 24 buses. We believe this represents a large and attractive addressable market for Ballard.

Randy McEwen: We believe this represents a large and attractive addressable market for Ballard. And before I turn the call over to Paul to review our Q1 financial highlights, I'd like to provide a headline summary of Q1 and some commentary on our setup moving forward. In Q1, we booked $64.4 million and $64.5 million in new orders, increased our order backlog by 38%, announced total non-dilutive funding of up to $94 million for the planned build-out of our Rockwall Gigafactory, grew revenue by 9%, improved gross margin by 5 points, and reduced cash operating costs slightly while continuing to invest in next-generation products and product cost reductions.

Randy McEwen: Now before I turn the call over to Paul to review, our Q1 financial highlights I'd like to provide a headline summary of Q1 and some commentary on our setup moving forward.

Randy McEwen: In Q1, we booked $64.

Randy McEwen: 4 million $64 5 million in new orders increased our order backlog by 38% announced total non dilutive funding of up to $94 million for the planned build out of our Rockwall Giga factory grew revenue by 9% improved gross margin by five points and reduced cash operating costs slightly while <unk>.

Randy McEwen: <unk> and invest in next generation products and product cost reduction.

Randy McEwen: Looking forward, in the context of an increasingly constructive policy environment, growing order backlog, and with sustained investments in product cost reduction and advanced manufacturing capacity expansion, we see an exciting setup for the second half of 2024 and growth in 2025. We are well positioned to enable our customers to compete in the energy transition and the adoption of hydrogen fuel cells to decarbonize heavy-duty mobility and select stationary power applications. With that, I'll turn the call over to Paul to discuss our finances. Thanks, Randy.

Randy McEwen: Looking forward in the context of an increasingly constructive policy environment growing order backlog and was sustained investments and product cost reduction and advanced manufacturing capacity expansion, we see an exciting setup for the second half of 2024 and growth in 2025.

Randy McEwen: We are well positioned to enable our customers to compete in the energy transition and the adoption of hydrogen fuel cells to decarbonize heavy duty mobility and select stationary power applications with that I'll turn the call over to Paul to discuss our financials.

Paul: Thanks Randy.

Paul Dobson: In Q1, Ballard delivered $14.5 million in revenue, driven by strong growth in the bust and stationary verticals. Heavy-duty motive applications accounted for approximately 84% of the total, and when added to stationary power, our fuel cell products as a whole represented approximately 88%, once again emphasizing our shift into a commercial products company. As a reminder, from previous years, we see that Ballard revenue is typically weighted approximately 30% to 70% between the first and second half of the year and heavily indexed to Q4. 2024 looks to be no different.

Paul: In Q1, followed delivered $14 5 million in revenue driven by strong growth in the bus stationary verticals.

Paul Dobson: Heavy duty motive applications accounted for approximately 84% of the total and with added to stationary power our fuel cell products as a whole represented approximately 88%.

Paul Dobson: Once again, emphasizing our shift into a commercial products company.

Paul Dobson: As a reminder from previous years, we see that valid revenue is typically weighted approximately 30%, 70% between the first and second half of the year and heavily indexed to Q4 2024 looks to be no different.

Paul Dobson: Even with the continued shift in revenue mix to power products and the burden of fixed production overhead costs being spread over seasonally low revenue, the gross margin of negative 37% showed a five point improvement compared to Q1 2023. We are still anticipating underlying gross margins will break even in Q4 as revenue increases and product cost reduction activities have a greater impact. We reported total operating expenses of $37.1 million and cash operating costs of $29.8 million, both relatively flat compared to the prior year comparison.

Paul Dobson: Even with the continued shift in revenue mix to power products and the burden of fixed production overhead costs being spread over seasonally low more seasonally low revenue gross margin of negative 37% showed a five point improvement compared to Q1 2023.

Paul Dobson: We are still anticipating underlying gross margins will breakeven in Q4 as revenue increases and product cost reduction activities have greater impact.

Paul Dobson: We reported total operating expenses of $37 1 million in cash operating cost of $29 8 million, both relatively flat compared to the prior year comparable.

Paul Dobson: Capital expenditures totaled $7.5 million in Q2. We are maintaining our guidance ranges for total operating expenses and capital expenditures for the year. Our guidance for 2024 includes capital for the initial design and scoping activities for the Rockwell Gigafactory, assuming FID. The expected US government funding for the facility would impact our net capital expenditures in subsequent years starting in 2025. We ended the quarter with a strong balance sheet, with cash and cash equivalents just over $720 million. With that, I'll turn the call over to the operator for questions.

Paul Dobson: Capital expenditures totaled $7 5 million in Q1, we are maintaining our guidance ranges for total operating expenses and capital expenditures for the year.

Paul Dobson: Our guidance for 2024 includes capital for the initial design and scoping activities for the Rockwell Giga factory assuming.

Paul Dobson: We expect it to U S government funding for the facility would impact our net capital expenditures in subsequent years starting in 2025.

Paul Dobson: We ended the quarter with a strong balance sheet with cash and cash equivalents just over $720 million.

Paul Dobson: With that I'll turn the call over to the operator for questions.

Operator: Thank you. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We ask callers to kindly limit themselves to one question and one supplementary. The first question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.

Speaker Change: Thank you.

Paul Dobson: He joined the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request.

Robert Duncan Brown: A speakerphone please pick up your handset before pressing any key.

Robert Duncan Brown: Your question. Please press Star then two.

Operator: Yeah.

Robert Duncan Brown: At this time, we didn't limit themselves to one question and one supplemental.

Operator: Our next question comes from Rob Brown with Lake Street Capital markets. Please go ahead.

Robert Duncan Brown: Hi, good morning.

Robert Duncan Brown: Just wanted to follow up on the Solaris order, good scaling there, are you, can you give us a sense of sort of what the rollout schedule is and how, you know, how that market is developing and sort of what the sort of size of the market is and penetration rates you get to by the end of, kind of by the end of that contract?

Robert Duncan Brown: Good morning, just wanted to follow up on the Solaris order. Good scaling there or are you could you give us a sense of sort of what the rollout schedule is and how.

Robert Duncan Brown: Now how that market is developing and sort of what the sort of.

Robert Duncan Brown: The size of the market as penetration rates you can get to by the end of kind of by the end of it.

Robert Duncan Brown: Contract.

Robert Duncan Brown: Okay.

Randy McEwen: Good morning, Rob. Thanks for the question.

Speaker Change: Good morning, Rob. Thanks for the question, maybe just to step back a little bit and just remind everyone. We're really seeing the deployment of fuel cell electric bus scaling up both in Europe, and North America, driven largely by this transition to zero emission bus fleets into supported by regulations and strong mandates and of course public funding.

Randy McEwen: Maybe just step back a little bit and just remind everyone, we're really seeing the deployments of fuel cell electric buses scaling up both in Europe and North America, driven largely by this transition to zero emission bus fleets and supported by regulations and strong mandates and, of course, public funding. Just to give you a sense of where we are right now, we at Ballard have about 158 fuel cell buses in operation that have Ballard engines inside in North America and about 398 in Europe. In North America, I think we're probably right at 100% to 99 to 100% market share, and Europe is over 80%.

Speaker Change: Just just to give you a sense of kind of where we are right now we at Ballard have about 158 fuel cell buses in operation that have Ballard engines inside in North America, and about 398 in Europe, and North America, I think we're probably right at 100% to 99% to 100% market share in euro.

Randy McEwen: Over 80%. So we have really good visibility on what's happening in this market and what Youre seeing is that the proven operational advantages of fuel cell buses, including and a 500 kilometers or 350 miles a range.

Randy McEwen: The ability to have that range consistent for everyday and every season and the rapid refueling time kind of six to 12 minutes refill time.

Randy McEwen: And then you add in the complexity that comes with deep depot electrification as you scale up we're seeing a lot of operators really revisit their plans going forward is to see a growing number of cities committing to what I would characterize as the larger deployments. So blown yet for example, 127 buses Dennis.

