Q2 2024 Ballard Power Systems Inc Earnings Call

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

Operator: Thank you for standing by. This is the conference operator. Welcome to the Ballard Pow Systems second quarter 2024 results conference call. As a reminder, all participants are in a 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 1 on your telephone keypad.

Operator: Thank you for standing by.

Operator: This is the conference operator.

Operator: Welcome to the Ballard Power System, Second Quarter, 2024 results conference call. As a reminder, all participants are in a listen-only mode, and the conference is being recorded.

Speaker Change: Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems Second Quarter 2024 Results Conference Call.

Operator: As a reminder, all participants are in a 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 1 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 Igbalodeh, Vice President, Investor Relations. Please go ahead.

Speaker Change: As a reminder, all participants are in a listen-only mode and the conference is being recorded.

Operator: 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.

Speaker Change: After the presentation, there will be an opportunity to ask questions.

Speaker Change: To join the question queue, you may press star then 1 on your telephone keypad.

Operator: Should you need assistance during the conference call, you may signal an operator by pressing star, then zero.

Operator: 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 Igbalodeh, Vice President of Investor Relations. Please go ahead.

Speaker Change: Should you need assistance during the conference call, you may signal an operator by pressing star then zero.

Kate Igbo-Lo Day: I would now like to turn the conference over to Kate Igbo-Lo Day, Vice President, Investor Relations. Please go ahead.

Speaker Change: I would now like to turn the conference over to Kate Igbalodeh.

Kate Igbalodeh: Thank you, Operator, and good morning. This is the Ballard Second 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. 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. I'll now turn the call over to Randy.

Kate Igbo-Lo Day: Thank you, operator, and good morning. Welcome to Ballard's second quarter, financial and operating results conference call. With us on today's call are Randy McEwan, Ballard CEO, and Paul Dobson, Chief Financial Officer.

Kate Igbalodeh: Thank you, Operator, and good morning. Welcome to Ballard's second 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. 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. I'll now turn the call over to Randy.

Kate Igbalodeh: Vice President Investor Relations. Please go ahead.

Kate Igbalodeh: Thank you operator and good morning. Welcome to Ballard's second quarter financial and operating results conference call

Kate Igbalodeh: With us on today's call are Randy McEwen, Ballard's CEO, and Paul Dobson, Chief Financial Officer. 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.

Kate Igbo-Lo Day: We will be making forward-looking statements that are based on management's current expectations, policies and assumptions, concerning future events. Actual results could be materially different.

Kate Igbo-Lo Day: Please refer to our most recent Annual Information Form and other public filings for our completed slamer and related information.

Speaker Change: 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.

Randy McEwan: I'll now turn the call over to Randy.

Randy McEwen: Thank you, Kate, and welcome everyone to today's conference call. During Q2, we made measured progress on key 2024 deliverables relating to products, advanced manufacturing, and markets, all in support of our long-term strategy. On products, we launched our 9th generation PEM fuel cell engine, resetting the industry standard for PEM fuel cell engine performance for heavy duty mobility. Enabled by an innovative open architecture design and other new design advances, the powerful and compact FCmove XD enables several important performance improvements as compared to our prior generation engine, including 120 kilowatt power output from our latest high performance single stack.

Randy McEwan: Thank you, Kate, and welcome everyone to today's conference call. During Q2, we made measured progress on key 124 deliverables relating to products, advanced manufacturing, and markets, all in support of our long-term strategy. On products, we launched our ninth generation PEM fuel cell engine, resetting the industry standard for PEM fuel cell and your performance for heavy duty mobility. Enabled by an innovative open architecture design and other new design advances, the powerful compact FC Move XD enables several important performance improvements as compared to our prior generation engine, including 120 kilowatt power output from our latest high-performance single stack.

Randy McEwen: Thank you, Kate, and welcome everyone to today's conference call. During Q2, we made measured progress on key 2024 deliverables relating to products, advanced manufacturing, and markets, all in support of our long-term strategy. In products, we launched our 9th generation PEM fuel cell engine, resetting the industry standard for PEM fuel cell engine performance for heavy-duty mobility. Enabled by an innovative open architecture design and other new design advances, the powerful and compact FC Move XD enables several important performance improvements as compared to our prior generation engine, including 120 kilowatt power output from our latest high-performance single stack, and a 33% reduction in total part count, significantly improving reliability and reducing cost.

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

Randy: During Q2, we made measured progress on key 2024 deliverables relating to products, advanced manufacturing and markets, all in support of our long-term strategy.

Randy: On products, we launched our 9th generation PEM fuel cell engine, resetting the industry standard for PEM fuel cell engine performance for heavy duty mobility.

Randy: Enabled by an innovative open architecture design and other new design advances, the powerful compact FC-MOVE XD enables several important performance improvements as compared to our prior generation engine.

Randy: including 120 kilowatt power output from our latest high-performance single stack, 33% reduction in total part count, significantly improving reliability and reducing costs.

Randy McEwan: 33 percent reduction in total park count, significantly improving reliability and reducing costs. High peak system efficiency at greater than 60 percent, enabling improved fuel consumption and efficient heat rejection, wide operating temperature range, up to 95 degrees C. Integrated power controller incorporates DC-DC converter, air compressor inverter, and a power distribution unit, along with proprietary software controls, enabling improved engine control. Engine operation and efficiency, rapid up and down transient times with an innovative hot standby mode enabling rapid power increase, improved manufacturer ability with assembly times cut by more than half, and easier access to parts for faster and lower cost field maintenance.

Randy McEwen: 33% reduction in total part count, significantly improving reliability and reducing cost. High-peak system efficiency of greater than 60%, enabling improved fuel consumption and efficient heat rejection. Wide operating temperature range, up to 95 degrees C. Integrated power controller incorporates DC-DC converter, air compressor inverter, and a power distribution unit, along with proprietary software controls, enabling improved engine operation and efficiency.

Randy McEwen: High-peak system efficiency of greater than 60%, enabling improved fuel consumption and efficient heat rejection. Wide operating temperature range, up to 95 degrees C. Integrated power controller incorporates DC-DC converter, air compressor inverter, and a power distribution unit, along with proprietary software controls, enabling improved engine operation and efficiency.

Randy: High-peak system efficiency at greater than 60%, enabling improved fuel consumption and efficient heat rejection.

Randy: wide operating temperature range up to 95 degrees C. Integrated power controller incorporates DC-DC converter, air compressor inverter, and a power distribution unit, along with proprietary software controls, enabling improved engine operation and efficiency.

Randy McEwen: Wrap it up and down transient times with an innovative hot standby mode enabling rapid power increase. Improve manufacturability with assembly times cut by more than half and easier access to parts for faster and lower cost field maintenance. An additional compelling feature of our new FCMove XD is scalability based on modularity. We can offer customers efficient integration of 120-kilowatt, 240-kilowatt, and 360-kilowatt solutions depending on vehicle class, use case, and duty cycle. For example, two engines totaling 240 kilowatts of power output can be easily installed in the engine compartment of a typical Class 8 heavy-duty truck, enhancing standardization and offering redundancy.

Randy McEwen: Wrap it up and down transient times with an innovative hot standby mode enabling rapid power increase, improved manufacturability with assembly times cut by more than half, and easier access to parts for faster and lower cost field maintenance. An additional compelling feature of our new FCMove XD is scalability based on modularity. We can offer customers efficient integration of 120-kilowatt, 240-kilowatt, and 360-kilowatt solutions depending on vehicle class, use case, and duty site. For example, two engines totaling 240 kilowatts of power output can be easily installed in the engine compartment of a typical Class 8 heavy-duty truck, enhancing standardization and offering redundancy.

Randy: Wrap it up and down transient times with an innovative hot standby mode enabling rapid power increase. Improved manufacturability with assembly times cut by more than half and easier access to parts for faster and lower cost field maintenance.

Randy McEwan: An additional compelling feature of our new FC Move XD is scalability based on modularity. We can offer customers efficient integration of 120 kilowatt, 240 kilowatt, and 360 kilowatt solutions depending on vehicle class, use case, and duty cycle. For example, two engines totaling 240 kilowatt of power output can be easily installed in the engine compartment of a typical Class 8 heavy duty truck and a enhancing standardization and offering redundancy. With a design life of 30,000 hours plus hours of operation, or over 1 million miles in truck operation at typical duty cycles, the FC Move XD engine is developed to deliver class-leading durability and low total cost of ownership.

Randy: An additional compelling feature of our new FC Move XD is scalability based on modularity. We can offer customers efficient integration of 120 kilowatt, 240 kilowatt, and 360 kilowatt solutions depending on vehicle class, use case, and duty cycle.

Randy: For example, two engines totaling 240 kilowatts of power output can be easily installed in the engine compartment of a typical Class 8 heavy-duty truck, enhancing standardization and offering redundancy.

Randy McEwen: With a design life of 30,000 hours plus hours of operation or over 1 million miles in truck operation at typical duty cycles, the FCMove XD engine is developed to deliver class-leading durability and low total cost of ownership. We already have initial units in the hands of some select customers and have been receiving positive feedback. There's growing market interest, and we have manufacturing builds planned during the remainder of the year. On advanced manufacturing, we're tracking the plan against Project FORGE, which is our program to scale graphite bipolar plate production by approximately 10 times and reduce costs of next generation plates by up to 70%.

Randy McEwen: With a design life of 30,000 hours plus hours of operation or over 1 million miles in truck operation at typical duty cycles, the FCMove XD engine is developed to deliver class-leading durability and low total cost of ownership. We already have initial units in the hands of some select customers and have been receiving positive feedback. There's growing market interest, and we have manufacturing builds planned during the remainder of the year. On advanced manufacturing, we're tracking the plan against Project FORGE, which is our program to scale graphite bipolar plate production by approximately 10 times and reduce costs of next generation plates by up to 70%.

Randy: With a design life of 30,000 hours plus hours of operation, or over 1 million miles in truck operation at typical duty cycles, the FCMove XD engine is developed to deliver class-leading durability and low total cost of ownership.

Randy McEwan: We already have initial units in the hands of some select customers and have been receiving positive feedback. There's growing market interest, and we have manufacturing builds planned during the remainder of the year. On advanced manufacturing, we're tracking to plan against Project Forge, which is our program to scale graphite bipolar plate production by approximately 10 times and reduce costs of next generation plates by up to 70%. We have developed several mobile manufacturing processes that enable full automation of the bipolar plate production processes, which we expect to result in significantly reduced labor costs, improved material yield, reduced production tax times, reduced energy demand, and the elimination of water consumption from plate manufacturing.

Speaker Change: We already have initial units in the hands of some select customers and have been receiving positive feedback. There's growing market interest and we have manufacturing builds planned during the remainder of the year.

Speaker Change: On advanced manufacturing, we're tracking the plan against Project FORGE®, which is our program to scale graphite bipolar plate production by approximately 10 times and reduce costs of next-generation plates by up to 70%.

Randy McEwen: We've developed several novel manufacturing processes that enable full automation of the bipolar plate production processes, which we expect to result in significantly reduced labor costs, improved material yield, reduced production tack times, reduced energy demand, and the elimination of water consumption from plate manufacturing.

Randy McEwen: We have developed several novel manufacturing processes that enable full automation of the bipolar plate production processes, which we expect to result in significantly reduced labor costs, improved material yield, reduced production tack times, reduced energy demand, and the elimination of water consumption from plate manufacturing.

Speaker Change: We've developed several novel manufacturing processes that enable full automation of the bipolar plate production processes.

Speaker Change: which we expect to result in significantly reduced labor costs, improved material yield, reduced production tack times, reduced energy demand, and the elimination of water consumption from plate manufacturing.

Randy McEwan: We expect commissioning an optimization of our new bipolar plate production processes in Burnaby in late 2025.

Randy McEwen: We expect commissioning and optimization of our new bipolar plate production processes in Burnaby in late 2025. In markets, we announced a strategic technology partnership with Vertiv to demonstrate the technical feasibility and customer benefits of fuel cell backup power solutions for the fast-growing data center market. Initial validation tests at VIRTEV's facility in Ohio have demonstrated the successful operation of zero-emission fuel cell backup power, integrated in VIRTEV's UPS architecture for data centers.

Randy McEwen: We expect commissioning and optimization of our new bipolar plate production processes in Burnaby in late 2025. In markets, we announced a strategic technology partnership with Vertiv to demonstrate the technical feasibility and customer benefits of fuel cell backup power solutions for the fast-growing data center market. Initial validation tests at VIRTEV's facility in Ohio have demonstrated the successful operation of zero-emission fuel cell backup power, integrated in VIRTEV's UPS architecture for data centers.

Speaker Change: We expect commissioning and optimization of our new bipolar plate production processes in Burnaby in late 2025.

Randy McEwan: And on markets, we announce a strategic technology partnership with Virtuv to demonstrate the technical feasibility and customer benefits of fuel cell backup power solutions for the fast growing data center market. Initial validation tests at Virtuv's facility in Ohio have demonstrated successful operation of zero mission fuel cell backup power, integrated in Virtuv's UPS architecture for data centers. We continue work with Virtuv to understand the market requirements, develop an optimized technical solution, and engage the market.

Speaker Change: And on markets, we announced a strategic technology partnership with Vertiv to demonstrate the technical feasibility and customer benefits of fuel cell backup power solutions for the fast-growing data center market.

VIRTEV: Initial validation tests at VIRTEV's facility in Ohio have demonstrated successful operation of zero-emission fuel cell backup power integrated in VIRTEV's UPS architecture for data centers.

Randy McEwen: We continue to work with VRTIF to understand the market requirements, develop an optimized technical solution, and engage the market. I'd like to make a few comments about our order book and also about broader market adoption. First, on the order book.

Randy McEwen: We continue to work with Virtiv to understand the market requirements, develop an optimized technical solution, and engage the market. I'd like to make a few comments about our order book and also about broader market adoption. First, on the order book. Following almost 130 million total new orders in the previous two quarters, Q2 net order intake was soft at $5 million as certain customers deferred new orders.

VIRTEV: We'll continue to work with VRTIF to understand the market requirements, develop an optimized technical solution, and engage the market.

Randy McEwan: I'd like to make a few comments about our order book and also about broader market adoption. First, on the order book, following almost 130 million total new orders in the previous two quarters, Q2 net order intake was soft at $5 million, as certain customers deferred new orders. Given the stage of development of the industry, we expect continued quarterly lumpiness for the foreseeable future. Second, on overall market adoption, it's important to note that while we make confident in the long-term value proposition of hydrogen fuel cells, the timeline for market adoption is clearly moving to the right.

Randy McEwen: Following almost 130 million total new orders in the previous two quarters, Q2 net order intake was soft at $5 million, as certain customers deferred new orders. Given the stage of development of the industry, we expect continued quarterly lumpiness for the foreseeable future. Second, on overall market adoption, it's important to note that while we remain confident in the long-term value proposition of hydrogen fuel cells, the timeline for market adoption is clearly moving to the right.

VIRTEV: I'd like to make a few comments about our order book and also about broader market adoption.

VIRTEV: First, on the order book.

Speaker Change: Following almost 130 million total new orders in the previous two quarters, Q2 net order intake was soft at $5 million as certain customers deferred new orders.

Speaker Change: Given the stage of development of the industry, we expect continued quarterly lumpineers for the foreseeable future.

Randy McEwen: Given the stage of development of the industry, we expect continued quarterly lumpiness for the foreseeable future. Second, on overall market adoption, it's important to note that while we remain confident in the long-term value proposition of hydrogen fuel cells, the timeline for market adoption is clearly moving to the right. We continue to observe a slow pace of contract awards for new clean hydrogen projects.

Speaker Change: Second, on overall market adoption.

Speaker Change: It's important to note that while we remain confident in the long-term value proposition of hydrogen fuel cells, the timeline for market adoption is clearly moving to the right. We continue to observe a slow pace of contract awards for new clean hydrogen projects.

Randy McEwan: We continue to observe a slow pace of contract awards for new clean hydrogen projects. We've spoken before about the slowing effects of the for many hydrogen projects. We're also seeing projected policy uncertainty that is slowing market adoption. As an example, there's continued uncertainty in the U.S., including the extended discussion around the 45-V Clean Hydrogen Production Tax Credit rules. The draft regulations, which were released eight months ago, are still being debated by the industry; it remains unclear whether these regulations will be resolved before the U.S. Presidential election. This is delaying investment in the U.S. hydrogen industry, including in large-scale clean hydrogen projects.

Randy McEwen: We continue to observe a slow pace of contract awards for new clean hydrogen projects. We've spoken before about the slowing effects of the inflationary and interest rate environment over the past few years that are creating challenging economics for many hydrogen projects. We're also seeing projected policy uncertainty that is slowing market adoption. As an example, there's continued uncertainty in the U.S., including the extended discussion around the 45E Clean Hydrogen Production Tax Credit.

Randy McEwen: We've spoken before about the slowing effects of the inflationary and interest rate environment over the past few years that are creating challenging economics for many hydrogen projects. We're also seeing projected policy uncertainty that is slowing market adoption. As an example, there's continued uncertainty in the U.S., including the extended discussion around the 45E clean hydrogen production tax credit. The draft regulations, which were released eight months ago, are still being debated by the industry. It remains unclear whether these regulations will be resolved before the U.S. presidential election.

Speaker Change: We've spoken before about the slowing effects of the inflationary and interest rate environment over the past few years that are creating challenging economics for many hydrogen projects. We're also seeing projected policy uncertainty that is slowing market adoption.

Speaker Change: As an example, there's continued uncertainty in the U.S., including the extended discussion around the 45E Clean Hydrogen Production Tax Credit Rules.

Randy McEwen: The draft regulations, which were released eight months ago, are still being debated by the industry. It remains unclear whether these regulations will be resolved before the U.S. presidential election. This is delaying investment in the U.S. hydrogen industry, including in large-scale clean hydrogen projects. We also continue to observe policy uncertainty and related market delays in Europe and China.

Speaker Change: The draft regulations, which were released eight months ago, are still being debated by the industry. It remains unclear whether these regulations will be resolved before the U.S. presidential election.

Randy McEwen: This is delaying investment in the U.S. hydrogen industry, including in large-scale clean hydrogen projects. We also continue to observe policy uncertainty and related market delays in Europe and China. Overall, we see a multi-year pushout for the availability of low-cost, low-carbon hydrogen and hydrogen refueling infrastructure, which represents significant headwinds in our markets, including the truck vertical. Given this environment, we continue to carefully track market adoption indicators and scrutinize the pace of our investments and spending.

Speaker Change: This is delaying investment in the U.S. hydrogen industry, including in large-scale clean hydrogen projects.

Randy McEwan: We also continue to observe policy uncertainty and related market delays in Europe and China. Overall, we see a multi-year push out on the availability of low-cost, low-carbon hydrogen and hydrogen refueling infrastructure, which represents the significant headwinds in our markets, including the truck burden. Given this environment, we continue to carefully track market adoption indicators and scrutinize the pace of our investments and spending. For example, in this Paul will note, we have toggled back our 2024 capex spend.

Speaker Change: We also continue to observe policy uncertainty and related market delays in Europe and China.

Randy McEwen: Overall, we see a multi-year push for the availability of low-cost, low-carbon hydrogen and hydrogen refueling infrastructure, which represents a significant headwind in our markets, including the truck vertical. Given this environment, we continue to carefully track market adoption indicators and scrutinize the pace of our investments and spending. For example, and as Paul will note, we have toggled back our 2024 CapEx spend. With this in mind, we want to provide a brief update on our proposed production facility in Texas, where we've been awarded U.S. funding totaling $94 million.

Speaker Change: Overall, we see a multi-year push out on the availability of low-cost, low-carbon hydrogen and hydrogen refueling infrastructure, which represents a significant headwind in our markets, including the truck vertical.

Speaker Change: Given this environment, we continue to carefully track market adoption indicators and scrutinize the pace of our investments and spending.

Randy McEwen: For example, and as Paul will note, we have toggled back our 2024 CapEx spend. With this in mind, we want to provide a brief update on our proposed production facility in Texas, where we've been awarded U.S. funding totaling $94 million. We continue to do our work to assess the business case for this project. We're conducting a thorough analysis of the scope, timing, cost, alternatives, and financial return on the proposed project, including an analysis of capital deployment timing relative to market adoption and volume timing. We're also reviewing project permitting, conditions, and documentation, including with the USDOE, other funding sources, and related to site acquisition.

Speaker Change: For example, and as Paul will note, we have toggled back our 2024 CapEx spend.

Randy McEwan: With this backdrop, we want to provide a brief update on our proposed production facility in Texas, where we have been awarded US by totaling $94 million. We continue to do our work to assess the business case for this project. We're conducting the thorough analysis of the scope, timing, cost, alternatives, and financial return on the proposed project, including an analysis of capital employment timing relative to market adoption and volume timing. We're also reviewing project permitting, conditions, and documentation, including with the US DOE, other funding sources, and related despite acquisition. This is important work, and it's being done to support making a go or no-go final investment decision later in 2024.

Paul: With this backdrop, we want to provide a brief update on our proposed production facility in Texas, where we've been awarded U.S. funding totaling $94 million.

Randy McEwen: We continue to do our work to assess the business case for this project. We're conducting a thorough analysis of the scope, timing, cost, alternatives, and financial return on the proposed project, including an analysis of capital deployment timing relative to market adoption and volume timing. We're also reviewing project permitting, conditions, and documentation, including with the U.S. DOE, other funding sources, and related despite acquisition. This is important work, and it's being done to support making a go or no go final investment decision later in 2024.

Paul: We continue to do our work to assess the business case for this project.

Paul: We're conducting a thorough analysis of the scope, timing, costs, alternatives, and financial return on the proposed project, including an analysis of capital deployment timing relative to market adoption and volume timing.

Paul: We're also reviewing project permitting, conditions and documentation, including with the USDOE, other funding sources, and related to site acquisition.

Randy McEwen: This is important work, and it's being done to support making a go or no go final investment decision later in 2024. We look forward to providing an update on this later in the year. Before I turn the call over to Paul to discuss our Q2 financials, I want to emphasize again that, notwithstanding the stalling timeline for market adoption, we remain confident in the long-term direction of travel, including the important role that hydrogen fuel cells will play in helping decarbonize our global economy, including in the heavy-duty mobility markets, as well as Ballard's long-term position.

Paul: This is important work and it's being done to support making a go or no-go final investment decision later in 2024. We look forward to providing an update on this later in the year.

Randy McEwan: We look forward to providing an update on this later in the year. Before I turn the call over to Paul to discuss our Q2 financials, I want to emphasize again that, notwithstanding the stolen timeline for market adoption, we were being confident in the long-term direction of travel, including an important role that hydrogen refuel cells employee in helping decarbonize our global economy, including in the heavy-duty mobility markets, as well as balance long-term positioning. We continue to focus on controllables, including customer experience, product development programs, product cost reduction initiatives, advanced manufacturing capacity planning, all while maintaining a strong balance sheet for long-term sustainability.

Randy McEwen: We look forward to providing an update on this later in the year. Before I turn the call over to Paul to discuss our Q2 financials, I want to emphasize again that, notwithstanding the slowing timeline for market adoption, we remain confident in the long-term direction of travel, including the important role that hydrogen fuel cells will play in helping decarbonize our global economy, including in the heavy-duty mobility markets, as well as Ballard's long-term position.

Paul: Before I turn the call over to Paul to discuss our Q2 financials, I want to emphasize again that notwithstanding the stalling timeline for market adoption, we remain confident in the long-term direction of travel.

Speaker Change: including the important role that hydrogen fuel cells will play in helping decarbonize our global economy, including in the heavy-duty mobility markets, as well as Ballard's long-term positioning.

Randy McEwen: We continue to focus on the controllable, including customer experience, product development programs, product cost reduction initiatives, and advanced manufacturing capacity planning, all while maintaining a strong balance sheet for long-term sustainability. With that, I'll now pass the call over to Paul. Thanks, Randy.

Randy McEwen: We continue to focus on control, including customer experience, product development programs, product cost reduction initiatives, and advanced manufacturing capacity planning, all while maintaining a strong balance sheet for long-term sustainability. With that, I'll now pass the call over to Paul. Thanks, Ray.

Speaker Change: We continue to focus on controllables, including customer experience, product development programs, product cost reduction initiatives, advanced manufacturing capacity planning, all while maintaining a strong balance sheet for long-term sustainability.

Paul Dobson: With that, I'll now pass the call over to Paul.

Paul Dobson: Thanks, Randy. In Q2, Ballard delivered $16 million in revenue driven by strong growth in the 48% year over year and made up 84% of the total revenue versus 59% in Q2 last year, once again emphasizing our shift into a commercial products company. As a reminder, from previous years, we see that Ballard revenue is typically heavily indexed to Q4 and in 2024 is following a similar trend.

Speaker Change: With that, I'll now pass the call over to Paul.

Paul Dobson: In Q2, Ballard delivered $16 million in revenue driven by strong growth in the bus vertical, up 84% quarter over quarter. Our fuel cell product sales revenue was up 48% year over year and made up 84% of the total revenue versus 59% in Q2 last year, once again emphasizing our shift into a commercial products company. As a reminder, from previous years, we see that Ballard revenue is typically heavily indexed to Q4, and 2024 is following a similar trend.

Paul Dobson: In Q2, Ballard delivered $16 million in revenue, driven by strong growth in the bus vertical, up 84% quarter over quarter. Our fuel cell product sales revenue was up 48% year over year and made up 84% of the total revenue versus 59% in Q2 last year, once again emphasizing our shift into a commercial products company. As a reminder, from previous years, we see that Ballard revenue is typically heavily indexed to Q4, and 2024 is following a similar trend.

Paul: Thanks, Randy.

Paul: In Q2, Ballard delivered $16 million in revenue driven by strong growth in the bus vertical, up 84% quarter over quarter.

Paul: Our fuel cell product sales revenue was up 48% year over year and made up 84% of the total revenue versus 59% in Q2 last year, once again emphasizing our shift into a commercial products company.

Paul: As a reminder, from previous years, we see that valid revenue is typically heavily indexed to Q4, and 2024 is following a similar trend.

Paul Dobson: With the shift in revenue mix to power products and the burden of fixed production overhead cost being spread over seasonally low revenue, we saw a gross margin of negative 32%, an 11-point decrease compared to Q2 of 2023. We are still anticipating underlying gross margins will break even in Q4 as revenue increases and product cost reduction activities have greater impact.

Paul Dobson: With the shift in revenue mix to power products and the burden of fixed production overhead costs being spread over seasonally low revenue, we saw a gross margin of negative 32%, an 11 point decrease compared to Q2 of 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 $36.2 million and cash operating costs of $30.9 million, both relatively flat compared to prior year comparables. Capital expenditures totaled approximately $7 million in Q2.

Paul Dobson: With the shift in revenue mix to power products and the burden of fixed production overhead costs being spread over seasonally low revenue, we saw a gross margin of negative 32%, an 11 point decrease compared to Q2 of 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 $36.2 million and cash operating costs of $30.9 million, both relatively flat compared to prior year comparables.

Paul: With the shift in revenue mix to power products and the burden of fixed production overhead costs being spread over seasonally low revenue, we saw a gross margin of negative 32%, an 11 point decrease compared to Q2 of 2023.

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

Paul Dobson: We reported total operating expenses of 36.2 million and cash operating costs of 30.9 million, both relatively flat compared to prior year comparables. Capital expenditures total approximate be 7 million in Q2. We are maintaining our guidance range for total operating expenses.

Paul: We reported total operating expenses of $36.2 million and cash operating costs of $30.9 million, both relatively flat compared to prior year comparables.

Paul Dobson: Capital expenditures totaled approximately $7 million in Q2. We are maintaining our guidance range for total operating expenses; however, we are reducing our guidance for capital expenditures for the year to $25 to $40 million from $50 to $70 million. We believe the prudent decision is to reduce our capital spending in light of market conditions and adoption rates and to take advantage of the flexibility within our capital project timeline. We have a strong balance sheet ending the quarter with $678 million in cash and cash equivalents. With that, I'll turn the call over to the operator for questions. Thank you.

Paul Dobson: We are maintaining our guidance range for total operating expenses. However, we are reducing our guidance for capital expenditures for the year to $25 to $40 million from $50 to $70 million. We believe the prudent decision is to reduce our capital spending in light of market conditions and adoption rates and to take advantage of the flexibility within our capital project timeline. We have a strong balance sheet ending the quarter with $678 million in cash and cash equivalents.

Paul: Capital expenditures totaled approximately seven million in Q2.

Paul Dobson: However, we are reducing our guidance for capital expenditures for the year to 25 to 40 million, from 50 to 70 million. We believe the prudent decision is to reduce our capital spending in light of market conditions and adoption rates, and to take advantage of the flexibility within our capital project timelines.

Paul: We are maintaining our guidance range for total operating expenses, however, we are reducing our guidance for capital expenditures for the year to $25 to $40 million, from $50 to $70 million.

Paul: We believe the prudent decision is to reduce our capital spending in light of market conditions and adoption rates, and to take advantage of the flexibility within our capital project timelines.

Paul Dobson: We have a strong balance sheet ending reported with 678 million in cash and cash equivalents.

Paul: We have a strong balance sheet ending the quarter with $678 million in cash and cash equivalents.

Operator: Without, I'll turn the call over to the operator for questions. Thank you.

Operator: With that, I'll turn the call over to the operator for questions. Thank you. We will now begin the question and answer session. 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.

Speaker Change: With that, I'll turn the call over to the operator for questions.

Operator: Thank you. We will now begin the question and answer session. 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 follow-up. We will pause for a moment as callers join the queue. The first question today comes from Rupert Merer with the National Bank. Please go ahead.

Operator: We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speaker phone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We ask collars to kindly limit themselves to one question and one follow-up.

Speaker Change: Thank you. We will now begin the question and answer session.

Speaker Change: To join the question queue, you may press star then 1 on your telephone keypad.

Speaker Change: You will hear a tone acknowledging your request.

Speaker Change: If you are using a speakerphone, please pick up your handset before pressing any keys.

Speaker Change: To withdraw your question, please press star then 2.

Speaker Change: We ask callers to kindly limit themselves to one question and one follow-up.

Operator: We will pause for a moment as collars join the queue.

Speaker Change: We will pause for a moment as callers join the queue.

Rupert Murr: The first question today comes from Rupert Murr with National Bank. Please go ahead.

Operator: To withdraw your question, please press star then 2. We ask callers to kindly limit themselves to one question and one follow-up. We will pause for a moment as callers join the queue. The first question today comes from Rupert Merer with National Bank. Please go ahead. Good morning.

Speaker Change: The first question today comes from Rupert Murr with National Bank. Please go ahead.

Randy McEwan: Hello, good morning everyone. Maybe if I could start the questions on your product, your 9th generation of PEM fuel cell, you told us a little about the performance improvements, Randy. How does this compare to the competition? And what do you do next? How much better can you get from here?

Rupert Merer: Hello, good morning everyone. Maybe I could start the questions on your product, your 9th generation of PEM fuel cells. You told us a little about the performance improvements, Randy. How does this compare to the competition, and what do you do next? How much better can you get from here?

Rupert Merer: Maybe I could start the questions on your product. For your ninth generation of PEM fuel cell, you told us a little about the performance improvements, Randy. How does this compare to the competition? And what do you do next?

Rupert Murr: Hello. Good morning, everyone.

Rupert Murr: Maybe if I could start the questions on your product, your ninth generation of PEM fuel cell. You told us a little about the performance improvements, Randy. How does this compare to the competition and what do you do next? How much better can you get from here?

Randy McEwan: Thank you for the question. I think when you look at the competitive dynamics, there's certainly a lot of investment going on from some of the players that are introducing products or planning to introduce products. When we look at things like durability, the 30,000 plus hours of durability, we think that is a major competitive advantage at Valorant. When we look at power density, whether that's measured by volumetric or gravimetric power density, we're seeing that this FC Move XD actually has the highest power density industry for the market. I think when we look at the architecture and the part counts, we continue to reduce the part counts.

Randy McEwen: Morning, Rupert. Thanks for the question. I think when you look at the competitive dynamics, there's certainly a lot of investment going on from some of the players that are introducing products or planning to introduce products. But when we look at things like durability, you know, the 30,000 plus hours of durability, we think that is a major competitive advantage at Ballard. When we look at power density, whether that's measured by volumetric or gravimetric power density, we see that this FCmove XD actually has the highest power density in the industry for heavy-duty applications.

Randy McEwen: How much better can you get from here? Morning Rupert, thanks for the question. I think when you look at the competitive dynamics, there's certainly a lot of investment going on from some of the players that are introducing products or planning to introduce products. But when we look at things like durability, you know, the 30,000 plus hours of durability, we think that is a major competitive advantage at Ballard. When we look at power density, whether that's measured by volumetric or gravimetric power density, we see that this FCmove XD actually has the highest power density in the industry for heavy-duty applications.

Randy: Morning Rupert, thanks for the question. I think when you look at the competitive dynamics there's certainly a lot of investment going on from some of the players that are introducing products or planning to introduce products.

Randy: When we look at things like durability, you know, the 30,000 plus hours of durability, we think that is a major competitive advantage at Ballard.

Randy: When we look at power density, whether that's measured by volumetric or gravimetric power density, we're seeing that this FCmove XD actually has the highest power density in industry for the heavy-duty applications.

Randy McEwen: And then I think when we look at the architecture and the part counts, we continue to reduce the part counts; we think that that's critically important. I think some of the other things, too, are just the integration of DCDC and software and the air compressor inverter. All these things are bringing together a solution that's easier for customers to integrate and easier for customers to package in service. I think overall, we feel very happy about not just the improvement this represents on our prior generation but where it stands in the competitive market.

Randy McEwen: And then I think when we look at the architecture and the part counts, we continue to reduce the part counts; we think that that's critically important. I think some of the other things, too, like the integration of DCDC and software and the air compressor inverter; all these things are bringing together a solution that's easier for customers to integrate and easier for customers to package in service. So I think overall, we feel very happy about not just the improvement this represents over our prior generation, but where it stands in the competitive market. So if you look at the plan you laid out... A few years ago, one year ago... Technology plan, cost reduction. How far along are you now?

Randy: And then I think when we look at the architecture and the park counts, if we continue to reduce the park counts

Randy McEwan: We think that's critically important. I think some of the other things too is just the integration of DC-DC and software and the air compressor and inverter. All these things are bringing together a solution that's easier for customers to integrate and easier for customers to package in service. I think overall we feel very happy about not just the improvement this represents on our prior generation, but where it stands in the competitive marketplace.

Randy: We think that that's critically important. I think some of the other things, too, is just the integration of DCDC and software and the air compressor inverter, all these things are bringing together a solution that's easier for customers to integrate.

Randy: and easier for customers to package and service. So I think overall, we feel very, very happy about not just the improvement this represents on our prior generation, but where it stands in the competitive marketplace.

Randy McEwan: If you look at the plan you laid out a few years ago on your technology plan and cost reduction, how far along are you now? How much further do you have to go on that path? Yes, a great question. We highlighted two aspects of that plan. One we called three by three, which was looking at a 70% cost reduction for our stacks, and then on top of that, also looking at about a 70% cost reduction on balance of plant components. And certainly, the work that we've done on MEA over the last number of years, the work that we just described today on next generation bipolar plates, and the enabling of lower cost plate production, which after MEA is the second most important cost into the stack.

Rupert Merer: So if you look at the plan you laid out a few years ago for your... Technology plan and cost reduction. How far along are you now? How much further do you have to go on that path?

Speaker Change: If you look at the plan you laid out a few years ago on your technology plan and cost reduction, how far along are you now? How much further do you have to go on that path?

Randy McEwen: How much further do you have to go on? Yes, a great question. We highlighted two aspects of that plan. One we called three by three, which was looking at a 70% cost reduction for our stacks.

Randy McEwen: Yes, a great question. We highlighted kind of two aspects of that plan. One we called 3x3, which was looking at a 70% cost reduction for our stacks. And then, on top of that, also looking at about a 70% cost reduction on the balance of plant components. And certainly, the work that we've done on MEA over the last number of years, the work that we just described today on next-generation bipolar plates, and the enabling of lower cost plate production, which is, after MEA, the second most important cost in the stack.

Speaker Change: Yes, a great question. We highlighted kind of two aspects of that plan. One we called 3x3, which was looking at a 70% cost reduction for our stacks, and then on top of that also looking at about a 70% cost reduction on balance of plant components.

Randy McEwen: And then on top of that, we're also looking at about a 70% cost reduction on the balance of plant components. And certainly, the work that we've done on MEA over the last number of years, the work that we just described today on next generation bipolar plates, and the enabling of lower cost plate production, which is, after MEA, the second most important cost in the stack. And then the work we've done on developing engines and the supply chain to reduce the balance of plant components.

Speaker Change: and certainly the work that we've done on MEA over the last number of years.

Speaker Change: The work that we just described today on next-generation bipolar plates and the enabling of lower-cost plate production, which is, after MEAs, the second most important cost into the stack.

Randy McEwen: And then the work we've done on developing engines and the supply chain to reduce the balance of plant components. There's a lot of work that I would say over the past three years, we've seen not just in-house designs but strong collaboration with, I would characterize it as a maturing supply chain for new balance of plant components. So, you know, I think we've made significant progress. We're probably about two-thirds of the way through, perhaps more than that overall. And we expect to see, you know, the kind of completion of these important projects in the next 18 to 24 months, particularly with the bipolar plate project completed by the end of next year.

Randy McEwan: Then the work we've done on developing engines and the supply chain to reduce balance of plant components is a lot of work that I would say, over the past three years, we've seen not just the in-house designs but strong collaboration with, I would characterize it as a maturing supply chain for new balance of plant components. I think we've made a significant progress.

Speaker Change: And then the work we've done on developing engines and the supply chain.

Randy McEwen: There's a lot of work that I would say over the past three years, we've seen not just in-house designs but strong collaboration with what I would characterize as a maturing supply chain for new balance of plant components. So, you know, I think we've made significant progress. We're probably about two-thirds of the way through, perhaps more than that, overall. And we expect to see, you know, the kind of completion of these important projects over the next 18 to 24 months, particularly with the bipolar plate project completed by the end of next year. Craig, I'll leave it there and get back in the queue. Thank you. Yep, super, thank you. The next question comes from Mac Whale with Cormac Securities. Please go ahead. Hey, good morning.