Randy McEwen: So we have really good visibility on what's happening in this market, and so you see a growing number of cities committing to what I would characterize as a larger deployment. So, Bologna, for example, 127 buses, Venice, 90 fuel cell buses, Cologne, 150, Santa Cruz, 57. You've got many other cities in North America as well, Oakland, Philadelphia, Foothill in the LA basin area, Las Vegas, New York City, and Edmonton in Canada, all kinds of committing to fuel cell bus deployment.

Randy McEwen: 90 fuel cell buses Cologne 150, Santa Cruz 57, you've got many other cities.

Randy McEwen: In North America, as well, our Oakland Philadelphia Foothill in the La Basin area, Las Vegas, New York City in Edmonton in Canada, all kind of committing to a fuel cell bus deployments. So we see probably going from this situation, where you have roughly five to 600 buses in.

Randy McEwen: So we see probably going from this situation where you have roughly five to 600 buses in North America and Europe combined today to 1000s, literally, in a three, four year period. And so we're tracking a very healthy pipeline and with strong market share, with most of the OEMs that are offering fuel cell buses in North America and Europe being powered by Ballard. So we feel very comfortable with our position in the market and the growth opportunities we see.

Randy McEwen: North America, and Europe combined today, two thousands literally into.

Randy McEwen: In a three four year period, and so we're tracking a very healthy pipeline and with strong market share with most of the Oems that are offering fuel cell buses in North America and Europe are powered by Ballard. So we feel very comfortable with our position in the market and the growth opportunity, we see with Solaris specifically I don't.

Randy McEwen: With Solaris specifically, I don't want to comment on any one customer and their rollout schedule. We'll let them do that. But I would just indicate that we expect those 1000 engines to be deployed between 2024 and 2027.

Randy McEwen: To comment on any one customer and their rollout schedule, we'll let them do that but I would just indicate that we expect those thousand engines to be deployed between 2024 and 2027.

Randy McEwen: Okay, thanks for all the colors there, Randy. On the Rockwell expansion or new facility, what's the CAPEX requirements there, I guess, obviously impacted by the government funding side, but what's the CAPEX expected on that?

Speaker Change: Okay. Thanks for all the color there Randy.

Randy McEwen: On the Rockwell expansion or new facility.

Randy McEwen: Whats the Capex requirements, there I guess, obviously impacted by the government.

Randy McEwen: Government funding side, but what's the capex expected on that facility.

Randy McEwen: Yeah, great question, Rob. So we're doing quite a bit of work in parallel right now. We're polishing our project scope and final budget timeline. There's a lot of work going on, completing the facility design, the plant layout, looking at the permitting process, and finalizing our land acquisition agreement and our EPC contract. There's still some more work on equipment specification procurement. So what we expect to do, Rob, probably on the Q2 or Q3 call is actually provide a fairly comprehensive review of Rockwall once we get through FID and include a CapEx range at that point.

Randy McEwen: Yeah, Great question, Rob So we're doing quite a bit of work in parallel right. Now we are polishing our project scoping final budget timeline is a lot of work going on completing the facility design the plant layout looks.

Randy McEwen: Yeah. A great question, Rob.

Randy McEwen: Looking at the permitting process and finalizing our land acquisition agreement and our EPC contract.

Randy McEwen: There's still some more work on equipment specification procurement. So what we expect to do Rob probably on the Q2. Our Q3 call is actually provide a fairly comprehensive review of Rockwell once we get through.

Randy McEwen: And include our Capex range at that point, we had kind of indicated.

Randy McEwen: We kind of indicated, if I would put kind of parameters on right now, I would say in the 100 to 150 million net of the funding is kind of the parameters. And we'll tighten that up as we get out later in the year.

Randy McEwen: I would put kind of parameters on right now I would say in the $100 million to $150 million.

Randy McEwen: Net of the funding is kind of the parameters and we'll tighten that up as we get out later in the year.

Rob: Okay, great. Thank you I'll turn it over.

Speaker Change: Great. Thanks, Rob.

Aaron MacNeil: The next question comes from Aaron MacNeil with TD Cohen. Please go ahead.

Randy McEwen: The next question comes from Ann Macneil with TD Colin. Please go ahead.

Aaron MacNeil: Good morning. Thanks for taking the time to answer questions.

Aaron MacNeil: Good morning, Thanks for taking the time to answer questions.

Randy McEwen: Randy, you highlighted the upfront incentives to build Rockwall. Obviously, that's great and a step in the right direction. I can also appreciate that a larger update is forthcoming, but I guess I'm just wondering, at a very high level, are there any production tax credits that you can take advantage of? And, you know, if the capacity is three gigawatts, do you have any early indications of sort of what sort of sales volume you think you need out of the facility for it to break even? And then, you know, embedded in that to the extent that you can answer what sort of unit cost reductions do you assume relative to where you are today.

Aaron MacNeil: Randy you highlighted the upfront incentives to build Rockwall, obviously, that's great.

Randy McEwen: And a step in the right direction I can also appreciate that a larger update is forthcoming, but I guess I'm just wondering at a very high level are there any production tax credits that you can take of it take.

Randy McEwen: Advantage of and you know.

Randy McEwen: If the capacity is three Gigawatts do you have any early indications of sort of what sort of sales volume and you think you need out of the facility for it to breakeven and then you know embedded in that to the extent that you can answer what sort of unit cost reductions do you assume.

Randy McEwen: Relative to where you are today.

Randy McEwen: Yeah, so we've canvassed the U.S. market fairly carefully in terms of incentives, and we actually have other opportunities for this facility beyond the $94 million that we've commented on. And, of course, there's a package of incentives that comes with the Rockwell Economic Development Corporation. So I think all in, it will likely be higher than $100 million in total support opportunities there. It's non-dilutive.

Speaker Change: Yeah, So we've Kansas the U S market fairly carefully in terms of incentives.

Randy McEwen: We actually have other opportunities for this facility beyond the $94 million that we've commented on and of course, there is a package of incentives that comes with the Rockwell Economic Development Corporation. So I think all in will likely be higher than $100 million in total.

Randy McEwen: Support opportunities there of course, all non dilutive so that's very powerful for us as we move forward.

Randy McEwen: So that's very powerful for us as we move forward. In terms of like kind of unit economics, volume scale, et cetera, to get the profitability, I think we'll wait till the upcoming call to manage those. What I would say is just to be very clear, we don't have an order book at this time that satisfies the volume of three gigawatts that we're talking about. We are clearly looking at, you know, investing ahead of the adoption curve.

Randy McEwen: In terms of like kind of unit economics of volume scale et cetera to get the property, but I think we'll wait until the upcoming calls to manage those what I would say is just to be very clear. We don't have an order book at this time that satisfies the volume of three gigawatts that we're talking about clearly.

Randy McEwen: We are looking clearly at.

Randy McEwen: Investing ahead of the adoption curve.

Randy McEwen: But, of course, we have a sales pipeline that is showing very strong growth indicators across most of our vertical markets, and, of course, both in Europe and in North America. So you know, as we look at our scaling over the next couple of years and basically using production capacity, existing production capacity, and actually some capacity expansion that's ongoing here for bipolar plates in Burnaby, British Columbia, what we see is kind of meeting capacity constraints in that 2027 timeframe based on our sales pipeline and our forecasting for our financial model.

Randy McEwen: But of course, we have a sales pipeline that is showing very strong growth indicators across most of our vertical markets and of course a bowl.

Randy McEwen: For Europe and for North America. So.

Randy McEwen: As we look at our scaling over the next couple of years.

Randy McEwen: And basically using the production capacity existing.

Randy McEwen: Existing production capacity and actually some capacity expansion that is ongoing here for bipolar plates in Burnaby, British Columbia what.

Randy McEwen: What we see as kind of meeting capacity constraints in that 2027 timeframe based on our sales pipeline and are forecasting for our financial model.

Randy McEwen: Makes sense. Happy to wait. You know, I don't want you to get specific on customers and orders and pricing, but, you know, you've mentioned $1,000 per kilowatt in the past for these big orders. Like, is that still a good barometer or, you know, are you giving some discounts in exchange for volume?

Speaker Change: Makes sense.

Speaker Change: Happy to wait.

Randy McEwen: I don't want I know you don't want to get specific on on customers.

Randy McEwen: And orders and pricing.

Randy McEwen: You've mentioned $1000 per kilowatt in the past for these.

Randy McEwen: Big orders like is that still a good barometer or you know are.

Randy McEwen: Are you, giving some discounts in exchange for volume.

Randy McEwen: Yeah, Aaron, I would say for lower volume orders... You know, a thousand is probably a good proxy. You know, most cases were probably below that. But a thousand is a good proxy. As you get to higher volume orders, we are seeing, of course, pricing compression there, as we should be. And so, you know, these types of contracts are not at that level.

Speaker Change: Yeah, Erinn I would say for lower volume orders.

Randy McEwen: 1000 is probably a good proxy.

Randy McEwen: Most cases were probably below that but 1000 is a good proxy as you get to higher volume orders. We are seeing of course pricing compression there as we should be.

Randy McEwen: And so this is not these type of contracts are not at that level.

Speaker Change: Got it.

Speaker Change: To turn it over there thanks, Randy yes, great. Thanks, Sir.

Randy McEwen: Great. Thanks, Eric. The next question comes from Sonya Jain, with you.

Operator: The next question comes from Sonya Jain with UBS. Please go ahead. Hey.

Sonya Jain: The next question comes from Tom <unk> with UBS. Please go ahead.

Operator: Hmm.

Sonya Jain: Only playing out well.

Sonya Jain: Typically down a line and how you see the truck market growth in 2024 as well.

Sonya Jain: Yeah, so just to clarify your question, I think you're asking about the truck market, is that correct? Yeah, and the rail market for the US. Oh, and rail. Okay.

Sonya Jain: Yeah. So just to clarify your question I think you were asking about the truck market is that correct.

Sonya Jain: Yeah in the rail market for U S.

Sonya Jain: In rail Okay, Yeah, so just on the rail market.

Randy McEwen: Yeah. So just on the rail market. We'll start there first. I think one of the market opportunities that's probably not very well understood is the freight locomotive market. So you have commuter rail in Europe, and I would characterize it as modest in North America, but certainly Europe, a larger market opportunity there. As you know, in North America, the volume of commuter rail traffic is much lighter than it is in Europe. But on the freight locomotive market, as I commented in the opening remarks, basically, you've got a market with about 40,000 diesel locomotives. Those locomotives are refurbished or replaced every 15 years.

Sonya Jain: We will start with their first I think one of the market opportunity, that's probably not very well understood is the freight locomotive market. So you have both commuter rail in Europe.

Randy McEwen: And I would characterize it as modestly in North America, but certainly Europe, a larger market opportunity there as you know North America.

Randy McEwen: The volume of of commuter rail traffic is much later than it is in.

Randy McEwen: In Europe.

Randy McEwen: But on the free locomotive market as I commented in the opening remarks, basically you've got a market with about 40000 diesel locomotives.

Randy McEwen: Those locomotives are refurbished or replaced every 15 years. So roughly speaking you have about 2600 locomotives per year. If you look at each locomotive depending on the requirement for that locomotive being up to two four megawatts, let's assume it's about a megawatt now half.

Randy McEwen: So roughly speaking, you have about 2,600 locomotives per year. If you look at each locomotive, depending on the requirement for that locomotive, being up to 2.4 megawatts, let's assume it's about a megawatt and a half on average per locomotive, you're talking about a couple billion dollar market opportunity just for that market in North America. So it's a very exciting market opportunity for Ballard, a couple of years here over the next few years as customers like CPKC, and we're very excited with the work that CSX is doing as well.

Randy McEwen: On average per locomotive Youre talking about a.

Randy McEwen: Couple of billion dollar a year market opportunity just for that market in North America. So it's a very exciting market opportunity for Ballard we.

Randy McEwen: Have.

Randy McEwen: I would say.

Randy McEwen: A couple of year period here over the next few years as customers like CP Casey and we're very excited with the work that <unk> is doing as well.

Randy McEwen: As these companies continue to validate the use of hydrogen for locomotive applications, including their hydrogen storage tender solutions, I think this is the only pathway for decarbonizing. And when you look at the emissions and the costs associated with diesel and the variability of diesel pricing, I think the number one scope one emission is typically around 95% of scope one emissions for these operators is diesel fuel. So this is a real priority for these type of operators who are looking to the future and really looking at decarbonization.

Randy McEwen: As these type of companies continue to validate the use of hydrogen for locomotive applications, including their hydrogen storage tender solutions.

Randy McEwen: This is the only pathway for Decarbonising and when you look at the admissions and the costs associated with the diesel and the variability of diesel pricing.

Randy McEwen: I think the number one scope scope one emissions is typically around 95% of scope on it which missions for these operators is diesel fuel.

Randy McEwen: So this is a real priority for these type of operators, who are looking at the future to do you really look at decarbonization hydrogen is going to play a big role there.

Randy McEwen: Hydrogen is going to play a big, big role there. I don't think you're going to see any kind of high volume in the next year or two. This is going to take a number of years to validate.

Randy McEwen: I don't think youre going to see kind of a high volume in the next year or two this is going to take a number of years to validate but we're very well positioned with the solutions, we have with the partnerships that we have.

Randy McEwen: But we are very well positioned, with the solutions we have, and the partnerships that we have, to play an important role in this market. For example, on the commuter rail market, we have a number of partners there. Siemens that we've announced for the European commuter rail market, they obviously have an increasing presence in the North American commuter rail market too. And then Stadler is another customer for the North American and European markets as well.

Randy McEwen: To play an important role in this market on.

Randy McEwen: On the commuter rail market, we have a number of partners there.

Randy McEwen: Siemens that we've announced for the European commuter rail market. They obviously have an increasing presence in the north American commuter rail market too.

Randy McEwen: And then saddler is another customer for the North American and European market as well.

Randy McEwen: So I would say growth in this market by 2030. I think we're going to see very clear validation both for the commuter rail and for the locomotive market that puts it on a very strong pathway moving forward. For the truck market, this market is actually moving slower than I would like, and there are a variety of reasons for that.

Randy McEwen: So we see I would say growth in this market by 2030, I think we're going to see very clear validation both for the commuter rail.

Randy McEwen: And for the locomotive market that puts it on a very strong pathway moving forward.

Randy McEwen: For the truck market.

Randy McEwen: This market is actually moving slower than I would like and there are a variety of reasons for that.

Randy McEwen: We've been focused on what I call the truck market opportunities where you have return to base refueling. So think about things like drayage trucks and regional haul trucks that are coming back to the same base or yard at night. So you can avoid that distributed refueling infrastructure. And we see a number of applications in different weight ranges that will have, I think, hydrogen fuel cells as the primary solution. There'll be some battery electric cars in some of these weight ranges as well. I think it's gonna be a mixed solution.

Randy McEwen: <unk> been focused on what I'll call. The the truck market opportunities that we have returned to base refueling. So think about things like drayage trucks and regional haul trucks that are coming back to the same base our yard at night. So you can avoid that distributed refilling infrastructure.

Randy McEwen: And we see a number of applications in different ways.

Randy McEwen: Wait ranges that will have I think hydrogen fuel cells as the primary solution there'll be some battery electric and some of these weight ranges as well as it can be a mix mixed solution.