Speaker Change: to reduce balance of plant components. There's a lot of work that I would say over the past three years we've seen, not just the in-house designs,

Speaker Change: but strong collaboration with, I would characterize it as a maturing supply chain for new balance of plant components.

Randy McEwan: We're probably about two-thirds of the way through, perhaps more than that overall, and we expect to see, over the next 18 to 24 months, kind of completion of these important projects, particularly with the bipolar plate project completing by the end of next- Craig, I'll leave it there and get back in the queue.

Speaker Change: You know, I think we've made significant progress. We're probably about two-thirds of the way through, perhaps more than that overall. And we expect to see, you know, over the next 18 to 24 months kind of completion of these important projects, particularly with the bipolar plate project completing by the end of next year.

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

Rupert Merer: Craig, I'll leave it there and get back in the queue. Thank you.

Randy McEwan: Thank you.

Operator: As a reminder, all participants are in a 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.

Randy McEwan: Super, thank you.

Speaker Change: Great, I'll leave it there and get back in the queue. Thank you.

Mac Whale: The next question comes from Mac Whale with Cornac Securities. Please go ahead.

Mac Whale: The next question comes from Mac Whale of Cormac Securities. Please go ahead.

Speaker Change: Yep, super. Thank you

Speaker Change: The next question comes from Mac Whale with Cormac Securities. Please go ahead.

Mac Whale: Hey, good morning. Randy, I'm wondering, like, how should we think about that transition to the introduction of the next gen? Would your customers be flipped over to that product within a year, or what do we think?

Mac Whale: Randy, I'm wondering, like, how should we think about that transition to the introduction of the next gen? Would your customers be flipped over to that product within a year, or how do we... Yeah, great question, Mac. I would say it really is different for different customers.

Mac Whale: Randy, I'm wondering, like, how should we think about that transition on the introduction

Mac Whale: Would your customers be flipped over to that product within a year or or how do we think about that?

Kate Igbo-Lo Day: I would now like to turn the conference over to Kate Igbo-Lo Day, Vice President Investor Relations. Please go ahead. Thank you operator and good morning. Welcome to Ballard's second quarter, financial and operating results conference call. With us on today's call are Randy McEwan, Ballard CEO, and Paul Dobson Chief Financial Officer. We will be making forward-looking statements that are based on management's current expectations, police and assumptions, concerning future events. Actual results could be materially different.

Randy McEwen: Yeah, great question, Mac. I would say it really is different for different customers. So some customers that have already integrated products into their platform and have been enjoying success with those products may want to keep those products for a certain period of time. And then other customers may want to move over to newer products fairly quickly. What I'm seeing with newer customers is that they are looking to adopt the latest technology.

Randy McEwan: Great question, Mac. I would say it really is different for different customers. Some customers that have already integrated products into their platform and have been enjoying success with those products may want to keep those products for a certain period of time. And then other customers may want to move over to products fairly quickly. What I'm seeing with newer customers is that they are looking to adopt the latest technology, and also would say this engine is specifically designed to be attractive for the truck market. And that's where we have seen, if I kind of characterize the markets, we typically look at bus, truck, rail, marine, and stationary.

Mac Whale: Yeah, great question, Mac. I would say it really is...

Randy McEwen: So some customers that have already integrated products into their platform and have been enjoying success with those products, you know, may want to keep those products for a certain period of time. And then other customers may want to move over to those products fairly quickly. What I'm seeing with newer customers is that they are looking to, you know, adopt the latest technology. And also, I would say this engine is specifically designed to be attractive for the truck market.

Speaker Change: different for different customers. So some customers that have already integrated products into their platform and have been enjoying success with those products.

Speaker Change: may want to keep those products for a certain period of time.

Speaker Change: and then other customers may want to move over to products fairly quickly. What I'm seeing with newer customers...

Kate Igbo-Lo Day: Please refer to our most recent annual information form and other public filings for our completed slamer and related information.

Randy McEwen: And also, I would say this engine is specifically designed to be attractive for the truck market. And that's where we have seen, you know, if I kind of characterize the market, we typically look at bus, truck, rail, marine, and stationary. You know, the bus market; we have products that are mature and proven in the field. We had an extraordinary first half of the year in the bus market, with growth of over 120% for delivery of fuel cell engines and revenue associated with the bus market.

Speaker Change: is that they are looking to, you know, adopt the latest technology.

Randy McEwan: I'll now turn the call over to Randy. Thank you, Kate, and welcome everyone to today's conference call. During Q2, we made measured progress on key 124 deliverables relating to products, advanced manufacturing, and markets, all in support of our long-term strategy.

Speaker Change: And also, I would say this engine is specifically designed to be attractive for the truck market.

Randy McEwen: And that's where we have seen, you know, if I kind of characterize the markets, we typically look at bus, truck, rail, marine, and stationary. For the bus market, we have products that are mature and proven in the field. We had an extraordinary first half of the year actually in the bus market with growth up over 120% for delivery of fuel cell engines and revenue associated with the bus market. So the bus market has products there. This engine designed for the truck market, though, I would say the truck market has been slower to adopt it.

Speaker Change: And that's where we have seen, you know, if I kind of characterize the market, we typically look at bus, truck, rail, marine, and stationary.

Randy McEwan: The bus market; we have products that are mature and proven in the field. We had an extraordinary first half of the year, actually, on the bus market. We growth up over 120% for delivery of fuel cell engines and revenue associated in the bus market. So the bus market has products there. This engine designed for the truck market, though. I would say the truck market has been slower to adopt, but we have, you know, introducing this new product should be helpful in terms of kind of catalyzing that. Just going back. I didn't want to highlight as well, but seeing bus and rail and stationary, the three markets where we continue to be kind of pleased with the progress there, with truck and marine being the two markets that I say are going much slower than expected.

Speaker Change: You know, the bus market, we have products that are mature and proven in the field.

Randy McEwan: On products, we launched our ninth generation PEM fuel cell engine, resetting the industry standard for PEM fuel cell and your performance for heavy duty mobility. Enabled by an innovative open architecture design and other new design advances, the powerful compact FC Move XD enable several important performance improvements as compared to our prior generation engine, including 120 kilowatt power output from our latest high-performance single stack. 33 percent reduction in total park count, significantly improving reliability and reducing costs.

Speaker Change: We had an extraordinary first half of the year actually on the bus market.

Speaker Change: with growth up over 120% for delivery of fuel cell engines and revenue associated in the bus market.

Randy McEwen: So the bus market has products there. This engine designed for the truck market, though, I would say the truck market has been slower to adopt. But we have, you know, introducing this new product should be helpful in terms of kind of catalyzing that. Just going back, I did want to highlight, as well, the same bus and rail and stationary, the three markets where we continue to be kind of pleased with the progress there, with truck and marine being the two markets that I say are going much slower than expected. Okay.

Speaker Change: So the bus market has products there.

Speaker Change: This engine design for the truck market though, I would say the truck market has been slower to adopt.

Randy McEwen: But we have, you know, introducing this new product should be helpful in terms of kind of catalyzing that. Just going back, I did want to highlight, say, bus and rail and stationary are the three markets where we continue to be kind of pleased with the progress there, with truck and marine being the two markets that I say are going much slower than expected. Okay, and when we look at the backlog, how does it work with the new, when you're introducing, generation? Do the orders in the backlog reflect old products, or is there an option for those?

Speaker Change: but we have, you know, introducing this new product.

Speaker Change: should be helpful in terms of kind of catalyzing that.

Speaker Change: Just going back, I did want to highlight as well, say bus and rail and stationary are the three markets where we continue to be kind of pleased with the progress there with truck and marine being the two markets that I say are going much slower than expected.

Randy McEwan: High peak system efficiency at greater than 60 percent, enabling improved fuel consumption and efficient heat rejection, wide operating temperature range, up to 95 degrees C. Integrated power controller incorporates DC-DC converter, air compressor inverter, and a power distribution unit, along with proprietary software controls, enabling improved engine control. Engine operation and efficiency, rapid up and down transient times with an innovative hot standby mode enabling rapid power increase, improved manufacturer ability with assembly times cut by more than half, and easier access to parts for faster and lower cost field maintenance.

Mac Whale: Okay, and when we look at the backlog, how does it work when you're introducing a new generation? Do the orders in the backlog reflect old products, or is there an option in those to convert over to a newer generation? How do we think about looking at the backlog in a period when you're introducing a new generation?

Randy McEwan: Okay, and when we look at the backlog, how does it work with the new when you're introducing a new generation? Do the orders in the backlog reflect old products? Or is there an option in those two convert over to a newer generation? How do we think about looking at the backlog in a period where you're introducing a new generation? Yeah, the lion's share, almost all of the backlog, relates to existing products that customers are working with. There'd be a small amount in our order book that relates to new orders for those for the XD. However, you know, I would say you'd see more XD filling out the backlog and order book, you know, as we move to the end of the year and into mid next year.

Speaker Change: Okay, and when we look at the backlog, how does it work with the new when you're introducing a new Generation do the orders in the backlog reflect old products?

Speaker Change: Or is there an option in those to convert over to a newer generation? How do we think about looking at the backlog in a period where you're introducing a new generation?

Randy McEwen: Rupert Olber, to a newer generation, like how do we think about looking at the backlog in a period where you're introducing a new generation? Yeah. The lion's share, almost all of the backlog, relates to existing products that customers are working with. There would be a small amount in our order book that relates to new orders for those XDs. However, you know, I would say you'd see more XD filling out the backlog and order book, you know, as we move to the end of the year and into mid-next year.

Randy McEwen: The lion's share, almost all of the backlog, relates to existing products that customers are working with. There would be a small amount in our order book that relates to new orders for those, for the XD. However, you know, I would say you'd see more XD filling out the backlog and order book, you know, as we move to the end of the year and into mid-next year.

Speaker Change: Yeah.

Speaker Change: The lion's share, almost all of the backlog, relates to existing products that customers are working with. There will be a small amount in our order book that relates to new orders for those, for the XD.

Randy McEwan: An additional compelling feature of our new FC Move XD is scalability based on modularity. We can offer customers efficient integration of 120 kilowatt, 240 kilowatt, and 360 kilowatt solutions depending on vehicle class, use case, and duty cycle. For example, two engines totaling 240 kilowatt of power output can be easily installed in the engine compartment of a typical class 8 heavy duty truck and a enhancing standardization and offering redundancy. With a design life of 30,000 hours plus hours of operation, or over 1 million miles in truck operation at typical duty cycles, the FC Move XD engine is developed to deliver class leading durability and low total cost of ownership. We already have initial units in the hands of some select customers and have been receiving positive feedback. There's growing market interest and we have manufacturing builds planned during the remainder of the year.

Speaker Change: However, you know, I would say you'd see more XD filling out the backlog and order book, you know, as we move to the end of the year and into mid next year.

Mac Whale: Okay, and just lastly on that. Does that mean as we see the order book, let's say over the next couple of years, evolve? On a kilowatt basis, like presumably you're passing some of the cost savings in pricing over. So the equivalent dollar value in revenue in backlog going forward actually represents a different number of kilowatts. Is that fair?

Randy McEwan: Okay, and just lastly on that, does that mean as we see the order book, let's say over the next couple of years evolve on a kilowatt basis, presumably you're passing some of the cost savings in pricing over. So the equivalent dollar value and revenue in backlog going forward actually represent a different number of kilowatts. Is that fair?

Randy McEwen: Okay, and just lastly on that. Does that mean, as we see the order book, let's say, over the next couple of years, evolve? On a kilowatt basis, like presumably you're passing some of the cost savings in pricing over. So the equivalent dollar value in revenue in backlog going forward actually represents a different number of kilowatts, is that fair? Yeah, for sure.

Speaker Change: Okay, and just lastly on that,

Speaker Change: Does that mean as we see the order book, let's say over the next couple years, evolve on a kilowatt basis, like presumably you're passing...

Speaker Change: some of the cost savings in pricing over. So the equivalent dollar value in revenue in backlog going forward would actually represent a different number of kilowatts. Is that fair?

Randy McEwen: Yeah, yeah, for sure. The cost per kilowatt sold to a customer is certainly going to be reducing. We've seen that already reducing over the last few years. The challenge for us, and I think why we're investing so much in product development and advanced manufacturing, is to make sure that we're reducing our costs faster than the erosion of selling prices so we see margin.

Randy McEwan: Yeah, yeah, for sure. The cost per till what sold to a customer is certainly reducing. We've seen that already reducing over the last few years.

Randy McEwen: The cost per kilowatt sold to a customer is certainly reducing. We've seen that already happen over the last few years. The challenge for us, and I think why we're investing so much in product development and advanced manufacturing, is to make sure that we're reducing our costs faster than the erosion of selling prices, so we see margin. And just if I may, on the last question I had was about the CAPEX guidance shift, was there any... In the previous guidance, was there any spend on the Texas facility contemplated in that number? Yeah, hi Mac, it's Paul here.

Speaker Change: Yeah, yeah, for sure. The cost per kilowatt sold to a customer is certainly reducing.

Randy McEwan: The challenge for us, and I think why we're investing so much in product development and advanced manufacturing, is to make sure that we're reducing our costs faster than the erosion of selling price, so we see margin expansion.

Speaker Change: We've seen that already reducing over the last few years. The challenge for us and I think why we're investing so much in product development and advanced manufacturing is to make sure that we're reducing our costs faster than the erosion of selling price so we see margin expansion.

Randy McEwan: On advanced manufacturing, we're tracking to plan against Project Forge which is our program to scale graphite bipolar plate production by approximately 10 times and reduce costs of next generation plates by up to 70%. We have developed several mobile manufacturing processes that enable full automation of the bipolar plate production processes which we expect to result in significantly reduced labor costs, improved material yield, reduced production tax times, reduced energy demand, and the elimination of water consumption from plate manufacturing. We expect commissioning an optimization of our new bipolar plate production processes in Burnaby in late 2025.

Mac Whale: Okay. And just, if I may, on the last question I had, was on the CapEx guidance shift, was there any in the previous guidance, was there any spend on the Texas facility contemplated in that number?

Mac Whale: And just if I may on the last question I had was on the CAPEX guidance shift: was there any, in the previous guidance, any spend on the Texas facility contemplated in that number?

Speaker Change: Okay. And just if I may, on the last question I had was on the CAPEX guidance shift. Was there any, in the previous guidance, was there any spend on the Texas facility contemplated in that number?

Paul Dobson: Yeah, hi Mac, it's Paul here. Yeah, there was, there was some which we've, as we mentioned, we've dialed that back to rather the minimum amount this year. We do expect, you know, we're going to have an FID decision later this year. And even if we if we go forward with it, I still expect the CapEx for that facility to be relatively modest. I think we're going to be able to do that. This year, just given the timing of that. So more to come on out later.

Paul Dobson: Yeah, yeah, there was, there was some, but we've, as we mentioned, dialed that back to a rather de minimis amount this year. We do expect, you know, we're going to have an FID decision later this year. And even if we do go forward with it, I still expect the capex for that facility to be relatively modest this year, just given the timing of that. So more to come on that later. Okay, thanks. That's awesome!

Paul Dobson: Yep. Hi Mac, it's Paul here.

Speaker Change: Yeah, hi Mac, it's Paul here. Yeah, yeah, there was, there was some, but which we've, as we mentioned, we've dialed that back.

Speaker Change: to a rather de minimis amount this year. We do expect, you know, we're going to have an FID decision later this year. And even if we go forward with it, I still expect the CapEx for that facility to be relatively modest this year, just given the timing.

Paul Dobson: Yeah, yeah, there was some, which we've dialed back to a rather de minimis amount this year. We do expect, you know, we're going to have an FID decision later this year. And even if we go forward with it, I still expect the CapEx for that facility to be relatively modest this year, just given the timing of that. So, more to come on that later. Okay, thanks. That's all.

Mac Whale: Okay, thanks.

Mac Whale: That's all for me.

Mac Whale: Thanks. Yep, thanks, Mac.

Mac Whale: of that. So more to come on that later. Okay. Thanks. That's all for me. Thanks.

Randy McEwan: And on markets, we announce a strategic technology partnership with Virtuv to demonstrate the technical feasibility and customer benefits of fuel cell backup power solutions for the fast growing data center market. Initial validation tests at Virtuv's facility in Ohio have demonstrated successful operation of zero mission fuel cell backup power, integrated in Virtuv's UPS architecture for data centers. We continue work with Virtuv to understand the market requirements, develop an optimized technical solution, and engage the market.

Mac Whale: Yep, thanks, Mac. The next question comes from Aaron MacNeil with TD Cowan. Please go ahead. Good morning.

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

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

Mac Whale: Yep. Thanks, Mac.

Speaker Change: The next question comes from Erin McNeil with TD Cowan. Please go ahead.

Aaron MacNeil: Good morning. Thanks for taking my questions. I just wanted to dig in a bit more on the booking deferrals. I guess, can you speak to the magnitude of those potential orders that were maybe close, but deferred? Like, are they sort of bigger Siemens or Solaris type bookings, or are they more smaller dollar orders?

Aaron MacNeil: Morning. Thanks for taking my questions. I just wanted to dig in a bit more to the booking deferrals. I guess can you speak to the magnitude of those potential orders that were maybe close but deferred? Like, are they sort of bigger Siemens, their salarist type bookings, or are they more smaller dollar orders?

Aaron MacNeil: Thanks for taking my questions. Um, I just wanted to dig in a bit more on the booking deferrals. I guess, can you speak to the may? Are they sort of bigger semens or solaris?

Erin McNeil: Morning, thanks for taking my questions. I just wanted to dig in a bit more to the booking deferrals.

Erin McNeil: I guess, can you speak to the magnitude of those potential orders that were maybe close but deferred? Like, are they sort of bigger Siemens or Solaris type bookings?

Randy McEwen: Yeah, Aaron, good morning, and thanks for the question. There are, I would characterize as kind of three significant orders that we've been working on through the year and have been pushed into the second half of the year, hopefully. But I don't want to quantify them, but they're quite material for us.

Randy McEwan: Yeah, Aaron, good morning, and thanks for the question. There are, I would characterize kind of three significant orders that we've been working on through the year and have been pushed into the second half of the year, hopefully, but, you know, don't want to quantify them, but they're quite material for us.

Randy McEwen: Yeah, Aaron, good morning. And thanks for the question. There are, I would characterize kind of three significant orders that we've been working on through the year and have been pushed into the second half of the year, hopefully. But, you know, don't want to quantify them, but they're, they're, they're quite material for us. Okay, and then.

Speaker Change: Are they more smaller dollar orders?

Speaker Change: Yeah, Aaron, good morning and thanks for the question. There are, I would characterize kind of three significant orders that we've been working on through the year and have been pushed into the second half of the year, hopefully, but you know, don't want to quantify them, but they're quite material for us.

Randy McEwan: I'd like to make a few comments about our order book and also about broader market adoption. First, on the order book, following almost 130 million total new orders in the previous two quarters, Q2 net order intake was soft at $5 million, as certain customers deferred new orders. Given the stage of development of the industry, we expect continued quarterly lumpiness for the foreseeable future. Second, on overall market adoption, it's important to note that while we make confident in the long-term value proposition of hydrogen fuel cells, the timeline for market adoption is clearly moving to the right.

Aaron MacNeil: Okay, and then switching to, you know, the reduce, I guess, the same line of thinking is the reduced capital spending.

Aaron MacNeil: Okay, and then switching to, you know, the same line of thinking as the reduced capital spending. I can appreciate that the priority is still.

Speaker Change: okay and then switching to you know the I guess same line of thinking is the reduced capital spending I can appreciate that the priority is still

Aaron MacNeil: I can appreciate that the priority is still. Cost reduction initiatives, but how could we expect, you know, R&D spending to trend into 2025? Like do you think we'll see a reduction there like we've seen on the capital side? Yeah, I think Aaron, with the current environment and the pushout we discussed earlier, we are carefully tracking, you know, those market adoption indicators and trying to pace our investment. So, yeah, we're scrutinizing our investments, and I think you probably expect to see some reduction in 2025.

Randy McEwen: I can appreciate the priority. Cost Reduction. How could we expect, you know, our Yeah, I think, Aaron, with the current environment and the pushout we discussed earlier, we are carefully tracking, you know, those market adoption indicators and trying to pace our investment. So yeah, we're scrutinizing our investments, and I think you probably expect to see some reduction in 2025. Yep. Thanks, Jared. The next question comes from Jordan Levy with Truist Securities. Please go ahead. Morning all.

Randy McEwen: Cost reduction initiatives. But how could we expect, you know, R&D spending to trend into 2025? Like, do you think we'll see a reduction there, like we've seen with the capital? Yeah, I think, Aaron, we...

Speaker Change: Cost reduction initiatives, but how could we expect, you know, R&D spending to trend into 2025? Like, do you think we'll see a reduction there?

Randy McEwen: Yeah, I think, Aaron, with the current environment and the push-out we discussed earlier, we are carefully tracking, you know, those market adoption indicators and trying to pace our investment. So, yeah, we're scrutinizing our investments, and I think you probably expect to see some reduction in 2025.

Speaker Change: like we've seen on the capital side.

Speaker Change: Yeah, I think, Aaron, with the current environment and the push-out we discussed earlier, we are carefully tracking, you know, those market adoption indicators and trying to pace our investment.

Randy McEwan: We continue to observe a slow pace of contract awards for new clean hydrogen projects. We've spoken before about the slowing effects of the for many hydrogen projects. We're also seeing projected policy uncertainty that is slowing market adoption. As an example, there's continued uncertainty in the U.S., including the extended discussion around the 45-V clean hydrogen production tax credit rules. The draft regulations, which were released eight months ago are still being debated by the industry, remains unclear whether these regulations will be resolved before the U.S, presidential election.

Speaker Change: So, yeah, we're scrutinizing our investments, and I think you probably expect to see some reduction in 2025.

Aaron MacNeil: Okay, thanks.

Aaron MacNeil: Turn it back.

Aaron MacNeil: Yeah, thanks, Sir.

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

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

Speaker Change: We'll turn it back.

Aaron: Thanks, Sarah.

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

Jordan Levy: Good morning, all. Thanks for all the details. I just wanted to start on the margin front.

Jordan Levy: Good morning, all. Thanks for all the details. I just wanted to start on the margin front. And you may have mentioned this, but could you just talk about kind of, you know, where gross margins came in for the quarter, but any change in that relative to where contribution margins came in for the products themselves, and then kind of along those lines to any change in kind of the timeline, you know, with this slowdown and market activity on the gross margin break even side of things.

Jordan Levy: Thanks for all the details. I just wanted to start on the margin front. You may have mentioned this, but could you just talk to me about, We know where gross margins came in for the quarter, but any change in that relative to where contribution margins came in for the products themselves? And then, kind of along those lines, any change in the timeline? Blowdown & Market Activity & Yeah, again, Paul here. So just on the gross margin in the quarter, which is minus 32%. It was four points higher than in Q1, but 11 points lower than in Q2 of last year.

Jordan Levy: Good morning all. Thanks for all the details. I just wanted to start on the margin front. You may have mentioned this, but could you just talk to kind of

Paul Dobson: You may have mentioned this, but could you just talk to kind of, you know, we know where first margins came in for the quarter, but any change in that relative to where contribution margins came in of the products themselves. And then kind of along those lines to any change in kind of the timeline with this slow down and market activity on the gross margin break even side of things.

Jordan Levy: We know where gross margins came in for the quarter, but any change in that relative to where contribution margins came in of the products themselves? And then kind of along those lines too, any change in kind of the timeline with this slowdown in market activity on the gross margin break-even side of things?

Randy McEwan: This is delaying investment in the U.S, hydrogen industry, including in large-scale clean hydrogen projects. We also continue to observe policy uncertainty and related market delays in Europe and China. Overall, we see a multi-year push out on the availability of low-cost, low-carbon hydrogen and hydrogen refueling infrastructure, which represents the significant headwinds in our markets, including the truck burden. Given this environment, we continue to carefully track market adoption indicators and scrutinize the pace of our investments and spending. For example, in this Paul will note, we have toggled back our 2024 CapEx spend.

Paul Dobson: Yeah, again, fall here. So just on the gross margin in the quarter, just minus 32%. It was four point higher than Q1, but 11 points lower than Q2 of last year. So about 11 point difference quarter year on year. Most of that was in the contribution margin for both the power products. We had the deferral of certain orders, the future quarters, you know, at higher margins. We did have strategic pricing for some key customers; the product mix and cost also influence that, so the contribution margin was lower. Also, we had lower revenues in our technology solutions business as well, on active and lower margins on the active customers.

Paul Dobson: Yeah, again, Paul here. So just on the gross margin in the quarter, which was minus 32%. It was four points higher than Q1, but 11 points lower than Q2 of last year. So about 11 point difference quarter on year on year.

Jordan Levy: Yeah, again, Paul here. So just on the gross margin in the quarter, which is minus 32 percent.

Jordan Levy: It was 4 points higher than Q1, but 11 points lower than Q2 of last year. So about 11 point difference year-on-year. Most of that was in the contribution margin for both the power products.

Paul Dobson: So about 11 points difference quarter year on year, but most of that was in the contribution margin for both power products. We had the deferral of certain orders to future quarters at higher margins. We did have strategic pricing for some key customers. The product mix and cost as well influenced that, so the contribution margin was lower. Also, we had lower revenues in our technology solutions business as well, and lower margins on active customers.

Paul Dobson: Most of that was in the contribution margin for both the power products. We had the deferral of certain orders to future quarters, you know, at higher margins. We did have strategic pricing for some key customers. The product mix and cost, as well, influenced that, so the contribution margin was lower. Also, we had lower revenues in our technology solutions business as well, and lower margins on the active customers.

Jordan Levy: We had the deferral of certain orders to future quarters at higher margins. We did have strategic pricing for some key customers. The product mix and cost as well influenced that, so the contribution margin was lower.

Randy McEwan: With this backdrop, we want to provide a brief update on our proposed production facility in Texas, where we have been awarded US by totaling $94 million. We continue to do our work to assess the business case for this project. We're conducting the thorough analysis of the scope, timing, cost, alternatives, and financial return on the proposed project, including an analysis of capital employment timing relative to market adoption and volume timing. We're also reviewing project permitting, conditions and documentation, including with the US DOE, other funding sources, and related despite acquisition. This is important work and it's being done to support making a go or no go final final investment decision later in 2024.

Jordan Levy: Also, we had lower revenues in our technology solutions.

Jordan Levy: business as well, and lower margins on the active customers.

Paul Dobson: Offsetting that though, or partially offsetting that I should say, the provisions that we had particularly on inventory, inventory write-downs versus last year for the older generation products. We did a lot of that cleanup last year, and so that represented an improvement and net. So, contribution margins down into quarter, partially offset by better on provisions in the quarter. We were down by 11 points.

Paul Dobson: Offsetting that though, or partially offsetting that, I should say, the provisions that we had, particularly on inventory, inventory write-downs versus last year for the older generation products, we did a lot of that cleanup last year, and so that represented an improvement. So net that, contribution margins down in the quarter, partially offset by better on provisions, meant in a quarter we were down by 11 points. So when you look at the full year,

Paul Dobson: Offsetting that though, or partially offsetting that, I should say, the provisions that we had, particularly on inventory, inventory write-downs versus last year for the older generation products, we did a lot of that cleanup last year, and so that represented an improvement. So net that, contribution margins down in the quarter, partially offset by better on provisions, meant in a quarter we were down by 11 points.

Jordan Levy: Offsetting that though, or partially offsetting that I should say, the provisions that we had particularly on inventory, inventory write downs versus last year for the older generation products, we did a lot of that cleanup last year and so that represented an improvement.

Jordan Levy: And so net that, so contribution margins down in the quarter, partially offset by better on provisions. In the quarter, we were down by 11 points. So when you look at the full year.

Paul Dobson: So we look at the full year. We are forecasting an improvement in the gross margin overall versus last year, and it could be in the range, as you know, five to ten points depending on the final revenue figures. We are expecting, as I mentioned in the comments, Q4 to be positive gross margin. What we're seeing on the contribution margin side of things, we are seeing improvement on the power products. So year on year, as cost reductions come through and as volume grows, we are seeing contribution margin for power products going up, but again that's offset.

Paul Dobson: So when you look at the full year... We are forecasting an improvement in the gross margin overall versus last year, and it could be in the range of five to ten points, depending on the final revenue figures. We are expecting, as I mentioned in the comments, Q4 to be a positive gross margin. What we're seeing on the contribution margin side of things, we are seeing improvements in power products. So, year on year, as cost reductions come through and as volume grows, we are seeing contribution margin for power products going up, but again, that's being offset by lower contribution margin from technology solutions, which will have a lower impact over time, but we are still seeing it. We're going to see it again this year.

Randy McEwan: We look forward to providing update on this later in the year.

Paul Dobson: We are forecasting an improvement in the gross margin overall versus last year, and it could be in the range of five to ten points, depending on the final revenue figures. We are expecting, as I mentioned in the comments, Q4 to be a positive gross margin. What we're seeing on the contribution margin side of things, we are seeing improvements on the power products. So, year on year, as cost reductions come through and as volume grows, we are seeing contribution margin for power products going up, but again, that's being offset by lower contribution margin from technology solutions, which will have a lower impact over time, but we are still seeing it, and we will see it again this year.

Randy McEwan: Before I turn the call over to Paul to discuss our Q2 financials, I want to emphasize again that notwithstanding the stolen timeline for market adoption, we were being confident in the long-term direction of travel, including an important role that hydrogen refuel cells employee in helping decarbonize our global economy, including in the heavy-duty mobility markets, as well as balance long-term positioning. We continue to focus on controllables, including customer experience, product development programs, product cost reduction initiatives, advanced manufacturing capacity planning, all while maintaining a strong balance sheet for long-term sustainability.

Jordan Levy: We are forecasting an improvement in the gross margin overall versus last year, and it could be in the range of, you know, 5 to 10 points depending on, you know, the final revenue figures. We are expecting, as I mentioned in the comments, Q4 to be positive gross margin.

Jordan Levy: What we're seeing on the contribution margin side of things, we are seeing improvement on the power products.

Jordan Levy: So, year on year, as cost reductions come through and as volume grows, we are seeing contribution margin for power products going up, but again, that's offset, being offset by lower contribution margin from technology solutions.

Paul Dobson: Being offset by lower contribution margin from technology solutions, which will have a lower impact over time, but we are still seeing it to see it this year. Again, also for the full year, we took a large write down in inventory last year and Q4 for inventory. We're not expecting that to repeat, and that combined with the contribution margin will mean our gross margin will be slightly improved on last year, five to ten points, as I mentioned. Also, I should mention that our fixed overheads are slightly lower, so not a big impact or change on the gross margin percentage.

Paul Dobson: With that, I'll now pass the call over to Paul. Thanks, Randy. In Q2, Ballard delivered $16 million in revenue driven by strong growth in the 48% year over year and made up 84% of the total revenue versus 59% in Q2 last year, once again emphasizing our shift into a commercial products company. As a reminder, from previous years, we see that Ballard revenue is typically heavily indexed to Q4 and in 2024 is following a similar trend.

Jordan Levy: which will have a lower impact over time, but we are still going to see it this year. Again, also for the full year, we took a large write-down in inventory last year.

Paul Dobson: Again, also for the full year, we took a large write-down and inventory last year. It's interesting to see how we're spending across the board and could see a reduction in some of our overheads going into next year, which will help gross margin.

Paul Dobson: Again, also for the full year, we took a large write-down on inventory last year. And Q4, for inventory, we're not expecting that to repeat, and that combined with the contribution margin will mean our gross margins will be slightly improved on last year, five to 10 points, as I mentioned. Also, I should mention on our fixed overheads, slightly lower, so not a big impact or change on the gross margin percentage, as Randy just mentioned, though, on all of our spending, we are continuing to scrutinize that quite heavily, our spending across the board, and could see a reduction in some of our overheads going into next year, which will help gross margins. Thank you for that, Paul.

Jordan Levy: and Q4 for inventory. We're not expecting that to repeat.

Jordan Levy: and that combined with the contribution margin will mean our gross margins will be slightly improved.

Jordan Levy: on last year, 5-10 points as I mentioned. Also I should mention on our fixed overheads, slightly lower.

Paul Dobson: As Randy just mentioned, though on all of our spending, we are continuing to scrutinize that quite heavily, or spending across the board, and could see reduction in some of our overheads going into next year, which will help gross margin as well.

Jordan Levy: So not a big impact or change on the gross margin percentage.

Jordan Levy: As Randy just mentioned, though, on all of our spending, we are continuing to scrutinize that quite...

Paul Dobson: With the shift in revenue mix to power products and the burden of fixed production overhead cost being spread over seasonally low revenue, we saw a gross margin of negative 32%, an 11-point decrease compared to Q2 of 2023. We are still anticipating underlying gross margins will break even in Q4 as revenue increases and product cost reduction activities have greater impact. We reported total operating expenses of 36.2 million and cash operating costs of 30.9 million, both relatively flat compared to prior year comparables.

Randy: quite heavily are spending across the board and could see a reduction in some of our overheads going into next year, which will help gross margin as well.

Paul Dobson: Thanks for that, Paul.

Jordan Levy: Thanks for that, Paul. And then maybe just an update on the Texas facility. I know you guys haven't made a go or no-go decision there, but I think when you guys were thinking through the initial investment there, that came after the decision to forego further CapEx investment in the Chinese market. So I guess I'm just curious. I know you all are very well-versed and have done a lot of work in the European market as well.

Jordan Levy: And then maybe just an update on the Texas facility. I know you guys haven't made a go or no-go decision there, but at, Thank you guys for thinking through the initial investment there that came after the decision to forego. So I guess I'm just curious.

Jordan Levy: And then maybe just an update around the Texas facility. I know you guys haven't made a go or no go decision there, but I think when you guys were thinking to do the initial investment there that came after the decision to forego for their CAPX investment in the China market.

Speaker Change: Thanks for that, Paul. And then maybe just an update around the Texas facility. I know you guys haven't made a go or no-go decision there, but I think, you know, when you guys were thinking through the initial investment,

Speaker Change: there that came after the decision to forego further CapEx investment in the China market. So, I guess I'm just curious. I know you all are very, you know, low versed and have done a lot of work into the European market as well. So, when you're looking at the decision there and then, you know, kind of as part of that, any potential alternatives you might look to?

Jordan Levy: So I guess I'm just curious. I know you all are very well versed and have done a lot of work into the European market as well.

Randy McEwen: I know you all are very. All of these are very diverse and have done a lot of work in the European market as well. So, when you're looking at the decision there and then, you know, kind of as part of that, turn it as you might look. What does that look like, or does it sort of just become when is the right time to make? Yeah, it's a good question, Jordan.

Jordan Levy: So when you're looking at the decision there and then, kind of as part of that, any potential alternatives you might look at, what does that look like? Or does it sort of just become a when is the right time to make this move sort of decision?

Paul Dobson: Capital expenditures total approximate be 7 million in Q2. We are maintaining our guidance range for total operating expenses. However, we are reducing our guidance for capital expenditures for the year to 25 to 40 million from 50 to 70 million. We believe the prudent decision is to reduce our capital spending in light of market conditions and adoption rates and to take advantage of the flexibility within our capital project timelines. We have a strong balance sheet ending reported with 678 million in cash and cash equivalents.

Jordan Levy: So when you're looking at the decision and, as part of that, any potential alternatives you might look at, what does that look like, or does it sort of just become a when is the right time to make this move decision?

Speaker Change: What does that look like, or does it sort of just become a when is the right time to make this move sort of decision?

Randy McEwan: Yeah, so good question, Jordan. I think one of the challenges, quite frankly, is that the funding that we've secured in the US is very significant, you know, kind of in the range of $94 million of total funding, including from the DOE and some of the 48C credits. And when you look at that in aggregate, it's a significant amount of capital that's kind of almost a once-in-a-lifetime top of opportunity for funding.

Randy McEwen: Yeah, it's a good question, Jordan. I think one of the challenges, quite frankly, is that the funding that we've secured in the U.S. is very significant, kind of in the range of $94 million in total funding, including from the DOE and some of the 48C credits. And when you look at that in aggregate, it's a significant amount of capital that's kind of a once-in-a-lifetime type of opportunity for funding.

Randy McEwen: I think one of the challenges, quite frankly, is that the funding that we've secured in the US is very significant, kind of in the range of $94 million of total funding, including from the DOE and some of the 48 C credits. And when you look at that in aggregate, it's a significant amount of capital; that's kind of a once in a lifetime opportunity for funding.

Speaker Change: Yeah, it's a good question Jordan. I think one of the one of the challenges quite frankly is that

Speaker Change: The

Speaker Change: Funding that we've secured in the U.S. is very significant, you know, kind of in the range of $94 million of total funding, including from the DOE and some of the 48C credits.

Operator: Without, I'll turn the call over to the operator for questions. Thank you.

Speaker Change: And when you look at that in aggregate, it's a significant amount of capital that's kind of almost a once-in-a-lifetime type of opportunity for funding.

Randy McEwen: The challenge is that that overall investment cycle is coming earlier than market adoption. And so that's really what we're wrestling with, is making sure that we're trying to pace the timing of our own investments at Ballard to make sure that when we're bringing production online, we have demand for that product. Now, we don't have an order book, clearly, for that type of volume that we're talking about for a three gigawatt facility in Texas at this time. So we're continuing to see, make sure we have as much time as possible to see the market adoption indicators before we pull the trigger on capital. So that's the challenge in a nutshell.

Randy McEwen: The challenge is that that overall investment cycle is coming earlier than market adoption. And so that's really what we're wrestling with, is making sure that we're trying to pace the timing of our own investments at Ballard to make sure that when we're bringing production online, we have demand for that product. Now, we don't have an order book, clearly, for that type of volume that we're talking about for a three gigawatt facility in Texas at this time.

Randy McEwan: The challenge is that overall investment cycle is coming earlier than the market adoption. And so that's really what we're wrestling with: making sure that we're trying to pace the timing of our own investments at Ballard to make sure that when we're bringing production online, we have demand for that product. Now we don't have an order book clearly for that type of volume that we're talking about for a three gigawatt facility in Texas at this time. So we're continuing to see, make sure we have as much time as possible to see the market adoption indicators before we pull the trigger on capital.

Operator: We will now begin the question and answer session. To join the question queue, you may press star than one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speaker phone, please pick up your handset before pressing any keys. To withdraw your question, please press star than two. We ask collars to kindly limit themselves to one question and one follow-up. We will pause for a moment as collars join the queue.