Randy McEwen: But it is taking longer, and I think the vehicle OEMs who've been investing quite a bit in different technologies, including autonomy, including battery electric, are now looking at hydrogen fuel cell investments as well. So we see a number of opportunities that are in the, I would say, early stages of validation with these customers as they're going through their RFP and RFQ processes. And we're very active on this front. So we are seeing, I'd say, increased activity from truck OEMs, the large, credible ones who are looking to bring solutions to market in the 2028 to 2030 timeframe.

Randy McEwen: But it is taking longer and I think the vehicle Oems who are investing quite a bit.

Randy McEwen: In different.

Randy McEwen: Different technologies, including autonomy, including battery electric.

Randy McEwen: Are now looking at the hydrogen fuel cell investments as well.

Randy McEwen: So we see a number of opportunities that are in the.

Randy McEwen: I would say early stages of validation with these customers as they're going through their RFP and RFP processes and we're very active on this front. So we are seeing I'd say increased activity from truck Oems. The large credible ones, who are looking to bring solutions to market on the 2028 to 2030.

Randy McEwen: In parallel to that, we're working with a number of what I would call the upfitters. So entrepreneurial companies that see a market gap today and are rushing to market with, in many cases, both battery-electric and fuel cell-electric, depending on the use case, and are looking to Ballard to provide them with fuel cell engines. And so that upfitter market is a market that we're also working on. So we have two flows of traffic, if you will, two streams of opportunity in the truck market. We're advancing both of them, but it is taking longer than we'd like.

Randy McEwen: Timeframe in parallel to that we're working with a number of what I would call the up fitters.

Randy McEwen: Entrepreneurial companies that see a market gap today and are rushing to market with in many cases, both battery electric and fuel cell electric depending on the use case and are looking to ballard to provide them with fuel cell engines.

Randy McEwen: And so that.

Randy McEwen: Up fitter market is a market that we're also working on so we have.

Randy McEwen: <unk> flows of traffic if you will.

Randy McEwen: Two streams of opportunity in the truck market, we're advancing both of them, but it is taking longer than we'd like.

Speaker Change: Got it okay. So much.

Randy McEwen: Yeah.

MacMurray Davidson Whale: The next question comes from Mac Whale of Coromark Securities. Please go ahead.

Randy McEwen: The next question comes from Mac whale with <unk> Securities. Please go ahead.

Randy McEwen: Hey, good morning. As you noted, Randy Strong, six months for new orders. I'm wondering, what are your thoughts on the variability of that going forward? We've seen in the past when you get these big orders, and it sort of draws some activity levels from the next quarters. Do you think you're through that now with these big long-term sales agreements, or do you think we're going to see some where we should be sort of expecting maybe a little bit more soft on the new order side? What are your thoughts on that?

MacMurray Davidson Whale: Hey, good morning.

Randy McEwen: As you've noted Randy strong.

Randy McEwen: Six months for new orders I'm wondering what are your thoughts on the variability of that going forward.

Randy McEwen: <unk> seen in the past when you get these big orders and that sort of draw some activity level from the next quarters or do you think you're through that now with these big long term sales agreements or do you think we're going to see some or we should be sort of expecting maybe a little bit more soft on the new order side what are your thoughts there.

Randy McEwen: Yeah, great question Mac. You know, what I would say is this is still very much an early stage demonstration market where some customers are earlier in their processes. But I do see that while there will be lumpiness and some of the market opportunities we're pursuing, like, for example, the backup power market for data centers or the marine market or even the rail market, you're looking at much larger-scale applications, power applications. And if you get scale orders there, it's quite different than, you know, the type of orders you'd see from the bus market.

Speaker Change: Yes, great Great question Mac.

Randy McEwen: What I would say this is still very much a.

Randy McEwen: Early stage demonstration market, where some customers are earlier in their processes.

Randy McEwen: But I do see that while there will be lumpiness in some of the market opportunities we are pursuing like.

Randy McEwen: For example, the the.

Randy McEwen: Backup power market for data centers or the marine market or even the rail market you are looking at much larger size.

Randy McEwen: Applications power applications, and if you get scale orders there it's quite different than the type of orders you can see from the bus market. So I think we're going to see continue to see a lot of variability in a lot of lumpiness. It will be based in some part on seasonality in some part based on.

Randy McEwen: So I think we're going to see, continue to see a lot of variability and a lot of lumpiness. It will be based in some part on seasonality and some part based on, you know, when funding sources are available. And of course, a couple of the contracts we've signed are long-term supply agreements with fixed volumes associated with them. So, you know, that doesn't happen every quarter.

Randy McEwen: When funding sources are available and of course, a couple of the contracts, we've signed a long term supply agreements with fixed volumes associated with them. So.

Randy McEwen: That doesn't happen every quarter. So there will be some variability, but I would see the trend is towards larger order books and the trend is towards getting a smoother cadence of.

Randy McEwen: So there will be some variability, but I would see the trend is towards larger order books and towards getting a smoother cadence of, you know, growth going forward. We do have a very strong sales pipeline. We expect to see some additional large orders through the year. So our job is to close those out.

Randy McEwen: Growth going forward we.

Randy McEwen: We do see a very strong sales pipeline and expect to see some additional large orders through the year.

Randy McEwen: So our job is to close those out okay.

Randy McEwen: And I guess related to that, as more evidence to support that, is if you look at the 12-month backlog, it's actually kind of back to where it was in 2021 when you had, correct me if I'm wrong, a lot more technology-related sales in the 12-month workbook. Is that correct?

Speaker Change: Alright, and I guess related to that because there's more evidence to support that is if you look at the 12 month backlog, it's actually kind of backdrop, where it was in 'twenty 'twenty. One when you had correct me if I'm wrong, a lot more technology related sales in the yield in the 12 month order book is that correct.

Randy McEwen: Yeah, I think that's one thing that's probably been misunderstood in some ways. People kind of look at revenue as being flat, and in some cases, the order book is flat, which has been true for a number of years. But the composition has changed dramatically, and so we're going to a situation now where we're reaching almost 90% revenue and similar on the order book front. And certainly in the sales pipeline, you know, it's heavily, heavily dominated by the sale of fuel cell engines now.

Speaker Change: Yes, I think Thats, one thing thats, probably been misunderstood in some ways people kind of look at the revenue as being flat and has in some cases. The order book is being flat, which has been true for a number of years, but the composition has changed dramatically and so we're going to a situation now where we're reaching almost 90%.

Randy McEwen: Revenue in a similar on the order book front and certainly on the sales pipeline.

Randy McEwen: Heavily heavily dominated by the sale of fuel cell engines now so just as an illustrative example, last year, we shipped over 500 fuel cell engines, a record year for Ballard on that front.

Randy McEwen: So just as an illustrative example, last year, we shipped over 500 fuel cell engines, a record year for Ballard on that front. You know, in the first quarter, we shipped over 100, which is, you know, a record for Q1.

Randy McEwen: In the first quarter, we shipped over 100, which is a record for Q1.

Speaker Change: Okay and just as a second question was just switching gears on that.

Randy McEwen: Kind of addressed this a little bit on the Giga factory in the U S. When that's up and running I know, it's still a few years out.

Randy McEwen: What is the contribution margin look like in the past you've spoken about contribution margin as opposed to sort of the margins you're reporting.

Randy McEwen: Is there any change in what you expect to see when that's up and running.

Randy McEwen: I'm not sure how you want to frame that. Yeah, so we will see.

Randy McEwen: Yes, yes, you want to lean back.

Speaker Change: Yes, so we will see a significant reduction in our costs as we move forward on manufacturing and so when you look at the.

Randy McEwen: The processes for EMEA the processor for bipolar plate production.

Randy McEwen: Those are the areas, we're seeing significant cost reduction opportunity with automation.

Randy McEwen: And different processes that really.

Randy McEwen: Help with things like yield and scrap rates et cetera that all go back to cost. So we will see a very significant difference in.

Randy McEwen: In material costs direct material and direct labor costs as we scale in our high automated facility.

Randy McEwen: And then as from as you move from contribution margin to gross margin then it becomes a function of getting the volume and getting your fixed overhead absorption across a bigger book of business. So.