Speaker Change: The challenge is that that overall investment cycle is coming earlier than the market adoption.

Jordan Levy: Thanks so much. I appreciate it. The next question comes from Saumya Jain.

Speaker Change: And so that's really what we're wrestling with is making sure that we're trying to pace the timing of our own investments at Ballard to make sure that when we're bringing production online, we have demand for that product.

Speaker Change: Now, we don't have an order book, clearly, for that type of volume that we're talking about for a 3 gigawatt facility in Texas.

Randy McEwen: So we're continuing to see, make sure we have as much time as possible to see the market adoption indicators before we pull the trigger on capital. So that's the challenge in a nutshell. The next question comes from Saumya Jain with UBS. Please go ahead.

Speaker Change: at this time. So we're continuing to see, make sure we have as much time as possible to see the market adoption indicators before we pull trigger on capital. So that's the challenge in a nutshell.

Rupert Murr: The first question today comes from Rupert Murr with National Bank. Please go ahead. Hello, good morning everyone.

Randy McEwan: So that's the challenge in a nutshell.

Jordan Levy: Thanks so much; I appreciate it.

Randy McEwan: Maybe if I could start the questions on your product, your 9th generation of PEM fuel cell, you told us a little about the performance improvements, Randy. How does this compare to the competition? And what do you do next? How much better can you get from here? Thank you for the question. I think when you look at the competitive dynamics, there's certainly a lot of investment going on from some of the players that are introducing products or planning to introduce products.

Speaker Change: Thanks so much. Appreciate it.

Saumya Jain: The next question comes from Saumya Jain with UPS. Please go ahead.

Saumya Jain: The next question comes from Saumya Jain with UBS. Please go ahead. Hey, do you guys have any updates on the Solaris order, and, I guess, how's the time?

Speaker Change: The next question comes from Somya Jain with UPS. Please go ahead.

Saumya Jain: Hey, do you have any updates on the Solaris order, and I guess how's the timeline for supply looking, and if you have any more orders or anything from new flyers as well? Yeah, Saumya. Thanks for the question. I think it's important to highlight, again, that the bus market is growing quite well for us and up 84% in the quarter and over 120% year to date, almost $20 million in revenue for us in the first half of the year. I do want to highlight as well in the US market.

Saumya Jain: Hey, do you guys have any updates on the Solaris order? And, I guess, how's the timeline for supply looking? And if you have any more orders or anything from New Flyer as well?

Somya Jain: Hey, do you guys have any updates on the Solaris order and I guess how's the timeline for supply looking and if you have any more orders or anything from New Flyer as well?

Randy McEwen: Yeah, Saumya, thanks for the question. I think it's important to highlight, again, that the bus market is growing quite well for us and up 84% in the quarter and over 120% year-to-date, with almost $20 million of revenue for us in the first half of the year. I do want to highlight, as well, in the U.S. market, you mentioned New Flyer, we're pretty encouraged by the fact that we've got some low or no-emission grant programs that are out there with the Federal Transit Administration in the U.S. It is now up significantly, so awards this year are approaching $300 million, about 150% higher over last year.

Randy McEwen: Yeah, Saumya, thanks for the question. I think it's important to highlight again that the bus market is growing quite well for us and up 84% in the quarter and over 120% year-to-date, with almost $20 million of revenue for us in the first half of the year. I do want to highlight, as well, in the US market, you mentioned New Flyer; we're pretty encouraged by the fact that we've got some low or no emission grant programs that are out there with the Federal Transit Administration in the US.

Speaker Change: Yeah, Samia, thanks for the question. I think it's important to highlight again that the bus market is growing quite well for us and up 84% in the quarter and over 120% year-to-date

Randy McEwan: When we look at things like durability, the 30,000 plus hours of durability, we think that is a major competitive advantage at Valorant. When we look at power density, whether that's measured by volumetric or gravimetric power density, we're seeing that this FC move XD actually has the highest power density industry for the market. I think when we look at the architecture and the part counts, we continue to reduce the part counts. We think that's critically important.

Speaker Change: Almost $20 million of revenue for us in the first half of the year.

Randy McEwan: You mentioned new flyer. We're pretty encouraged with the fact that we've got some low, low, no lower, no emission grant program that's been out there with the Federal Transit Administration in the US. It is now up significantly, so awards this year have been awarded are approaching $300 million, to about 150% higher over last year. So that's kind of an encouraging indicator to support bus program growth into next year as those low-no funds get deployed.

Speaker Change: I do want to highlight as well in the U.S. market, you mentioned New Flyer, we're pretty encouraged with the fact that we've got some low or no emission grant program that's been out there with the Federal Transit Administration in the U.S.

Randy McEwen: It is now up significantly, so awards this year have been awarded are approaching $300 million, about 150% higher over last year. So that's kind of an encouraging indicator to support bus program growth into next year as those low-interest funds get deployed. So that's critically important.

Speaker Change: It is now up significantly, so awards this year have been awarded are approaching 300 million dollars. It's about 150 percent higher over last year.

Randy McEwen: So that's kind of an encouraging indicator to support bus program growth into next year as those low-and-low funds get deployed. So that's critically important. New Flyer typically orders buses later in the year for the following year.

Randy McEwan: I think some of the other things too is just the integration of DC-DC and software and the air compressor and inverter. All these things are bringing together a solution that's easier for customers to integrate and easier for customers to package in service. I think overall we feel very happy about not just the improvement this represents on our prior generation but where it stands in the competitive marketplace.

Speaker Change: So that's kind of an encouraging indicator to support bus program growth into next year as those low-and-no funds get deployed.

Randy McEwan: So that's that's pretty cool important new fire typically orders later in the year for the following year. So we expect to see some opportunities there in the second half of the year for the order book for 2025. And then Solaris we've been executing as a number show against Solaris another bus customers in the first half of the year. We also signed an order for 70 modules or engines for Right Bus that we commented on earlier this year. So overall, I would say we've had some additional orders from Solaris. I think that large order that we mentioned, but it's been pretty incremental as compared to that large order.

Speaker Change: So, that's critically important. New Flyer typically orders later in the year for the following year, so we expect to see some opportunities there in the second half of the year for the order book for 2025.

Saumya Jain: New Flyer typically orders later in the year for the following year, so we expect to see some opportunities there in the second half of the year for the order book for 2025. And then Solaris, we've been executing, as the numbers show against Solaris and other bus customers in the first half of the year. We also signed an order for 70 modules or engines for a right-hand drive bus that we commented on earlier this year. So overall, I would say we've had some additional orders from Solaris since that large order that we mentioned, but they've been pretty incremental as compared to that large order. Got it, thank you.

Randy McEwen: So we expect to see some opportunities there in the second half of the year for the order book for 2025. And then Solaris, we've been executing, as the numbers show, against Solaris and other bus customers in the first half of the year. We also signed an order for 70 modules or engines for a right-hand bus that we commented on earlier this year. So overall, I would say we've had some additional orders from Solaris since that large order that we mentioned, but it's been pretty incremental as compared to that large order. Got it, thank you. And so, I guess, how do you see Ballard playing out in the U.S. rail market, more specifically? Yeah, that's a great question.

Speaker Change: and then Solaris.

Speaker Change: We've been executing as the numbers show against Solaris and other bus customers in the first half of the year. We also signed

Randy McEwan: If you look at the plan you laid out a few years ago on your technology plan and cost reduction, how far along are you now? How much further do you have to go on that path? Yes, a great question. We highlighted two aspects of that plan. One we called three by three which was looking at a 70% cost reduction for our stacks and then on top of that also looking at about a 70% cost reduction on balance of plant components and certainly the work that we've done on MEA over the last number of years, the work that we just described today on next generation bipolar plates and the enabling of lower cost plate production which after MEA is the second most important cost into the stack.

Speaker Change: in order for 70 modules or engines for a right bus that we commented on earlier this year. So overall I would say we've had some additional orders from Solaris since that large order that we mentioned, but it's been pretty incremental as compared to that large order.

Saumya Jain: Got it. Thank you.

Randy McEwen: And so I guess, how do you see Ballard playing out in the U.S. rail market, more specifically? Yeah, that's a great question. The rail market, we're seeing opportunities both in passenger rail, and we see some opportunities developing there that we're working against, as well as for freight locomotives, and we're working on that as well. So in both those markets, we have significant opportunities that we're trying to advance in the second half of the year.

Randy McEwan: And so I guess how do you see ballot playing out in the US rail market as well more specifically? Yeah, that's a great question. The real market we're seeing opportunities both in passenger rail and we see some opportunities developing there that we're working against, as well as for freight locomotives. And we're working on that as well. So both those markets we have significant opportunities that we're trying to advance in the second half of the year. And I believe the freight locomotive market will be a hydrogen market. The question is just the timing of that. And so we're we think when you look at that application, heavy trains, long routes, you're talking about very high power requirements, you know, 1.2 to 2 megawatts of power for some of these line haul locomotives.

Speaker Change: Got it, thank you. And so I guess, how do you see Ballard playing out in the U.S. rail market as well, more specifically?

Randy McEwen: The rail market, we're seeing opportunities both in passenger rail, and we see some opportunities developing there that we're working against, as well as for freight locomotives, and we're working on that as well. So, both those markets, we have significant opportunities that we're trying to advance in the second half of the year, and I believe the freight locomotive market will be a hydrogen market. The question is just the timing of that. And so, when you look at that application, heavy trains, long routes, you're talking about very high power requirements, 1.2 to 2 megawatts of power for some of these line-haul locomotives.

Randy McEwen: And I believe the freight locomotive market will be a hydrogen market. The question is just the timing of that. And so we think when you look at that application, heavy trains, long routes, you're talking about very high power requirements, 1.2 to 2 megawatts of power for some of these line haul locomotives. This is the only way, in my opinion, for them to decarbonize is to go with hydrogen. So we're excited about both those markets.

Speaker Change: Yeah, that's a great question. The rail market, we're seeing opportunities both in passenger rail

Speaker Change: and we see some opportunities developing there that we're working against.

Randy McEwan: Then the work we've done on developing engines and the supply chain to reduce balance of plant components is a lot of work that I would say over the past three years we've seen not just the in-house designs but strong collaboration with I would characterize it as a maturing supply chain for new balance of plant components. I think we've made a significant progress. We're probably about two-thirds of the way through perhaps more than that overall and we expect to see over the next 18 to 24 months kind of completion of these important projects, particularly with the bipolar plate project completing by the end of next- Craig, I'll leave it there and get back in the queue.

Speaker Change: as well as for freight locomotives, and we're working on that as well. So both those markets, we have significant opportunities that we're trying to advance in the second half of the year.

Speaker Change: and I believe the freight locomotive market will be a hydrogen market, the question is just the timing of that. And so we think when you look at that application, heavy trains, long routes.

Randy McEwan: Thank you. Super, thank you.

Speaker Change: You're talking about very high power requirements, you know, 1.2 to 2 megawatts of power for some of these line haul locomotives.

Randy McEwan: This is the only way, in my opinion, for them to decarbonize is to go with hydrogen. So we're excited about both those markets.

Randy McEwen: This is the only way, in my opinion, for them to decarbonize is to go with hydrogen. So, we're excited about both those markets. I think we're going to see important market indicators here over the next 6 to 12 months that show both those markets in North America, both for freight, as well as for passengers, going through the next stage of development, demonstration, and commercialization. Thank you. Thank you. The next question comes from Kashi Harrison with Piper Sandler. Please go ahead. Good morning.

Speaker Change: This is the only way, in my opinion, for them to decarbonize is to go with hydrogen.

Randy McEwen: I think we're going to see important market indicators here over the next 6 to 12 months that show both those markets in North America, both for freight, as well as for passengers, in the next stage of development, demonstration, and commercialization.

Randy McEwan: I think we're going to see important market indicators here over the next six to 12 months that show both those markets in North America, both for freight, as well as for passenger, showing next stage of development and demonstration commercialized.

Speaker Change: So, we're excited about both those markets. I think we're going to see important market indicators here over the next 6 to 12 months that show both those markets.

Mac Whale: The next question comes from Mac Whale with Cornac Securities. Please go ahead. Great question, Mac. I would say it really is different for different customers. Some customers that have already integrated products into their platform and have been enjoying success with those products may want to keep those products for a certain period of time. And then other customers may want to move over to products fairly quickly. What I'm seeing with newer customers is that they are looking to adopt the latest technology and also would say this engine is specifically designed to be attractive for the truck market.

Speaker Change: in North America, both for freight as well as for passengers showing next stage of development and demonstration and commercialization.

Cassie Harrison: The next question comes from Cassie Harrison with Piper Sandler. Please go ahead.

Speaker Change: Got it, thank you.

Kasope Harrison: The next question comes from Kashi Harrison with Piper Sandler. Please go ahead.

Speaker Change: Thank you.

Speaker Change: The next question comes from Kashi Harrison with Piper Sandler. Please go ahead.

Kasope Harrison: Good morning. Thank you for taking my questions. So the first one on deferred orders, apologies if I missed this, but what are your customers telling you is the driver behind the deferment of orders? Is it the U.S. elections, or is it something else?

Cassie Harrison: Good morning. Thank you for taking my questions. So the first one on the deferred orders, apologies if I missed this, but what are your customers telling you as the driver behind the deferment of orders? Is it the U.S.? election, or is it something else? Yeah, in these cases, these opportunities we're describing, they're not dependent at all on the U.S. election, so it's more about the customer timing for, you know, finalizing, funding, finalizing, you know, program timing, making sure that their access to hydrogen is secure, so mostly those are the variables, but they're all fairly well in hand on these free opportunities that we're discussing.

Kasope Harrison: Thank you for taking my questions. So the first one on deferred orders. Apologies if I missed this, but what are your customers telling you is the driver behind the deferment of orders? Is it the U.S. elections, or is it something else?

Kashi Harrison: Good morning. Thank you for taking my questions. So the first one on the deferred orders, apologies if I missed this, but what are your customers telling you is the driver behind the deferment of orders? Is it the U.S. elections or is it something else?

Randy McEwen: Yeah, in these cases, these opportunities we're describing, they're not dependent at all on the US election, so there it's more about the customer timing for you know, finalizing funding, finalizing program timing, making sure that their hydrogen, their access to hydrogen, is secure. So mostly those are the variables, but they're all fairly well in hand on these three opportunities that we were talking about.

Randy McEwen: Yeah, in these cases, these opportunities we're describing, they're not dependent at all on the U.S. election, so it's more about the customer timing for, you know, finalizing funding, finalizing, you know, program timing, making sure that their hydrogen, their access to hydrogen is secure, so mostly those are the variables, but they're all fairly well in hand on these three opportunities that we're describing. And then on the slower market adoption, so let's say, you know, just, you know, for just, let's just say, theoretically, you know, the 45 v rules were finalized today.

Speaker Change: Yeah, in these cases, these opportunities we're describing, they're not dependent at all on the U.S. election, so they're, it's more about the customer timing for, you know, finalizing funding, finalizing

Mac Whale: And that's where we have seen, if I kind of characterize the markets, we typically look at bus truck, rail, marine, and stationary. The bus market, we have products that are mature and proven in the field. We had an extraordinary first half of the year actually on the bus market. We growth up over 120% for delivery of fuel cell engines and revenue associated in the bus market. So the bus market has products there.

Speaker Change: you know program timing making sure that their hydrogen their access to hydrogen is secure so mostly those are the variables but they're all fairly well in hand on these three opportunities that that we're discussing

Kasope Harrison: On slower market adoption, let's say theoretically that the 45V rules were finalized today, and it's much easier to qualify for the credit. How long do you think it would take for your business to see that benefit roll through in orders and revenues? What does that lag look like?

Randy McEwan: Got it. And then on the slower market adoption, so let's say, you know, just, you know, for, let's just say theoretically, you know, the 45-V rules were finalized today, and you know, it's much easier to qualify for the credit. You know, how long do you think it would take for your business to see that benefit roll through in orders and revenues? What does that lag look like?

Randy McEwen: And, you know, it's much easier to qualify for the credit. But, you know, how long do you think it would take for your business to see that benefit roll through in orders and revenues? What does that lag look like?

Speaker Change: got it and then on the on the slower market adoption so let's say you know just you know for just let's just say theoretically you know the 45 V rules were finalized today and you know it's it's much easier to qualify for the credit

Mac Whale: This engine designed for the truck market though. I would say the truck market has been slower to adopt, but we have, you know, introducing this new product should be helpful in terms of kind of catalyzing that just going back. I didn't want to highlight as well, but seeing bus and rail and stationary, the three markets where we continue to be kind of pleased with the progress there with truck and marine being the two markets that I say are going much slower than expected.

Speaker Change: You know, how long do you think it would take for your business to see that benefit roll through in orders and revenues? What does that lag look like?

Randy McEwen: Yeah, so it's a good question. I think we can kind of look to the European Hydrogen Bank Program as an illustrative example of the timing that might happen because it's very similar. So, you know, in Europe, they have a 2.2 billion dollar hydrogen bank program, and the first auction was announced in April of this year with seven projects, about 720 million euros in funding. And those seven projects are in Spain, Portugal, Norway, and Finland.

Randy McEwan: Yeah, so it's a good question. I think we can kind of look to the European Hydrogen Bank program as an illustrative example of the timing that might happen because it's very similar. So, you know, in Europe, they have a $2.2 billion hydrogen bank program, and the first auction was announced in April of this year with seven projects, about 720 million-year-old funding. And those seven projects are in Spain, Portugal, Norway, and Finland. They're supposed to be signed by the end of November, but project developers are required to actually enter production within five years. Many of them are kind of indicating they're expecting production within three years, but the program allows for five years.

Randy McEwen: Yeah, so it's a good question. I think we can kind of look to the European Hydrogen Bank Program as an illustrative example of the timing that might happen, because it's very similar. So, you know, in Europe, they have a $2.2 billion Hydrogen Bank Program, and the first auction was announced in April of this year with seven projects, about 720 million euros in funding. And those seven projects are in Spain, Portugal, Norway, and Finland.

Speaker Change: Yeah, so it's a good question. I think we can kind of look to the European Hydrogen Bank Program as an illustrative example of the timing that might happen because it's very similar.

Mac Whale: Okay, and when we look at the backlog, how does it work with the new when you're introducing a new generation? Do the orders in the backlog reflect old products? Or is there an option in those two convert over to a newer generation? How do we think about looking at the backlog in a period where you're introducing a new generation? Yeah, the lion's share almost all of the backlog relates to existing products that customers are working with.

Speaker Change: In Europe, they have a $2.2 billion hydrogen bank program, and the first auction was announced in April of this year with seven projects, about 720 million-year-old funding.

Randy McEwen: They're supposed to be signed by the end of November, but project developers are required to actually enter production within five years. Many of them are kind of indicating they're expecting production within three years, but the program allows for five years. So the way I would think about it is, you know, if we had clarity in the U. S. market, I would think about three to five years as the timeline before you'd actually see hydrogen production coming online at scale for offtake opportunities.

Kasope Harrison: They're supposed to be signed by the end of November, but project developers are required to actually enter production within five years. Many of them are kind of indicating they're expecting production within three years, but the program allows for five years. So the way I would think about it is, you know, if we had clarity in the U.S. market, I would think about three to five years as a timeline before you'd actually see hydrogen production coming online at scale for off-take opportunities.