Randy McEwen: We're actually very excited about the opportunity for both contribution margin expansion and gross margin expansion, particularly as volume hits in that new facility. Okay.

Randy McEwen: Okay.

Speaker Change: Great. Thanks. Thanks, that's all my questions. Thank you thanks, Matt.

MacMurray Davidson Whale: Thanks. That's all my questions.

Rupert M. Merer: The next question comes from Rupert Merer with the National Bank. Please go ahead.

MacMurray Davidson Whale: Our next question comes from Rupert <unk> with National Bank. Please go ahead.

Rupert M. Merer: Hi, good morning. Thanks for taking the question. I wanted to follow up on the cost reduction and pricing strategy. With the orders you've announced recently, are the prices you've offered for larger volumes out to 2027 representative of prices that are sustainable in the long run, or to put that another way, are your prices getting to a level that could be competitive with diesel buses on a TCO basis?

Rupert M. Merer: Hi, Good morning, Thanks for taking the question I wanted to follow up on the cost reduction and pricing strategy with the orders you've announced recently are the prices you've offered for larger volumes to 2027 representative of prices that are sustainable in the long run or to put that another way are your prices getting too.

Rupert M. Merer: A level that could be competitive with diesel buses on the T C O basis.

Randy McEwen: Yeah, I think what we'll see is that as we move forward, we're going to see, and this happened very similarly in the solar industry and wind and happened in the battery electric market, there is some variability in those markets, particularly when depending on supply and demand balances, but also very high dependency in some cases on, you know, rare earth metals and certain commodities. I don't see that going forward here on the commodity front, in terms of volatility.

Speaker Change: Yes, I think what we'll see is that as we move forward, we're going to see and this happened very similarly in the solar industry and wind and happened in the battery electric marketed there are some variability in those markets, particularly when depending on supply and demand balances, but also very high dependency in some cases.

Randy McEwen: On.

Randy McEwen: We are earth metals, and certain commodities I don't see that going forward here on the commodity front in terms of variability, but what I would say is we can expect to see selling price reduction on an annual basis and our job is to make sure that our cost reduction exceed selling <unk>.

Randy McEwen: But what I would say is that we're going to expect to see selling price reductions on an annual basis, and our job is to make sure that our cost reductions exceed selling price erosion so that we're effectively seeing margin expansion. And so that's what we currently have in our plan is we're assuming a certain percentage, it varies by year, but there's a, you know, kind of an overall blended percentage of cost reduction that, you know, customers are expecting.

Randy McEwen: Erosion, so that we're effectively seeing margin expansion and so that's what we currently have in our plan is we're assuming a certain percentage it varies by year, but others kind of an overall blended percentage of cost reduction.

Randy McEwen: Customers are expecting.

Randy McEwen: And certainly in the larger long term supply agreements that we've been signing up recently, we have cost reduction in selling price. We are selling price assumptions are reductions in there and it's supported by cost reduction assumptions that we have in our plan.

Randy McEwen: And certainly in the larger long-term supply agreements that we've been signing recently, we have cost reduction and selling price assumptions, reductions in there. And it's supported by cost reduction assumptions that we have in our plan.

Randy McEwen: And to follow up on that, you talked about some of the advantages you're going to have of scaling up your bipolar plate and MEA. Of course, a big part of your cost is coming from the balance of plant. Can you give us an update on the cost reductions you're seeing there and the commitments from your suppliers to bringing their costs down to where they need to be?

Speaker Change: Great. Thanks, and a follow up on that so you've talked about some of the.

Randy McEwen: Advantages are going to have a scaling up your bipolar plates in EMEA of course.

Randy McEwen: A big part of your cost is coming from balance of plant can you give us an update on <unk>.

Randy McEwen: Cost reductions youre seeing there and the commitments from your suppliers to bring their cost down to where they need to be.

Randy McEwen: Yeah, great, great question. And you know, I think it's worth knowing, too, like we're working now on our ninth generation of fuel cell engine. And, you know, we've learned a lot through eight generations, as you would expect, and including eight generations operating in the field. So we have a massive competitive advantage on this front. But what I would say is that, kind of, you know, if you look at the ninth generation, we have more of what we characterize as an open architecture.

Speaker Change: Yes, great Great question, and I think it's worth knowing too like we're working now on our ninth generation of fuel cell engine.

Randy McEwen: And we've learned a lot through eight generations as you would expect and including a generation's operating in the field. So we have a massive competitive advantage on this front.

Randy McEwen: But what I would say as we kind of if you look at the ninth generation, we have more of what we characterize as an open architecture.

Randy McEwen: And this has enabled us to integrate the DCDC, but also significantly reduce the number of parts, reduce the volume and the weight, and improve the powertrain integration and ease of service, but also significantly reduce the manufacturing time or the assembly time. So, this is all going to help reduce costs and improve the total cost of ownership for customers. You know, what I would say is a balance of plant component is a very significant cost reduction initiative at Ballard.

Randy McEwen: And this has enabled us to integrate the DC DC, but also reduced significantly the number of parts.

Randy McEwen: <unk> the volume and the weight.

Randy McEwen: And improve the powertrain integration and ease of service.

Randy McEwen: But also significantly reducing the manufacturing time, where the assembly time. So this is all going to help reduce cost and improve the total cost of ownership.

Randy McEwen: For customers.

Randy McEwen: What I would say is a balance of plant component is a very significant.

Randy McEwen: Cost reduction initiatives at Ballard, we have a fairly large balance of plant team that is working with the supply chain every day on making sure we're improving performance reliability availability and uptime warranty terms payment terms, but importantly, moving down costs and we've seen step change.

Randy McEwen: We have a fairly large plant team that is working with the supply chain every day to make sure we're improving performance, reliability, availability, and uptime, warranty terms, payment terms, but importantly, moving down costs. And we've seen step change cost reductions on a number of components that will be coming into production in 2025. So, we're pretty excited about some of the cost reductions we're seeing on the balance of plant components. And we look forward to kind of unveiling the ninth generation of the product, including some of the, you know, metric improvements that we're seeing there.

Randy McEwen: Cost reductions on a number of components that will be coming into production in 2025. So we're pretty excited about some of the cost reductions we're seeing on the balance of plant components, and we look forward to kind of unveiling the ninth generation of product.

Randy McEwen: Including some of the.

Randy McEwen: Metric improvements that we're seeing there.

Rupert M. Merer: That's great. Thanks for the color.

Speaker Change: That's great. Thanks for the color.

Speaker Change: Yes, Thanks Robert.

Jordan Alexander Levy: The next question comes from Jordan Levy with Truist Securities. Please go ahead.

Rupert M. Merer: The next question comes from Jordan Levy curious security. Please go ahead.

Jordan Alexander Levy: Morning, all. And thanks for taking my questions. Maybe start on the stationary side, nice to see the work and some of the momentum there with your customer in Europe. Maybe if you could just talk about the size of the opportunity in that market, near term, and then how you see that progressing over the next

Jordan Alexander Levy: Good morning, all and thanks for taking my question, maybe just to start on the stationary side through the work and some of the momentum there with your customer in Europe, maybe if you could just talk to kind of be opportunity size.

Jordan Alexander Levy: Over in that market near term and then how you should are progressing over the next couple of years.

Randy McEwen: Yeah, I would say so far we've been fairly constrained in our view on the market opportunity size for the total TAM for the stationary power market. We characterize it as kind of around $4 billion. But I think that's dramatically understated.

Speaker Change: Yeah, I would say so far we've been fairly constrained in our view on the on the market opportunity size for kind of the total Tam for the stationary power market, we characterize it kind of around $4 billion I think thats dramatically understated I think what's changed in the last year since we kind of assess that 4 billion Tam.