Speaker Change: And those seven projects are in Spain, Portugal, Norway, and Finland. They're supposed to be signed by the end of November, but project developers are required to actually enter production within five years.

Speaker Change: Many of them are kind of indicating they're expecting production within three years, but the program allows for five years So the way I would think about it is

Mac Whale: There'd be a small amount in our order book that relates to new orders for those for the XD. However, you know, I would say you'd see more XD filling out the backlog and order book, you know, as we move to the end of the year and into mid next year. Okay, and just lastly on that, does that mean as we see the order book, let's say over the next couple years evolve on a kilowatt basis, presumably you're passing some of the cost savings in pricing over.

Randy McEwan: So the way I would think about it is, you know, if we had a clarity in the U.S. market, I would think about three to five years as a timeline before you'd actually see hydrogen production coming online at scale for off-take opportunities. I think perhaps more importantly, though, is having the visibility, having the clarity on the policies, knowing that capital is going to be there to support hydrogen project development and to build out of hydrogen infrastructure. To me, that's enough for customers to then start planning their next stage of deployments at larger scale because some of these deployments, they'll need three, five years of planning.

Speaker Change: You know, if we had clarity in the U.S. market, I would think about three to five years as a timeline before you'd actually see hydrogen production coming online at scale for offtake opportunities.

Kasope Harrison: I think perhaps more importantly, though, is having the visibility, having the clarity on the policies, knowing that capital is going to be there to support hydrogen project development and the build-out of hydrogen infrastructure. To me, that's enough for customers to then start planning their next stage of deployments at larger scales because some of these deployments will need three, five years of planning. So I don't think you're going to see anything happen in the next two to three years, even if, from a scale perspective, that would be triggered by the passing of the regulations.

Randy McEwen: I think perhaps more importantly, though, is having the visibility, having the clarity on the policies, knowing that capital is going to be there to support hydrogen project development and the build out of hydrogen infrastructure. To me, that's enough for customers to then start planning their next stage of deployments at a larger scale because some of these deployments will need three, five years of planning. So, I don't think you're going to see anything happen in the next two to three years, even if, from a scale perspective, that would be triggered by the passing of the regulations.

Speaker Change: I think perhaps more importantly though is having the visibility, having the clarity on the policies, knowing that capital is going to be there to support.

John: Thanks, John.

Mac Whale: So the equivalent dollar value and revenue in backlog going forward actually represent a different number of kilowatts. Is that fair? Yeah, yeah, for sure. The cost per till what sold to a customer is certainly reducing. We've seen that already reducing over the last few years. The challenge for us and I think why we're investing so much in product development and advanced manufacturing is to make sure that we're reducing our costs faster than the erosion of selling price so we see margin expansion.

Randy McEwan: So, I don't think the, I don't think you're going to see anything happen in the next two to three years, even if from a scale perspective, that would be triggered by, you know, the passing of the regulations. And by the way, how those regulations get resolved is also important. So, you know, the current concepts of adding additionality and regionality and time matching, how those get resolved will not only impact perhaps the timing, but will also impact the scale of that timing through 2030.

Speaker Change: So, I don't think you're going to see anything happen in the next two to three years, even if from a scale perspective.

Randy McEwen: And by the way, how those regulations get resolved is also important. So the current concepts of adding additionality and regionality and time matching, how those get resolved will not only impact, perhaps, the timing but will also impact the scale of that timing through 2030. Got it. And then that's all super helpful, Keller here.

Speaker Change: that would be triggered by the passing of the regulations. And by the way, how those regulations get resolved is also important.

Kasope Harrison: And by the way, how those regulations get resolved is also important. So, you know, the current concepts of adding additionality, regionality, and time matching, how those get resolved will not only impact, perhaps, the timing, but will also impact the scale of that timing through 2030.

Speaker Change: So, you know, the current concepts of adding additionality and regionality and time matching, how those get resolved will not only impact, perhaps, the timing, but will also impact the scale of that timing through 2030.

Mac Whale: Okay. And just if I may on the last question I had was on the CapEx guidance shift, was there any[inaudible] This year, just given the timing of that. So more to come on out later. Okay, thanks. That's all for me. Thanks. Yep, thanks Mac.

Kasope Harrison: Got it. And then that's all super helpful, Keller over there.

Kasope Harrison: And then I guess, you know, maybe that's a good segue into my question on the FID decision in Texas later this year. You know, do you have a sense of timing? Can you give us a sense of time? Is this a December, November, or October decision? And then, you know, what specific indicators are you and your team looking at to help you make the decision one way or another? Yeah, we certainly will be making that decision in Q4.

Randy McEwan: And then that's all super helpful color there.

Speaker Change: Got it.

Randy McEwan: And then I guess maybe that's a good segue into my question on the FID decision in Texas later this year. Do you have a, can you give us a sense of timing, is this December, November, October decision, and then what indicators specifically are you, are you and your team looking at helping make the decision one way or another? Yeah, we certainly will be making that decision in Q4. There's some timing pressures from different stakeholders. So it's a complicated answer given that we're in a sensitive discussion with different stakeholders at this time. So all I can say is, you know, we're really trying to make sure that we can have as much runway as possible before decisions on actually spending on facilities and spending on equipment have to be triggered.

Speaker Change: That's all super helpful, Keller there. And then I guess, you know, maybe that's a good segue into my question on the FID decision in Texas later this year. You know, do you have a, can you give us a sense of timing? Is this a December, November, October decision?

Randy McEwen: And then I guess, you know, maybe that's a good segue into my question on the FID decision in Texas later this year. You know, do you have a sense of timing? Is this a December, November, or October decision? And then, you know, what specific indicators are you and your team looking at to help you make the decision one way or another?

Speaker Change: And then, what indicators specifically are you and your team looking at to help you make the decision one way or another?

Kasope Harrison: Yeah, we certainly will be making that decision in Q4. There are some timing pressures from different stakeholders. So it's a complicated answer, given that we're in sensitive discussions with different stakeholders at this time. So all I can say is, you know, we're really trying to make sure that we can have as much runway as possible before decisions on actually spending on facilities and spending on equipment have to be triggered. And so, you know, the timing between the contract and actual capital deployment and the off ramps are all things that we're considering.

Kasope Harrison: There are some timing pressures from different stakeholders, so it's a complicated answer given that we're in sensitive discussions with different stakeholders at this time. So all I can say is, you know, we're really trying to make sure that we can have as much runway as possible before decisions on actually spending on facilities and spending on equipment have to be triggered. And so, you know, the timing between contract and actual capital deployment and the off ramps are all things that we're considering. Got it. I appreciate the color.

Speaker Change: Yeah, we certainly will be making that decision in Q4. There's some timing pressures from different stakeholders. So, it's a complicated answer given that we're in sensitive discussions with different stakeholders at this time.

Aaron MacNeil: The next question comes from Aaron McNeil with TD Cowan. Please go ahead. Morning. Thanks for taking my questions. I just wanted to dig in a bit more to the booking deferrals. I guess can you speak to the magnitude of those potential orders that were maybe close but deferred? Like are they sort of bigger Siemens, their salarist type bookings, or are they more smaller dollar orders? Yeah, Aaron, good morning and thanks for the question.

Speaker Change: All I can say is we're really trying to make sure that we can have as much runway as possible before decisions on actually spending on facilities and spending on equipment have to be triggered.

Randy McEwan: And so, you know, the timing between contract and actual capital deployment and the offerings are all things that we're considering.

Speaker Change: And so, you know, the timing between contract and actual capital deployment and the off-ramps are all things that we're considering.

Aaron MacNeil: There are, I would characterize kind of three significant orders that we've been working on through the year and have been pushed into the second half of the year, hopefully, but, you know, don't want to quantify them, but they're quite material for us.

Randy McEwen: Got it. I appreciate the color. Thank you. The next question comes from Rob Brown with Lake Street Capital Markets.

Randy McEwan: God, appreciate the color. Thank you.

Speaker Change: Got it. Appreciate the color. Thank you.

Rob Brown: The next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.

Rob Brown: The next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead. Hi, good morning.

Randy McEwen: Thank you. The next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead. Hi, good morning.

Speaker Change: Yep.

Speaker Change: The next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.

Rob Brown: Please go ahead. Hi, good morning. Good morning, Rob.

Rob Brown: Good morning. Just following up on the sort of the cross currents in the truck market. What are some of the things that sort of need to happen for you to see that market moving forward? Is it really the government's support things, or is it getting closer to the timeline and some of the clean truck stuff in California? Just a sense of where the truck markets that and how you see it playing out over the next 12 to 18 months?

Rob Brown: Morning, Rob. Just following up on the sort of the cross-currents in the truck market, what are some of the things that sort of need to happen for you to see that market moving forward? Is it really the government support things, or is it getting closer to the timeline? www.youtube.com. Yeah, good question, Rob.

Aaron MacNeil: Okay, and then switching to, you know, the reduce, I guess, the same line of thinking is the reduced capital spending. I can appreciate that the priority is still. Cost reduction initiatives, but how could we expect, you know, R&D spending to trend into 2025? Like do you think we'll see a reduction there like we've seen on the capital side? Yeah, I think Aaron, with the current environment and the pushout we discussed earlier, we are carefully tracking, you know, those market adoption indicators and trying to pace our investment. So yeah, we're scrutinizing our investments and I think you probably expect to see some reduction in 2025. Okay, thanks.

Rob Brown: Hi, good morning.

Rob Brown: Morning, Rob. Just following up on the sort of the cross currents in the truck market, what are some of the things that sort of need to happen for you to see that market moving forward? Is it really the government support things, or is it getting closer to the timeline on some of the...

Aaron MacNeil: Turn it back.

Aaron MacNeil: Yeah, thanks, sir.

Speaker Change: Clean Truck stuff in California, just a sense of where the truck market's at and how you see it playing out over the next 12 to 18 months.

Randy McEwan: Yeah, good question, Rob. I think there's one thing that is pretty clear to me is that there's a lot of end market interest in zero mission solutions. So that there's been really no change there. You know, I'd say the ESG pendulum has swung back a little bit. But most of the large fleet operators that we've been talking with as end users are very committed to go to zero mission on their fleet. So there's no change there.

Randy McEwen: Yeah, good question, Rob. I think there's one thing that is pretty clear to me: there's a lot of end market interest in zero-emission solutions. So, there's really been no change there. You know, I'd say the ESG pendulum has swung back a little bit, but most of the large fleet operators that we've been talking with as end users are very committed to going to zero-emission on their fleets. So, there's no change there.

Randy McEwen: I think there's one thing that is pretty clear to me: there's a lot of end market interest in zero-emission solutions. So, there's really been no change there. You know, I'd say the ESG pendulum has swung back a little bit, but most of the large fleet operators that we've been talking with as end users are very committed to going to zero-emissions on their fleet. So, there's no change there.

Speaker Change: Yeah, good question, Rob. I think...

Speaker Change: There's one thing that that is pretty clear to me is that there's there's a lot of end market interest in zero emission solutions

Speaker Change: So, there's been really no change there. You know, I'd say the ESG pendulum has swung back a little bit, but most of the large fleet operators that we've been talking with as end users

Jordan Levy: The next question comes from Jordan Levy with true securities. Please go ahead. Good morning, all. Thanks for all the details. I just wanted to start on the margin front. You may have mentioned this, but could you just talk to kind of, you know, we know where first margins came in for the quarter, but any change in that relative to where contribution margins came in of the products themselves. And then kind of along those lines to any change in kind of the timeline with this slow down and market activity on the gross margin break even side of things.

Randy McEwen: I do think that the vehicle OEMs are, you know, struggling with investing across a different basket of technologies. So, it's not just cleaner diesel, fuel cells, in some cases, hydro internal combustion engines, in some cases, and then, of course, battery electric, autonomy, and ADAS features. So, there's a lot of investment being made. And so, allocating capital to the highest priority is, I think, a challenge for the OEMs. And, you know, given the timeline for the adoption of hydrogen, I think this is just, you know, sequenced a little bit later than some of the other investments.

Randy McEwen: I do think that the vehicle OEMs are, you know, struggling with investing across a different basket of technologies. So, it's not just cleaner diesel, fuel cells, in some cases, hydro internal combustion engines, in some cases, and then, of course, battery electric, autonomy, and ADAS features. So, there's a lot of investment being made. And so, allocating capital to the highest priority is, I think, a challenge for the OEMs. And, you know, given the timeline for the adoption of hydrogen, I think this is just, you know, sequenced a little bit later than some of the other investments. So, you know, there aren't a number of OEMs that have, you know, fuel cell ready trucks at this time.

Speaker Change: are very committed to go to zero emission on their fleet. So there's no change there. I do think that the vehicle OEMs are struggling with investing across a different basket of technologies.

Randy McEwan: I do think that the vehicle OEMs are struggling with investing across a different basket of technologies. So it's not just cleaner diesel, fuel cells. In some cases, hydro internal combustion engine; in some cases, and then of course battery electric, autonomy and ADAS features. So there's a lot of investment being made. And so allocating capital to the highest priority is, I think, a challenge for the OEMs and given the timeline for adoption of hydrogen. I think this is just sequenced a little bit later than some of the other investments.

Speaker Change: So it's not just, you know, cleaner diesel, fuel cells.

Speaker Change: In some cases, hydro internal combustion engine, in some cases, and then, of course, battery electric.

Speaker Change: and John Walsh. We have a lot of investment being made and allocating capital to the highest priority is a challenge for the OEMs. We have a lot of investment being made. We have a lot of investment being made. We have a lot of investment being made.

Jordan Levy: Yeah, again, fall here. So just on the gross margin in the quarter, just minus 32%. It was four point higher than Q1, but 11 points lower than Q2 of last year. So about 11 point difference quarter year on year. Most of that was in the contribution margin for both the power products. We had the deferral of certain orders, the future quarters, you know, at higher margins. We did have strategic pricing for some key customers, the product mix and cost as well influence that so the contribution margin was lower.

Speaker Change: you know, given the timeline for adoption of hydrogen, you know, I think this is just, you know, sequenced a little bit later than some of the other investments. So, you know, there aren't...

Randy McEwen: So, you know, there aren't a number of OEMs that have, you know, fuel cell ready trucks at this time. We've talked about what we call our dual lane strategy, where we're working with some of the large OEMs for long-term market adoption, as well as these, you know, scrappier upfitters that are launching products earlier. You know, as an illustrative example, we have a partner called Wisdom Motors that is developing fuel cell trucks and buses for a number of markets outside of China.

Randy McEwan: So there aren't a number of OEMs that have fuel cell-ready trucks at this time. We've talked about what we call our dual lane strategy, where we're working with some of the large OEMs for long-term market adoption, as well as these scrappier upfitters that are launching products earlier. As an illustrative example, we have a partner called Wisdom Motors that is developing fuel cell trucks and buses for a number of markets outside of China. And they've seen quite a bit of progress in their product offering as well as market engagement and demonstration projects, including in Australia, the Middle East, and Europe.

Randy McEwen: We've talked about what we call our dual lane strategy, where we're working with some of the large OEMs for long-term market adoption, as well as these, you know, scrappier upfitters that are launching products earlier. As an illustrative example, we have a partner called Wisdom Motors that is developing fuel cell trucks and buses for a number of markets outside of China. And they've seen quite a bit of progress in their product offering, as well as market engagement and demonstration projects, including in Australia, the Middle East, and Europe.

Speaker Change: A number of OEMs that have, you know, fuel cell ready trucks at this time. We've talked about what we call our dual lane strategy, where we're working with some of the large OEMs for long-term market adoption.

Speaker Change: as well as these, you know, scrappier upfitters that are launching products earlier.

Speaker Change: As an illustrative example, we have a partner called Wisdom Motors that is developing fuel cell trucks and buses.

Jordan Levy: Also, we had lower revenues in our technology solutions business as well on active and lower margins on on the active customers. Offsetting that though, or partially offsetting that I should say, the provisions that we had particularly on inventory, inventory write downs versus last year for the older generation products. We did a lot of that cleanup last year and so that represented an improvement and net so net that, so contribution margins down into quarter, partially offset by better on provisions in the quarter we were down by 11 points.

Randy McEwen: And they've seen quite a bit of progress in their product offering, as well as market engagement and demonstration projects, including in Australia, the Middle East, and Europe. So you know, I would say those two pathways are running in parallel, but they're taking longer than we'd like. And we are trying to focus again on those, even with trucks, on those applications where you can have centralized depot refueling or point-to-point refueling, so you have the lower barrier to entry for the hydrogen refueling infrastructure.

Speaker Change: for a number of markets outside of China. And they've seen quite a bit of progress in their product offering as well as market engagement and demonstration projects including in Australia, the Middle East, and Europe.

Randy McEwan: So I would say those two pathways are running in parallel, and they're taking longer than we'd like. And we are trying to focus again on those, even with trucks, on those applications where you can have centralized depot refueling or point-to-point refueling. So you'll have the lower barrier to entry on the hydromy filling infrastructure.

Randy McEwen: So you know, I would say those two pathways are running in parallel, and they're taking longer than we'd like. And we are trying to focus, again, on those applications where you can have centralized depot refueling or point-to-point refueling, so you have the lower barrier to entry for the hydrogen refueling infrastructure. Okay, thanks for the call. I'll turn it over to you.

Speaker Change: So, you know, I would say those two

Speaker Change: are running in parallel.

Speaker Change: and they're taking longer than we'd like.

Speaker Change: And we are trying to focus again on those, even with trucks, on those applications where you can have centralized depot refueling or point-to-point refueling so you have the lower barrier to entry on the hydrogen refueling infrastructure.

Rob Brown: Sure. Okay, thanks for the color.

Jordan Levy: So we look at the full year. We are forecasting an improvement in the gross margin overall versus last year and it could be in the range as you know five to ten points depending on the final revenue figures. We are expecting, as I mentioned in the comments, Q4 to be positive gross margin. What we're seeing on the contribution margin side of things, we are seeing improvement on the power products. So year on year as cost reductions come through and as volume grows, we are seeing contribution margin for power products going up, but again that's offset.

Jordan Levy: Being offset by lower contribution margin from technology solutions, which will have a lower impact over time, but we are still seeing it to see it this year. Again, also for the full year, we took a large write down in inventory last year and Q4 for inventory. We're not expecting that to repeat and that combined with the contribution margin will mean our gross margin will be slightly improved on last year, five to ten points, as I mentioned.

Rob Brown: I'll turn it over. Thanks, Rob.

Speaker Change: Thank you very much for joining us today.

Speaker Change: Okay, thanks for the call. I'll turn it over.

Ameet Thakkar: The next question comes from Ameet Thakkar with BMO Capital Markets. Please go ahead.

Ameet Thakkar: The next question comes from Ameet Thakkar with BMO Capital Markets. Please go ahead.

Rob Brown: Thanks, Rob. The next question comes from Ameet Thakkar with BMO Capital Markets. Please go ahead.

Rob Brown: Thanks, Rob.

Speaker Change: The next question comes from Amit Thakkar with BMO Capital Markets. Please go ahead.

Ameet Thakkar: Hey, good morning, guys. Thanks for taking my question. Randi, you kind of mentioned the 45B credit a couple of times here today. I was just wondering, the Section 48B guidelines were released at the end of May.