Randy McEwen: I think what's changed in the last year since we kind of assessed that $4 billion TAM market opportunity is really the data center market opportunity. And obviously, there have been a lot of publications out in the last six months on the growth and the expected growth of the data center market. And the number one challenge the data center operators have, particularly the hyperscalers, is access to green energy. And then, I would say, number two, is having the opportunity to get permitted quickly.

Randy McEwen: <unk> opportunity is really the data center market opportunity.

Randy McEwen: Obviously theres a lot of.

Randy McEwen: Publications out the last six months on the growth and the expected growth of the data center market and the number one challenge the datacenter operators have particularly the hyperscale or <unk> is the access to green energy.

Randy McEwen: Then I would say number two importantly is having the.

Randy McEwen: The opportunity to get permitted quickly and one of the challenges with permitting us to make sure that you have total clean energy solutions and we're seeing a number of markets that earlier cracking down to make sure that backup power is also clean energy solutions. So we see a very significant market opportunity for data centers.

Randy McEwen: And one of the challenges with permitting is to make sure that you have total clean energy solutions. And we're seeing a number of markets that are cracking down to make sure that backup power is also clean. So we see a very significant market opportunity for data centers, and that's a market that I think is going to take that TAM significantly higher. So we have more work to do this year with a couple of key partners that are very large players in the data center market to kind of validate that TAM.

Randy McEwen: And Thats a market that I think is going to take that Tam significantly higher. So we have more work to do this year with a couple of key partners that are very.

Randy McEwen: Large players in the data center market to kind of validate that Tam.

Randy McEwen: But I would say, you know, there's going to be a market where we're going to see a lot of lumpiness, and we expect to see more opportunities in 2024. You know, obviously, we've been announced this 15 megawatt opportunity orders. We expect to see more developments in this market in 2024 that will really set us up in 25 and 26 to make sure that we have the right partners and customers to really move forward in that.

Randy McEwen: But I would say theres going to be a market that we're going to see a lot of lumpiness and we expect to see more opportunities in 2024, obviously, we've announced the 15 megawatt opportunity.

Randy McEwen: Orders, we expect to see more developments in this market in 2024 that will really set us up in 'twenty five and 'twenty six.

Randy McEwen: To make sure that we have the right partners and customers to really move forward in that market.

Jordan Alexander Levy: Appreciate that, and then, as a follow-up separate topic, recognize the solid benefits of 48C and maybe some of the other credits that you can realize from the Rockwell plan. But maybe just talk about how important you see finalized PTC guidance to the local market opportunity for that plan and, maybe more broadly, the investment case for Rockwell.

Speaker Change: I appreciate that and.

Randy McEwen: As a follow up separate topic recognized the solid benefits 40 HCM.

Jordan Alexander Levy: Some of the other credits that you can realize from the rocket ball plant, but maybe just talk to how important you see finalized PTC guidance to the local market opportunity for that plant and maybe more broadly the investment case for Rockwell.

Randy McEwen: Yeah, um, first of all, Rockwall is designed to provide us with a product that we can use globally, frankly, but it, you know, it's going to be used to provide products primarily for the North American and European markets. And that will take us, in my opinion, likely through to at least 2030.

Jordan Alexander Levy: Yeah.

Jordan Alexander Levy: First of all Rockwall is designed to provide us with product that we can use globally frankly, but.

Randy McEwen: It's going to be used to provide products, primarily for the north American and European market.

Randy McEwen: And that will take us in my opinion likely through to at least 2030. So we have very good.

Randy McEwen: So we have a very good, you know, kind of capacity coming out of Rockwell and very cost-effective and efficient additional incremental phasing if we wanted to scale that up in the future. So, in terms of the PTC, we have the guidance that was published in December. The whole industry has provided feedback. I personally have talked to the U.S. DOE recently about the volume of feedback they've received and the kind of nature of the feedback.

Randy McEwen: Kind of capacity coming out of Rockwell and very cost.

Randy McEwen: Effective and efficient additional incremental phasing if we wanted to scale that up in the future.

Randy McEwen: So in terms of the PTC, we have the.

Randy McEwen: The guidance that was published in December the whole industry has provided feedback I personally have talked to the USDA recently about the volume of feedback they've received and the kind of the nature of the feedback. So there's a lot of work going on there.

Randy McEwen: So, there's a lot of work going on there, you know, with the IRS and the DOE looking at the feedback to kind of square the objectives of making sure that they have the right incentive mechanisms to support the growth they want, while also trying to make sure that, you know, the hydrogen that is produced has the, you know, clean hydrogen attributes that the policy is targeting. You know, there's a lot of debate around regionality, additionality, and time matching.

Randy McEwen: With the IRS and the dose looking at the feedback too to kind of square.

Randy McEwen: The objectives of making sure that they have the right incentive mechanisms to support the growth. They want while also trying to make sure that.

Randy McEwen: The hydrogen that is produced.

Randy McEwen: Has the.

Randy McEwen: A clean hydrogen attributes that the policy is targeting.

Randy McEwen: There's a lot of debate around the Regionalisation additionality and the time matching.

Randy McEwen: I think regardless of how this gets settled, there's really no major impact on us from, you know, the sales opportunities that we see through 2030 for Rockwall. You know, really, I think the cost and availability of hydrogen with the PTC, even in the constrained case where they take the most onerous or their most restrictive interpretation of the PTC, still provides us with a cost of hydrogen that is significantly lower than it is today.

Randy McEwen: I think regardless of how this gets settled there is really no major impact to us.

Randy McEwen: The sales opportunities that we see.

Randy McEwen: Through 2030 for Rockwell.

Randy McEwen: Really I think the the.

Randy McEwen: The cost and availability of hydrogen with the PTC, even in the constrained case, where they take the most onerous or their most restrictive interpretation of the PTC still provides us with the cost of hydrogen that is significantly lower than it is today.

Randy McEwen: I think with a $3 per kilogram production tax credit for clean hydrogen, as that's defined, you're probably looking at around 50% of the cost of green hydrogen being subsidized. So, for us, we view this as a really significant enabler to the market. Of course, we'd like to see the most, you know, flexible interpretation of PTC, but we'll see how that shapes up. We've submitted our response to the guidance and are waiting to see how that plays out.

Randy McEwen: I think with $3.

Randy McEwen: Per kilogram production tax credit for clean hydrogen as Thats defined.

Randy McEwen: You are probably looking at around 50% of the cost of green hydrogen being subsidized so for US we view this as a really significant enabler to the market of course, we'd like to see the most.

Randy McEwen: Yes.

Randy McEwen: <unk>.

Randy McEwen: Flexible interpretation of PTC, but we'll see how that shapes up we've submitted our response.

Randy McEwen: Two the guidance that are waiting to see how that debt.

Randy McEwen: Bakes out.

Jordan Alexander Levy: Super helpful; thanks so much.

Speaker Change: Super helpful. Thanks, so much.

Speaker Change: Okay. Thank you.

Craig Kenneth Shere: The next question comes from Craig Shere with the Tui Brothers. Please go ahead.

Jordan Alexander Levy: Our next question comes from Craig Shere Tuohy Brothers. Please go ahead.

Craig Kenneth Shere: Good morning. Thanks for taking the time to answer the question. We'll start with... Give or take, you're bleeding about 20 million dollars a quarter in operating cash flow. And I understand you're saying that your margins will, gross margin will approach break even by the fourth quarter on higher volume. But higher volume can have a working capital impact, and then you've already alluded to seasonal seasonality, like the first half of next year might then return to lower volumes and negative margins. So just in terms of this 20 million cash burn from operating cash flow, do you have any trends, color, expectations heading into the fourth quarter and first half next year about what we might anticipate?

Craig Kenneth Shere: Good morning, Thanks for taking the question.

Craig Kenneth Shere: Start with.

Craig Kenneth Shere: Do you ever take your bleeding about $20 million in cash a quarter in operating cash flow.

Craig Kenneth Shere: And I understand youre, saying that your margins will gross margin will approach breakeven by the fourth quarter on higher volume.