Ameet Thakkar: Hey, good morning, guys. Thanks for taking my question. Hey Randy, I think you kind of mentioned the 45E credit a couple of times here today. I was just wondering if the Section 48E guidelines were released at the end of May. They appeared pretty stringent to us and, I think, to some of your fuel cell peers. Is that an investment credit that your U.S.-based customers have availed themselves of much in the past? And kind of given that it goes into effect in 2025, do you anticipate any pullback in demand in the U.S., at least to kind of get ahead of that? Thanks.

Ameet Thakkar: Hey, good morning, guys. Thanks for taking my question. Hey, Randy, I think you kind of mentioned the 45E credit a couple of times here today. I was just wondering if the Section 48E guidelines were released at the end of May.

Amit Thakkar: Hey, good morning, guys. Thanks for taking my question. Hey, Randy, I think you kind of mentioned the 45E credit a couple of times here today. I was just wondering, the Section 48E guidelines were released at the end of May.

Randy McEwen: They appeared pretty stringent to us and, I think, to some of your fuel cell peers. Is that an investment credit that your U.S.-based customers have availed themselves of much in the past? Kind of given that it goes into effect in 2025, do you anticipate any pull-forward in demand in the U.S., at least to kind of get ahead of that? Yeah, I haven't seen that where we've seen a pull-forward, and I haven't seen that there's a high reliance on this credit for our market applications.

Randy McEwan: They appeared pretty stringent to us, and I think to some of your fuel cell peers. Is that an investment credit that your US-based customers have availed themselves of much in the past? And kind of given that goes into effect in 2025, you anticipate and you pull forward and demand in the US, at least to kind of get ahead of that. Thanks. Yeah, I haven't seen that where we've seen a pull forward, and I haven't seen that there's higher reliance on this credit for our market applications. When you look at our market applications, the US market for us right now is very heavily dominated by the transit bus market, which isn't subject to that credit.

Speaker Change: They appear pretty stringent to us and I think to some of your

Speaker Change: and other FuelCell peers. Is that an investment credit that your US-based customers have availed themselves of much in the past and kind of given that it goes into effect in 2025, do you anticipate any pull forward in demand in the US at least to kind of get ahead of that? Thanks.

Randy McEwen: Yeah, I haven't seen any where we've seen a pull forward, and I haven't seen that there's a high reliance on this credit for our market applications. When you look at our market applications, the U.S. market for us right now is very heavily dominated by the transit bus market, which isn't subject to that credit. You're typically talking about, you know, Lono and other federal funding to support transit operations.

Speaker Change: Yeah, I haven't seen that where we've seen a pull forward and I haven't seen that there's high reliance on this credit for our market applications.

Randy McEwen: When you look at our market applications, the U.S. market for us right now is very heavily dominated by the transit Bus market, which isn't subject to that credit. You're typically talking about, you know, Lono and other federal funding to support transit Off. Great.

Speaker Change: When you look at our market applications, the U.S. market for us right now is very heavily dominated by the transit bus market, which isn't subject to that credit. You're typically talking about Lono and other federal funding to support transit operators.

Jordan Levy: Also, I should mention on our fixed overheads slightly lower, so not a big impact or change on the gross margin percentage. As Randy just mentioned, though on all of our spending, we are continuing to scrutinize that quite heavily or spending across the board and could see reduction in some of our overheads going into next year, which will help gross margin as well. Thanks for that, Paul.

Randy McEwan: You're typically talking about low-know and other federal funding to support transit operators.

Ameet Thakkar: Great.

Ameet Thakkar: And then you talked about some of the, I guess, some of the challenges for adoption on the mobility front. I was just wondering, do you have any updates on kind of how your stationary power product is kind of seeing maybe some more receptivity kind of given some of the, I guess, questions around power supply here going forward, whether it's, you know, on a backup basis, etc. Yeah, it's a great question, and

Ameet Thakkar: And then you talked about some of the, I guess, some of the challenges for adoption on the mobility front. I was just wondering, do you have any updates on kind of how your stationary power product is kind of seeing maybe some more receptivity kind of given some of the, I guess, questions around power supply here going forward, whether it's, you know, on a backup basis, etc. Yeah, it's a great question.

Randy McEwan: And then you talked about some of the challenges for adoption on the mobility front.

Speaker Change: Great. And then you talked about some of the, I guess, some of the challenges for

Randy McEwan: I was just wondering, do you have any updates on kind of how your stationary power product is kind of seeing maybe some more receptivity, kind of given some of the, I guess, questions around power supply here going forward, whether it's on a backup basis, et cetera. Yes, a great question. And we're seeing basically two opportunities, I would say, in stationary power that are compelling. One is where you have either off-grid or grids that aren't reliable, and you're seeing a number of applications, things like filming applications or event applications where, you know, standby power or backup power, primary power in any of those cases are required for, I'll call it, a relatively short period of time for an event.

Speaker Change: Adoption on the mobility front. I was just wondering do you have any updates on kind of how your stationary power

Speaker Change: product is kind of seeing maybe some more receptivity kind of given some of the I guess questions around power supply here going forward whether it's you know on a backup basis etc.

Jordan Levy: And then maybe just an update around the Texas facility. I know you guys haven't made a go or no go decision there, but I think when you guys were thinking to do the initial investment there that came after the decision to forego for their CAPX investment in the China market. So I guess I'm just curious. I know you all are very well versed and have done a lot of work into the European market as well.

Randy McEwen: Yes, a great question, and we're seeing basically two opportunities, I would say, in stationary power that are compelling. One is where you have either off-grid or grids that aren't reliable, and you're seeing a number of applications, things like filming applications or event applications where, you know, standby power or backup power, or primary power, in any of those cases, is required for, I'll call it, a relatively short period of time for an event. So we're seeing that, you know, construction, for example, is another type of market.

Randy McEwen: And we're seeing basically two opportunities, I would say, in stationary power that are compelling. One is where you have either off-grid or grids that aren't reliable, and you're seeing a number of applications, things like filming applications or event applications where, you know, standby power or backup power, primary power, in any of those cases, are required for a relatively short period of time for an event.

Speaker Change: Yes, a great question and we're seeing basically two opportunities, I would say, in stationary power that are compelling. One is where you have either off-grid or grids that aren't reliable and you're seeing a number of applications

Jordan Levy: So when you're looking at the decision there and then kind of as part of that any potential alternatives, you might look at, what does that look like or does it sort of just become a when is the right time to make this move sort of decision? Yeah, so good question, Jordan. I think one of the challenges quite frankly is that the funding that we've secured in the US is very significant, you know, kind of in the range of $94 million of total funding including from the DOE and some of the 48C credits.

Speaker Change: things like filming

Speaker Change: filming applications or

Speaker Change: Event applications where you know standby power or backup power primary power in any of those cases are required for I'll call it a relatively short period of time.

Randy McEwen: So we're seeing that, you know, construction, for example, is another type of market. The one that, to me, is really quite interesting, of course, is the data center market. Here we're not talking about primary power.

Jordan Levy: And when you look at that in aggregate, it's a significant amount of capital that's kind of almost a once in a lifetime top of opportunity for funding. The challenge is that overall investment cycle is coming earlier than the market adoption. And so that's really what we're wrestling with is making sure that we're trying to pace the timing of our own investments at Ballard to make sure that when we're bringing production online, we have demand for that product.

Randy McEwan: So we're seeing that construction, for example, is another type of market.

Speaker Change: for the event.

Randy McEwen: The one that, to me, is really quite interesting, of course, is the data center market, and here we're not talking about primary power, and, you know, renewable energy is the clear enabler for data centers in terms of time to market. But as you look past primary power, you start looking at backup power. It's very clear that customers and users are looking for zero-emission solutions throughout their kind of critical infrastructure.

Randy McEwan: The one that to me is really quite interesting, of course, is the data center market. Here we're not talking about primary power, and you know, renewable energy is the clear enabler for data centers in terms of time to market. But as you look past primary power, you start looking at backup power. It's very clear that the customers and users are looking for zero-mission solutions throughout their kind of critical infrastructure.

Speaker Change: So we're seeing that, you know, construction, for example, is another type of market.

Speaker Change: The one that to me is really quite quite interesting of course is the data center market. Here we're not talking about primary power.

Speaker Change: And you know renewable energy is the clear enabler

Randy McEwen: And, you know, renewable energy is the clear enabler for data centers in terms of time to market, but as you look past primary power, you start looking at backup power. It's very clear that customers and users are looking for zero-emission solutions throughout their kind of critical infrastructure.

Speaker Change: for data centers in terms of time to market.

Speaker Change: But as you look past primary power, you start looking at backup power, it's very clear that the customers and users are looking for zero-emission solutions throughout their critical infrastructure.

Randy McEwen: And in our announcement with our strategic technology partnership with Vertiv, I think there are kind of four important points there to highlight. One is this large and fast-growing market, not just for primary power for data centers, you know, as a result of Gen-AI and the compute power increase, but also for required backup power. The second is having a partner in that market who's a market leader, and we're very fortunate to be working with Vertiv, who is very well-positioned in the data center market.

Randy McEwen: And in our announcement with our strategic technology partnership with Vertiv, I think there are kind of four important points there to highlight. One is this large and fast-growing market, not just for primary power for data centers, you know, as a result of Gen AI and the compute power increase, but also for required backup power. The second is, you know, having a partner in that market who's a market leader, and we're very fortunate to be working with Vertiv, who is very well positioned in the data center market.

Randy McEwan: And our announcement with our strategic technology partnership with Virtue, I think they're kind of four important points that are to highlight. One is this large and fast-growing market, not just for the primary power for data centers, you know, as a result of Gen AI and the compute power increase, but also for required backup power. The second is, you know, having a partner in that market who's a market leader, and we're very fortunate to be working with Virtue, who's very well positioned in the data center market. The third is really kind of validating the value proposition.

Speaker Change: And our announcement with our strategic technology partnership with Vertiv, I think there are kind of four important points there to highlight. One is this large and fast-growing market, not just for the primary power for data centers,

Jordan Levy: Now we don't have an order book clearly for that type of volume that we're talking about for a three gigawatt facility in Texas at this time. So we're continuing to see, make sure we have as much time as possible to see the market adoption indicators before we pull trigger on capital. So that's the challenge in a nutshell. Thanks so much, I appreciate it.

Speaker Change: as a result of Gen AI and the compute power increase, but also for required backup power.

Speaker Change: The second is having a partner in that market who's a market leader, and we're very fortunate to be working with Vertiv, who's very well positioned in the data center market.

Randy McEwen: The third is really kind of validating the value proposition, and I think there are five key points to the value proposition here as we look at fuel cells for backup power in UPS architecture. The first is that you're talking about having kind of a single-supplied, very complex power infrastructure from one supplier. And so Virtiv is basically doing all the systems integration for all of the critical infrastructure for backup power. Second, it is not just zero emissions but also low noise. And when you put those two together compared to diesel generators, you're seeing this as becoming increasingly important for permitting. Third, it is kind of low maintenance.

Randy McEwen: The third is really kind of validating the value proposition. And I think there are five key points to the value proposition here as we look at fuel cells for backup power to UPS architecture. The first is that you're talking about having kind of a single-supplied, very complex power infrastructure from one supplier. And so Virtiv is basically doing all the systems integration for all of the critical infrastructure for backup power.

Randy McEwan: And I think there are five key points on the value proposition here as we look at fuel cells for backup power and the UPS architecture. The first is that you're talking about having kind of single-supplied, very complex power infrastructure from one supplier, and so virtue is basically doing all the systems integration for all of the critical infrastructure for backup power. Second is not just zero emissions, but also low noise. And when you put those two together, compared to diesel generators, you're seeing this is becoming increasingly important for permitting. Third is kind of low maintenance. We think that hydrogen fuel cells will offer a cost adventure in the long run against diesel generator backup solutions for maintenance and then also extended backups.

Speaker Change: The third is really kind of validating the value proposition and I think there are five key points on the value proposition here as we look at fuel cells for backup power to UPS architecture.

Saumya Jain: The next question comes from Saumya Jain, with UPS. Please go ahead. Hey, do you have any updates on the Solaris order and I guess how's the timeline for supply looking and if you have any more orders or anything from new flyers as well? Yeah, Saumya, thanks for the question. I think it's important to highlight, again, that the bus market is growing quite well for us and up 84% in the quarter and over 120% year to date, almost $20 million a revenue for us in the first half of the year.

Speaker Change: The first is that you're talking about having kind of single-supplied, very complex power infrastructure from one supplier. And so Vertiv is basically doing all the systems integration for all of the critical infrastructure for backup power.

Randy McEwen: Second, is not just zero emissions but also low noise. And when you put those two together compared to diesel generators, you're seeing this is becoming increasingly important for permitting. The third is kind of low maintenance.

Speaker Change: Second is not just zero emissions but also low noise and when you put those two together compared to diesel generators you're seeing this is becoming increasingly important for permitting.

Randy McEwen: We think that hydrogen fuel cells will offer a cost advantage here in the long run against diesel generator backup solutions for maintenance. And then also for extended backup, so having UPS for days, not for hours. And so there, with a fuel cell engine, your only limit really is your fuel storage capacity. And the last is really the ability to optimize your footprint to have megawatt-scale applications in a tight configuration, which we can accomplish with fuel cells and you can't accomplish with batteries.

Randy McEwen: We think that hydrogen fuel cells will offer a cost advantage here in the long run against diesel generator backup solutions for maintenance. And then also for extended backup, so having UPS for days, not for hours. And so with a fuel cell engine, your only limit really is your fuel storage capacity. And the last is really the ability to optimize your footprint to have megawatt-scale applications in a tight configuration, which we can accomplish with fuel cells and you can't accomplish with batteries.

Saumya Jain: I do want to highlight as well in the US market. You mentioned new flyer. We're pretty encouraged with the fact that we've got some low low no lower no emission grant program that's been out there with the federal transit administration in the US. It is now up significantly so awards this year have been awarded are approaching $300 million to about 150% higher over last year. So that's kind of an encouraging indicator to support bus program growth into next year as those low no funds get deployed.

Speaker Change: Third is kind of low maintenance. We think that hydrogen fuel cells will offer a cost advantage here in the long run against diesel generator backup solutions for maintenance.

Randy McEwan: So having UPS for days, not for hours. And so there, with a fuel cell engine, your only limit really is your fuel storage capacity. And the last is really the ability to optimize your footprint to have megawatt scale applications in a tight configuration, which we can accomplish with fuel cells and you can't accomplish with batteries. So I think there's a lot of advantages that fuel cells can offer. We're validating these value propositions and working to make sure we have the optimized solution for what I think could be a very game-changing market opportunity for Ballard and with a very strong partner that's investing in this solution with Virgin.

Speaker Change: And then also extended backup, so having UPS for days, not for hours. And so there, with a fuel cell engine, your only limit really is your fuel storage capacity.

Speaker Change: And the last is really the ability to optimize your footprint, to have megawatt scale applications in a tight configuration, which we can accomplish with fuel cells, and you can't accomplish with batteries.

Randy McEwen: So I think there are a lot of advantages that fuel cells can offer. We're validating these value propositions and working to make sure we have the optimized solution for what I think could be a very game-changing market opportunity for Ballard and with a very strong partner that's investing in this solution with Vertip.

Randy McEwen: So I think there are a lot of advantages that fuel cells can offer. We're validating these value propositions and working to make sure we have the optimized solution for what I think could be a very game-changing market opportunity for Ballard, and with a very strong partner that's investing in this solution with Vertica. Great. Thanks, guys. Thank you. The next question comes from Craig Irwin with Roth Capital Partners. Please go ahead.

Saumya Jain: So that's that's pretty cool important new fire typically orders later in the year for the following year. So we expect to see some opportunities there in the second half of the year for the order book for 2025. And then Solaris we've been executing as a number show against Solaris another bus customers in the first half of the year. We also signed an order for 70 modules or engines for right bus that we we commented on earlier this year. So overall I would say we've had some additional orders from Solaris thinks that large order that we mentioned, but it's been pretty incremental as compared to that large order. Got it. Thank you.

Speaker Change: So, I think there's a lot of advantages that fuel cells can offer. We're validating these value propositions.

Speaker Change: and working to make sure we have the optimized solution for what I think could be a very game-changing market opportunity for Ballard and with a very strong partner that's investing in this solution with Vertip.

Ameet Thakkar: Great, thanks, guys. Thank you.

Speaker Change: [inaudible]

Craig Irwin: The next question comes from Craig Irwin with Roth Capital Partners. Please go ahead.

Craig Irwin: The next question comes from Craig Irwin with Roth Capital Partners. Please go ahead.

Speaker Change: Great. Thanks, guys.

Speaker Change: Thank you.

Speaker Change: The next question comes from Craig Irwin with Roth Capital Partners. Please go ahead.

Craig Irwin: Good morning, and thanks for taking my questions. So Randy, can you maybe comment a little bit about the pricing environment? Is there much that's changed in the last quarter or last year? Are customers actually price sensitive, or do they tend to move more on functionality and quality?

Craig Irwin: Good morning, and thanks for taking my question. So Randy, can you maybe comment a little bit about the pricing environment? Is there much that's changed in the last quarter or last year? Are customers actually price sensitive, or do they tend to move more on functionality and quality? Yeah, great question, Craig.

Craig Irwin: Good morning. Thanks for taking my questions.

Randy McEwan: Surandi, can you maybe comment a little bit about the pricing environment? Is there much that's changed in the last quarter or last year? Are customers actually price sensitive, or do they tend to move more on functionality and quality? Yeah, great question, Craig. I would say we haven't seen any change in the last quarter. Certainly, over the last year, we've certainly seen some downward pressure. But it's mostly where we're seeing customers who are looking at now larger scale programs and wanting to look at their cost points there. I still think in kind of the demonstration at earlier stage projects, it's more about safety, reliability, durability, making sure that when they deploy their first bus or they deploy their first truck or their first train, they've got Ballard technology that they know is going to deliver on promise.

Craig Irwin: Good morning and thanks for taking my questions. So Randy, can you maybe comment a little bit about the pricing environment? Is there much that's changed in the last quarter or last year? Are customers actually price sensitive or do they they tend to move more on functionality and quality?

Saumya Jain: And so I guess how do you see ballot playing out in the US rail market as well more specifically? Yeah, that's a great question. The real market we're seeing opportunities both in passenger rail and we see some opportunities developing there that we're working against as well as for freight locomotives. And we're working on that as well. So both those markets we have significant opportunities that we're trying to advance in the second half of the year.

Randy McEwen: I would say we haven't seen any change in the last quarter, certainly over the last year. We've certainly seen some downward pressure. But, you know, it's mostly where we're seeing customers who are looking at now larger-scale programs and wanting to look at their cost points there. I still think in kind of the demonstration early stage projects, it's more about safety, reliability, durability, making sure that when they deploy their first bus or they deploy their first truck or their first train, they've got Ballard technology that they know is going to deliver on promise.

Randy McEwen: Yeah, great question, Craig. I would say we haven't seen any change in the last quarter, certainly over the last year. We've certainly seen some downward pressure. But, you know, it's mostly where we're seeing customers who are looking at now larger-scale programs and wanting to look at their cost points there. I still think in kind of the early stage projects, it's more about safety, reliability, durability, making sure that when they deploy their first bus, or they deploy their first truck, or their first train, they've got Ballard technology that they know is going to deliver on its promise.