Craig Kenneth Shere: But but higher volume can have a working capital impact and then you've already alluded to cyclical seasonal seasonal seasonality like the first half next year.

Craig Kenneth Shere: My son returned to lower volumes and negative margins. So just in terms of the $20 million cash burn from operating cash flow.

Craig Kenneth Shere: Do you have any any trends color expectations heading into the fourth quarter and first half next year about.

Craig Kenneth Shere: What we might anticipate.

Paul Dobson: Yeah, sure. So, thanks for the question. You know, it's something that we look at all the time, because this is still a relatively immature market. You know, and the impact on our capital, and we look at different scenarios all the time. What we have to factor into that, though, is balancing what's in our sales pipeline and talking to customers about their expectations. They want a supplier that is going to be able to grow with them as they deploy their various fleets and various applications.

Speaker Change: Yes sure. So so thanks for the question, it's something that we look at all the time as this is still a relatively.

Paul Dobson: Immature market.

Paul Dobson: The impact on our on our cash flows when we look at different scenarios. All the time, what we have to factor into that.

Paul Dobson: Balancing our whats in our sales pipeline and talking to customers their expectations. They want a supplier that is going to be able to grow with them as they deploy these various fleets in various applications.

Paul Dobson: Also, our investments in products and reducing our product costs, as we've talked about, not only decrease the unit cost but increase performance and quality and the investment in manufacturing to enable scale benefits and growth. And you're balancing all of that against the cash on hand.

Paul Dobson: Also our call our investments in products and to reduce our product cost as we've talked about.

Paul Dobson: Not only decrease the unit costs, but increase the performance and quality and the investment in manufacturing to enable the.

Paul Dobson: The scale benefits and grow and you're balancing all of that against the cash on hand, and I think we've said in the past that we're looking at our funding and seeing all of these coming together.

Paul Dobson: And I think we've said in the past that we're looking at our funding and seeing all of this coming together. And seeing that, you know, we're going to need funding, additional funding, probably in the 26, 27 timeframe. And so we're looking at various ways of doing that. We were very fortunate to announce the DOE grants and the investment tax credits.

Paul Dobson: And seeing that.

Paul Dobson: We're going to need funding additional funding probably in the 26 2007 timeframe.

Paul Dobson: And so we're looking at various ways of doing that we are very fortunate to announce.

Paul Dobson: The Doa grants and the investment tax credits as Randy alluded to there are other things that we're looking at as well non dilutive financing that is going to be helpful. There and we're also having a hard look at all of our activities across the business and our where we're doing.

Paul Dobson: As Randy alluded to, there are other things that we're looking at as well, non-dilutive financing that is going to be helpful there. And we're also having a hard look at all of our activities across the business and where we do business in various locations and finding ways of redirecting spending or reducing overall spending of both OPEX and CapEx to kind of rationalize the product set and the rest of our costs. You saw in Q1, as we said on Capital Markets Day, our costs were relatively flat, with lower CapEx spending and operating costs that were relatively flat.

Paul Dobson: Business in various locations in finding ways.

Paul Dobson: Redirecting spending of reducing overall spending in both opex and capex to kind of rationalize the product set and at rest.

Paul Dobson: The rest of our costs you saw in our Q1 as we said in our capital markets day, our costs were relatively flat.

Paul Dobson: Lower lower capex spending and operating costs that were relatively flat.

Paul Dobson: And that's bumping up against, you know, a relatively higher inflationary environment as well. So we are looking very hard at all of our costs and focusing the company on where the market opportunities are. And we'll be able to, as we explore these other financing options, with particular emphasis on the non-dilutive ones, we'll bring out more information as those become more solid.

Paul Dobson: And Thats bumping up against our.

Paul Dobson: Relatively higher inflationary environments as well. So we are looking very hard at our at our all of our costs and focusing the company on where the market opportunities are and we will be able to as we explore these other financing options with particular emphasis on that on the non dilutive ones.

Paul Dobson: We will bring out more information as those become more solid.

Craig Kenneth Shere: Fair enough. Just on that first question to finish this point. I mean, you had a very strong fourth quarter, and sales seasonally fell, and you had a working capital benefit. Is it unreasonable to think that heading into a fourth quarter surge, there'd be a working capital drain?

Speaker Change: Fair enough just on the first question to finish this point.

Craig Kenneth Shere: You had very strong fourth quarter and sales seasonally fell and you had a working capital benefit.

Craig Kenneth Shere: Is it unreasonable to think the heading into.

Craig Kenneth Shere: A fourth quarter surge that there'd be a working capital drain.

Paul Dobson: Yes, yeah, we would expect that. As sales come up, you know, our receivables and inventory are building throughout the year. Our receivables will be building, and then we'll see the receivable inflow, you know, in Q1, as we did this Q1. So, you know, we expect that pattern to continue. We are, though, also, as part of, you know, as we're looking at our cash flows and, you know, as we come up to scale, looking at, you know, all aspects of working capital, customer terms, inventory reduction, inventory management, tighter on that, and payment terms with our suppliers as well. So all of it is a big focus of mine.

Speaker Change: Yes, yes, we would expect that as sales come up.

Paul Dobson: Our receivables and inventories building throughout the year, our receivables will be building and then we will see.

Paul Dobson: <unk> inflow.

Paul Dobson: In Q1, as we did this Q1.

Paul Dobson: So we expect that that pattern.

Paul Dobson: To continue we are though also was part of what we're looking at all of our cash flows.

Paul Dobson: As we come up to scale looking at all aspects of working capital customer terms.

Paul Dobson: Inventory and reduction in inventory management tighter on that.

Paul Dobson: In our payment terms with our suppliers as well so all of it is a big focus of mine.

Craig Kenneth Shere: Right. And I want to go ahead.

Paul Dobson: Right and then wanted to get rid of it.

Randy McEwen: Go ahead. Sorry, Craig.

Speaker Change: Go ahead, sorry, Craig I might just add to that when we kind of look at 2023 last year, we really implemented a number of activities really sharpen the focus to make sure that we have this right balance of investing for the future, making sure we have competitive products not just today, but five years from.

Craig Kenneth Shere: I might just add to that. You know, when we kind of looked at 2023 last year, we really implemented a number of activities to really sharpen the focus to make sure that we have this right balance of investing for the future, making sure we have competitive products, not just today, but five years from now and 10 years from now, and at the right cost structure, et cetera. And so, you know, we rationalized the product portfolio last year.

Craig Kenneth Shere: Now in 10 years from now and then.

Craig Kenneth Shere: At the right cost structure et cetera.

Craig Kenneth Shere: We rationalized the product portfolio last year, we reduced the number of active product development programs.

Craig Kenneth Shere: We reduced the number of active product development programs. We dropped corporate development investments and discontinued certain legacy non-core activities. So, you know, we're taking a very careful look to make sure that we are investing resolutely kind of in the long term but protecting the balance sheet.

Craig Kenneth Shere: <unk> corporate development investments and discontinued certain legacy noncore activities. So.

Craig Kenneth Shere: We're taking a very careful look to make sure that we are investing resolutely kind of on the long term, but protecting the balance sheet.

Craig Kenneth Shere: Okay, that's very helpful. And it feeds right into my second question, which also digs into the answer to Rupert's first question. Um, and related to this, you know, multi-year contracts and providing your customers with lower prices on an annual basis and planning to kind of, you know, leg into that with even more reductions in your internal costs. It feels like that is... a challenging effort.

Craig Kenneth Shere: Okay.

Speaker Change: Very helpful and it feeds right into my second question, which also digs into the answer to <unk> first question.

Craig Kenneth Shere: And that related to this.

Craig Kenneth Shere: Multi year contracts.

Craig Kenneth Shere: In providing your customers lower pricing on an annual basis and planning to kind of.

Craig Kenneth Shere: <unk> to that what's even more reductions on your internal costs.

Craig Kenneth Shere: It feels like that is.

Craig Kenneth Shere: I think it's very hard to predict with certainty the timelines for these things, when the market will scale. And if you have, you know, a growing order book with falling annual pricing, but the ultimate market scaling takes, whatever, another 12 or 18 months for various reasons beyond anyone's control, that may be, I'm just being sarcastic. It is that. Very challenging in your mind, is there a risk that if things turn dramatically different than anticipated for any macro reason, you could suddenly find yourself bleeding a lot more cash in 18 months than expected? Yeah,

Craig Kenneth Shere: A challenging effort.

Craig Kenneth Shere: Very hard to predict.

Craig Kenneth Shere: With certainty the timelines for these things when the market will scale.

Craig Kenneth Shere: And if you have you know.

Craig Kenneth Shere: A growing order book with falling annual pricing.

Craig Kenneth Shere: But the ultimate market scaling takes whatever another 12 or 18 months for various reasons beyond anyone's control.

Craig Kenneth Shere: Maybe I'm just.

Craig Kenneth Shere: Is that.

Craig Kenneth Shere: Very challenging in your mind is there a risk that if things turn dramatically different than anticipated for any of macro reason.

Craig Kenneth Shere: You could suddenly find yourself bleeding a lot more cash in 18 months and expected.

Randy McEwen: Yeah, Craig, everything about the hydrogen fuel cell industry is challenging, right? This is not for the faint of heart, but what I would say is when we sign a long-term agreement and we're committing to future forward pricing, we have a very high probability of what our costs are. We're not taking a risk on that, right? So there is some development risk, and there's some very modest volume risk, but not kind of what you're talking about.

Speaker Change: Yes, so Craig everything about the hydrogen fuel cell industry is challenging right. This is not for the fate of heart.

Randy McEwen: We're not saying is when we sign a long term agreement and we're committing to future forward pricing, we have very high probability on what our costs are we're not taking risk on that right. So there is some.

Randy McEwen: Development risks and there are some very modest volume risk, but not not kind of what youre talking about.

Randy McEwen: So, I feel very confident, very confident that our cost reductions will exceed our selling price reductions based on the work that we're doing and based on the supply chain visibility. I don't view that, you know, there's lots of risks I think about at night. That's not one of them.

Randy McEwen: So I feel very confident very confident that our cost reductions will exceed our selling price reductions based on the work that we're doing and based on the supply chain visibility I don't view that.

Randy McEwen: There's lots of risks I think about at night, that's not one of them.

Craig Kenneth Shere: Great. Good to hear. Thank you.

Speaker Change: Good to hear thank you.

Vikram Bagri: Our next question comes from Vikram Bagri of Spitz City. Please go ahead.

Craig Kenneth Shere: Our next question comes from Nick <unk>.

Vikram Bagri: Please go ahead.

Vikram Bagri: Hi there. A couple questions on gross margin. Could you just remind us if there were any impairments this quarter? And then just looking at the Power Products backlog, which looks like it picked up this quarter, how should we be thinking about that going forward? And how does that impact your outlook for the fourth quarter for that break-even target? Is that mix consistent with the next 12-month order book that you see?

Vikram Bagri: Hi, there.

Vikram Bagri: A couple questions on gross margin could you just remind us if there are any impairments this quarter.

Vikram Bagri: And then just looking at the the power products backlogs.

Vikram Bagri: But it looks like that ticked up this quarter.

Vikram Bagri: How should we be thinking about that going forward and how does that impact.

Vikram Bagri: Your outlook for the fourth quarter for that for that breakeven targets.

Vikram Bagri: That mix consistent with the next 12 months order book that you see.

Paul Dobson: So just on the gross margin question. As we stated, we had a gross margin of minus 37%, which was a five point improvement from Q1. And then looking underneath the gross margin, if we just talk about contribution margin, so price minus the direct labor and direct materials, it was broadly the same quarter to quarter. But both the products, contribution margin, as well as TS, improved. So we are starting to see some expansion in the products as we become more of a commercial products company. But it was flat overall because of the mix of products; we have more products with generally lower contribution margins than our technology solutions. So overall, it was flat.

Speaker Change: So just on the gross margin question. So as we as we stated.

Paul Dobson: Gross margin of minus 37%, which was a five point improvement from Q1.

Paul Dobson: And then looking underneath the gross margin if we just talk about contribution margin so price minus the direct labor indirect materials. It was broadly the same quarter to quarter, but both the products.

Paul Dobson: Contribution margin as well as PFS improved so we are starting to see some expansion in the products.

Paul Dobson: <unk> become more of a commercial products company, but it was flat overall because the mix of products, we have more products with generally lower contribution margins than our technology solution. So overall it was it was flat, but underneath the product contribution margin as.

Paul Dobson: But underneath, the product contribution margin is expanded. And then looking at our, you know, fixed and other costs, including the fixed overhead warranty and other provisions, that improved by about six points. Overall, we had a net reduction in our warranty accruals as certain warranties expired, and that provided a net benefit with we also had a few other very small inventory right down in the quarter, but nothing like what we saw in Q4 of last year.

Paul Dobson: Is expanding.

Paul Dobson: I've been looking at our fixed and other costs, including the fixed overhead warranties and other provisions that improved by about six points.

Paul Dobson: Overall, we had a net reduction in our warranty accruals as certain warranties expired.

Paul Dobson: And that provided a benefit a net benefit.

Paul Dobson: We also had a few other was very small inventory.

Paul Dobson: Right down in the quarter, but nothing nothing like what we saw in Q4 of last year. So overall as we continue to invest.

Paul Dobson: So overall, as we continue to invest in our products, we continue to expect to deliver product cost reductions, and when combined with the increasing sales volume and spreading that sales over a fixed cost, we expect to see gross margins improve over time.

Paul Dobson: And our products, we continue to expect to deliver product cost reductions and when combined with the increasing sales volume and spread in <unk> sales over over our fixed costs.

Paul Dobson: We expect to see gross margins improving over time.

Vikram Bagri: Got it. Okay, that's very helpful.

Speaker Change: Got it okay, that's very helpful.

Vikram Bagri: Just one follow up last quarter, there was a customer that has impacted.

Vikram Bagri: The backlog I think that project is being delayed.

Vikram Bagri: And just one follow-up. Last quarter, there was a customer that had impacted the backlog. I think their project was being delayed. Could you just talk about if there's any update there, could we expect to see that customer re-enter the backlog at some point? Just any update would be helpful, thanks. Yeah, we're staying very close to that situation.

Speaker Change: Could you just talk about if there's any update there.

Vikram Bagri: We expect to see that customer reenter the backlog at some point just any update would be would be helpful. Thanks.

Randy McEwen: Yeah, we're staying very close to that situation, literally, almost daily, so we have very good visibility on what's happening there. And they've made a lot of progress since December, and we're expecting them to get resolved likely in the next, you know, quarter, let's call it. But we'll wait to see that, and we'll see at that time what the impact is on the order backlog.

Speaker Change: Yes, we're staying very close to that situation literally almost daily. So we have very good visibility on what's happening there.

Randy McEwen: And they've made a lot of progress since December and we will we're expecting them to get resolved likely in the next.

Randy McEwen: Quarter, let's call it.

Randy McEwen: But we will wait to see that.

Randy McEwen: And we will see at that time, what the impact is to the order backlog.

Speaker Change: Got it thank you.

Randy McEwen: This concludes our question and answer session I would like to turn the conference back over to Randy Macewen for any closing remarks. Please go ahead.

Operator: This concludes the question and answer session. I would like to turn the conference back over to Randy McEwen for any closing remarks. Please go ahead.

Randy McEwen: Thank you for joining us today. Paul, Kate, and I look forward to speaking with you next quarter. Thank you. This concludes the question, and this concludes today's.

Randy McEwen: Thank you for joining us today, Paul Kate and I look forward to speaking with you next quarter. Thank you.

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

Speaker Change: This concludes the question and.

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Speaker Change: Concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

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