Randy: Yeah, great question Craig. I would say we haven't seen any change in the last quarter, certainly over the last year, we've certainly seen some downward pressure.

Randy: But, you know, it's mostly where we're seeing customers who are looking at now larger scale programs and wanting to look at their cost points there.

Randy: I still think in kind of the demonstration, earlier stage projects, it's more about safety, reliability, durability, making sure that when they deploy their first bus or they deploy their first truck or their first train, they've got valid technology that they know is going to deliver on promise.

Saumya Jain: And I believe the freight locomotive market will be a hydrogen market. The question is just the timing of that. And so we're we think when you look at that application, heavy trains, long routes, you're talking about very high power requirements, you know, 1.2 to 2 megawatts of power for some of these line haul locomotives. This is the only way in my opinion for them to decarbonize is to go with hydrogen. So we're excited about both those markets.

Randy McEwen: So I don't think, you know, pricing is the driver for the smaller orders in the demonstration market. But as you move to higher volume orders, as we saw earlier this year, for example, with Solaris for 1000 fuel cell buses, pricing becomes very important. Thank you.

Randy McEwan: So I don't think pricing is a Z driver in the smaller orders in the demonstration market, but as you move to higher volume orders, as we saw earlier this year, for example, with Stellaris for a thousand fuel cell buses, pricing becomes very important. Thank you for that.

Randy McEwen: So I don't think, you know, pricing is a driver for the smaller orders in the demonstration market. But as you move to higher volume orders, as we saw earlier this year, for example, with Solaris, for 1,000 fuel cell buses, pricing becomes very important.

Randy: So, I don't think, you know, pricing is the driver in the smaller orders in the demonstration market, but as you move to higher volume orders, as we saw earlier this year, for example, with Solaris for 1,000 fuel cell buses, pricing becomes very important.

Craig Irwin: Thank you for that. So my second question is about positive gross margins in the fourth quarter. Can you maybe unpack the risk there for us? Are we looking at the greatest risk maybe being around business mix, or are there timing issues, or is there any price sensitivity in the fourth quarter. I mean, what should we see as sort of the biggest risk to reaching positive gross margins this year?

Craig Irwin: So my second question is about positive gross margins in the fourth quarter. Can you maybe unpack the risks there for us? Are we looking at the greatest risk maybe being around business mix? Or are there timing issues?

Paul Dobson: So my second question is about positive growth margins in the fourth quarter. Can you maybe unpack the risk there for us? Are we looking at the greatest risk maybe being around business mix, or are there timing issues? Or is there any price sensitivity in the fourth quarter? I mean, what should we see as sort of the biggest risk to reaching positive growth margins this year?

Speaker Change: Thank you for that. So my second question is about positive gross margins.

Saumya Jain: I think we're going to see important market indicators here over the next six to 12 months that show both those markets in North America, both for freight, as well as for passenger showing next stage of development and demonstration commercialized. Thank you.

Speaker Change: in the fourth quarter.

Speaker Change: Can you maybe unpack the risk there for us? Are we looking at the greatest risk maybe being around business mix, or are there timing issues, or is there any price?

Randy McEwen: Or is there any price, price, sensitivity in the fourth quarter? I mean, what should we see as sort of the biggest risk to reaching positive gross margins this year? Yeah, so maybe I'll just make a quick comment, Craig, and then turn it over to Paul.

Speaker Change: sensitivity in the fourth quarter? I mean what what should we see as sort of the biggest risk to reaching positive gross margins this year?

Randy McEwen: Yeah, so maybe I'll just make a quick comment, Craig, and then turn it over to Paul. From my perspective, one of the most significant risks over a period of time is, really, Q4 gross margin really relates to revenue, and do you get sufficient revenue to cover your fixed overhead costs beyond contribution margin? And that's what we're forecasting for Q4. We still need additional orders in order to make that revenue happen for Q4, and Q4 could be 50, 60% of our revenue for the full year, so there's some risk there. I'll let Paul add some additional color as well.

Randy McEwan: Yeah, so maybe I'll just make a quick comment, Craig, and then turn it over to Paul. From my perspective, one of the most significant risks on a period of time, Q4 revenue is Q4 growth margin really relates to the revenue. And do you get a sufficient revenue to cover your fixed overhead costs beyond contribution margin? And that's what we're forecasting for Q4. We still need additional orders in order to make that revenue happen for Q4. And Q4 could be 50-60% of our revenue for the full year. So there's some risk there.

Saumya Jain: The next question comes from Cassie Harrison with Piper Sandler. Please go ahead. Good morning. Thank you for taking my questions. So the first one on the deferred orders, apologies if I missed this, but what are your customers telling you as the driver behind the deferment of orders? Is it the U.S, election, or is it something else? Yeah, in these cases, these opportunities we're describing, they're not dependent at all on the U.S, election, so it's more about the customer timing for, you know, finalizing, funding, finalizing, you know, program timing, making sure that their access to hydrogen is secure, so mostly those are the variables, but they're all fairly well in hand on these free opportunities that we're discussing.

Randy McEwen: From my perspective, one of the most significant risks for a company over, you know, a period of time, Q4 gross margin really relates to revenue. And do you get sufficient revenue to cover your fixed overhead costs beyond contribution margin? And, you know, that's what we're forecasting for Q4. But we still need additional orders in order to make that revenue happen in Q4. And Q4 could be 50, 60% of our revenue for the full year, so there's some risk there. I'll let Paul add some additional color as well. Yeah, no, I think that captures it.

Paul: Yeah, so maybe I'll just make a quick comment, Craig, and then turn it over to Paul. From my perspective, one of the most significant risks on, you know, a period of time, Q4 revenue, Q4 gross margin, really relates to the revenue, and do you get sufficient revenue to cover your fixed overhead costs?

Paul: beyond contribution margin.

Paul: and you know that's what we're forecasting for Q4. We still need additional orders in order to make that revenue happen for Q4 and Q4 could be 50-60% of our revenue for the full year so there's some risk there. I'll let Paul add some additional color as well. Yeah no I think I think that that captures it so it's you know we've got good line of sight on what has been booked and the margins that we expect to earn on those and of course our costs.

Paul Dobson: I'll let Paul add some additional color as well. Yeah, I think that captures it. So we've got a good line of sight on what has been booked in the margins that we expect to earn on those. And of course, our costs and are working towards that. There is still some that is un-booked, but have got good line of sight on where those bookings could come from. I suppose the other risk is to if there is additional deferrals by customers that they want to push orders or deliveries, I should say, into the next quarter. We're not seeing a significant amount of that for Q4 at this point.

Paul Dobson: Yeah, no, I think that captures it. So, you know, we've got a good line of sight on what has been booked and the margins that we expect to earn on those. And of course, our costs and are working towards that there is still some that is unbooked, but we have got a good line of sight on where those bookings could come from. I suppose the other risk is if there are additional deferrals by customers, if they want to push orders or deliveries, I should say, into the next quarter. We're not seeing a significant amount of that for Q4 at this point, but that certainly could be a risk as well.

Paul Dobson: So it's, you know, we've got a good line of sight on what has been booked and the margins that we expect to earn on those and, of course, our costs and are working towards that. There is still some that is unbooked, but we have a good line of sight on where those bookings could come from. I suppose the other risk is, too, if there are additional deferrals by customers, if they want to push orders or deliveries, I should say, into the next quarter.

Paul: and are working towards that. There is still some that is unbooked.

Paul: but have got good line of sight on where those bookings could come from. I suppose the other risk is, too, if there is additional deferrals by customers, if they want to push orders or deliveries, I should say, into the next quarter. We're not seeing a significant amount of that for Q4 at this point.

Saumya Jain: Got it. And then on the slower market adoption, so let's say, you know, just, you know, for, let's just say theoretically, you know, the 45-V rules were finalized today, and you know, it's much easier to qualify for the credit. You know, how long do you think it would take for your business to see that benefit roll through in orders and revenues? What does that lag look like? Yeah, so it's a good question.

Paul Dobson: We're not seeing a significant amount of that for Q4 at this point, but that certainly could be a risk as well. So, as I mentioned in the prior comments and another question, we're not expecting the same level of provisioning on our inventory. So our inventory management now is much sharper, and as we build up inventory in anticipation of deliveries, we'll see inventories come down, and we are quite confident that we won't have the same sort of write-offs anywhere near the level that we had last year.

Paul Dobson: But that certainly could be, could be at risk as well.

Paul Dobson: So, as I mentioned also in the prior comments, another question. We're not expecting the same level of provisioning on our, on our inventory. So our inventory management now is much sharper. And as we build up inventory and anticipation of deliveries, we'll see inventories come down and are quite confident that we won't have the same sort of write-offs anywhere near the level that we had last year. We did a lot of that cleanup work, which will have a big contribution to gross margin as well. So, so at this point, we are looking forward to positive gross margins in the quarter, everything else equal.

Craig Irwin: So, as I mentioned in the prior comments and another question, we're not expecting the same level of provisioning for our inventory. So our inventory management is now much sharper. And as we build up inventory in anticipation of deliveries, we'll see inventories come down, and we are quite confident that we won't have the same sort of write-offs anywhere near the level that we had last year. We did a lot of that cleanup work, which will make a big contribution to gross margin as well. So at this point, we are looking forward to positive gross margins in the quarter, with everything else equal.

Paul: But that certainly could be a risk as well.

Paul: So, as I mentioned also in the prior comments and another question,

Paul: We're not expecting the same level of provisioning on our inventory, so our inventory management now is much sharper.

Saumya Jain: I think we can kind of look to the European hydrogen bank program as an illustrative example of the timing that might happen because it's very similar. So, you know, in Europe, they have a $2.2 billion hydrogen bank program, and the first auction was announced in April of this year with seven projects, about 720 million-year-old funding. And those seven projects are in Spain, Portugal, Norway, and Finland. They're supposed to be signed by the end of November, but project developers are required to actually enter production within five years. Many of them are kind of indicating they're expecting production within three years, but the program allows for five years.

Paul: And as we build up inventory in anticipation of deliveries, we'll see inventories come down and are quite confident that we won't have the same sort of write-offs anywhere near the level that we had last year. We did a lot of that clean-up work.

Paul Dobson: We did a lot of that cleanup work, which will have a big contribution to gross margin as well. So at this point, we are looking forward to positive gross margins in the quarter and everything else. Okay, just a point of clarification, though, Randy. You mentioned it could be as much as 50 to 60% of deliveries this year. Do you need the fourth quarter to have that level of revenue contribution? Or is a positive gross margin achievable at a lower level?

Paul: which will have a big contribution to gross margin as well. So at this point, we are looking forward to positive gross margins in the quarter, everything else equal.

Randy McEwen: Okay, just a point of clarification though, Randy. You mentioned it could be as much as 50 to 60 percent of deliveries this year. Do you need the fourth quarter to have that level of revenue contribution, or is positive gross margin achievable at lower levels?

Randy McEwan: Okay, just the point of clarification, though, Randy, you mentioned it could be as much as 50 to 60% of deliveries this year. Do you need the fourth quarter to have that level of revenue contribution, or is positive gross margin achievable at lower levels? Yeah, I think right now with, when you look at a Q1, Q2, Q3 revenue run rates, they're not sufficient at current contribution margins to drive to a gross margin with our fixed overhead cost structure. So you do need to have, you know, sufficient revenue. So I think, you know, that's one of the challenges that we have is still is that the fixed overhead cost structure is invested in.

Speaker Change: Okay, just just a point of clarification though, Randy you mentioned it could be as much as 50 to 60 percent of deliveries this year. Do you need the fourth quarter to have that level of revenue contribution or is positive gross margin achievable at lower levels?

Saumya Jain: So the way I would think about it is, you know, if we had a clarity in the U.S, market, I would think about three to five years as a timeline before you'd actually see hydrogen production coming online at scale for off-take opportunities. I think perhaps more importantly, though, is having the visibility, having the clarity on the policies, knowing that capital is going to be there to support hydrogen project development and to build out of hydrogen infrastructure, to me, that's enough for customers to then start planning their next stage of deployments at larger scale because some of these deployments, they'll need three, five years of planning.

Paul Dobson: Yeah, I think right now when you look at Q1, Q2, Q3 revenue run rates, they're not sufficient at current contribution margins to drive to a gross margin with our fixed overhead cost structure. So you do need to have sufficient revenue. So I think that one of the challenges that we still have is that the fixed overhead cost structure has been invested in, and we need to scale revenue and get more consistent revenue across the four quarters going forward.

Randy McEwen: Yeah, I think right now when you look at Q1, Q2, Q3 revenue run rates, they're not sufficient at current contribution margins to drive to a gross margin with our fixed overhead cost structure. So you do need to have sufficient revenue. So I think that one of the challenges that we still have is that the fixed overhead cost structure has been invested in, and we need to scale the revenue and get more consistent revenue across the four quarters going forward.

Speaker Change: Yeah, I think right now with when you look at a Q1, Q2, Q3 revenue run rates

Speaker Change: They're not sufficient at current contribution margins to drive to a gross margin with our fixed overhead cost structure. So you do need to have...

Speaker Change: you know, sufficient revenue. So I think, you know, that's one of the challenges that we have is still is that the fixed overhead cost structure has been invested in. We need to scale the revenue and get a more consistent revenue across the four quarters going forward.

Randy McEwan: We need to scale the revenue and get a more consistent revenue across the four quarters going forward.

Randy McEwan: Fantastic.

Craig Irwin: Fantastic. Thanks again for taking my question. Yes.

Craig Irwin: Fantastic. Thanks again for taking my question.

Operator: Thanks again for taking my questions. Yep, thanks, Craig.

Operator: Thanks, Craig. This concludes the question and answer session. I would like to turn the conference back over to you for any closing remarks. Thank you for joining us today. Paul, Kate, and I look forward to speaking with you next quarter. This brings to a close today's conference call. You may disconnect your line. Thank you for participating and have a pleasant day.

Speaker Change: Fantastic. Thanks again for taking my questions.

Randy McEwan: This concludes the question and answer session. I would like to turn the conference back over for any closing remarks. Yeah, thank you for joining us today.

Operator: This concludes the question and answer session. I would like to turn the conference back over to you for any closing remarks. Yes, thank you.

Craig Irwin: Thanks, Craig.

Speaker Change #100: This concludes the question and answer session. I would like to turn the conference back over for any closing remarks.

Saumya Jain: So, I don't think the, I don't think you're going to see anything happen in the next two to three years, even if from a scale perspective, that would be triggered by, you know, the passing of the regulations. And by the way, how those regulations get resolved is also important. So, you know, the current concepts of adding additionality and regionality and time matching, how those get resolved will not only impact perhaps the timing, but will also impact the scale of that timing through 2030. And then that's all super helpful color there.

Randy McEwen: Thank you for joining us today. Paul, Kate, and I look forward to speaking with you next quarter. Ameet Thakkar, Ameet Thakkar, Aaron MacNeil, Manav Gupta, Aaron MacNeil,

Randy McEwan: Paul Kayn, I look forward to speaking with you next quarter.

Speaker Change #101: Thank you for joining us today. Paul, Kate and I look forward to speaking with you next quarter.

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

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

Speaker Change #102: This brings to a close today's conference call. You may disconnect your line. Thank you for participating and have a pleasant day.

Unnamed: [music]

Speaker Change #103: I'll be back in a minute. I'll be back in a minute.

Saumya Jain: And then I guess maybe that's a good segue into my question on the FID decision in Texas later this year. Do you have a, can you give us a sense of timing, is this December, November, October decision, and then what indicators specifically are you, are you, are you and your team looking at helping make the decision one way or another? Yeah, we certainly will be making that decision in Q4. There's some timing pressures from different stakeholders.

Saumya Jain: So it's a complicated answer given that we're in a sensitive discussion with different stakeholders at this time. So all I can say is, you know, we're really trying to make sure that we can have as much runway as possible before decisions on actually spending on facilities and spending on equipment have to be triggered. And so, you know, the timing between contract and actual capital deployment and the offerings are all things that we're considering. God, appreciate the color.

Rob Brown: Thank you. The next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.

Rob Brown: Good morning. Just following up on the sort of the cross currents in the truck market. What are some of the things that sort of need to happen for you to see that market moving forward? Is it really the government's support things or is it getting closer to the timeline and some of the clean truck stuff in California? Just a sense of where the truck markets that and how you see it playing out over the next 12 to 18 months?

Randy McEwan: Yeah, good question, Rob. I think there's one thing that is pretty clear to me is that there's a lot of end market interest in zero mission solutions. So that there's been really no change there. You know, I'd say the ESG pendulum is swung back a little bit. But most of the large fleet operators that we've been talking with as end users are very committed to go to zero mission on their fleet.

Randy McEwan: So there's no change there. I do think that the vehicle OEMs are struggling with investing across a different basket of technologies. So it's not just cleaner diesel, fuel cells. In some cases, hydro internal combustion engine, in some cases, and then of course battery electric, autonomy and ADAS features. So there's a lot of investment being made. And so allocating capital to the highest priority is I think a challenge for the OEMs and given the timeline for adoption of hydrogen.

Randy McEwan: I think this is just sequenced a little bit later than some of the other investments. So there aren't a number of OEMs that have fuel cell ready trucks at this time. We've talked about what we call our dual lane strategy where we're working with some of the large OEMs for long term market adoption, as well as these scrapier upfitters that are launching products earlier. As an illustrative example, we have a partner called Wisdom Motors that is developing fuel cell trucks and buses for a number of markets outside of China.

Randy McEwan: And they've seen quite a bit of progress in their product offering as well as market engagement and demonstration projects, including in Australia, the Middle East and Europe. So I would say those two pathways are running in parallel and they're taking longer than we'd like. And we are trying to focus again on those even with trucks on those applications where you can have centralized depot refueling or point to point refueling. So you'll have the lower barrier to entry on the hydromy filling infrastructure. Sure. Okay, thanks for the color.

Randy McEwan: I'll turn it over. Thanks, Rob.

Ameet Thakkar: The next question comes from Ameet Thakkar with BMO Capital Markets. Please go ahead. Hey, good morning, guys. Thanks for taking my question. Randi, you kind of mentioned the 45B credit a couple of times here today. I was just wondering, the section 48B guidelines were released at the end of May. They appeared pretty stringent to us, and I think to some of your fuel cell peers, is that an investment credit that your US-based customers have availed themselves of much in the past, and kind of given that goes into effect in 2025, you anticipate and you pull forward and demand in the US, at least to kind of get ahead of that.

Ameet Thakkar: Thanks. Yeah, I haven't seen that where we've seen a pull forward, and I haven't seen that there's higher reliance on this credit for our market applications. When you look at our market applications, the US market for us right now is very heavily dominated by the transit bus market, which isn't subject to that credit. You're typically talking about low-know and other federal funding to support transit operators.

Randy McEwan: Great. And then you talked about some of the challenges for adoption on the mobility front. I was just wondering, do you have any updates on kind of how your stationary power product is kind of seeing maybe some more receptivity kind of given some of the, I guess, questions around power supply here going forward, whether it's on a backup basis, et cetera. Yes, a great question. And we're seeing basically two opportunities, I would say, in stationary power that are compelling.

Randy McEwan: One is where you have either off-grid or grids that aren't reliable, and you're seeing a number of applications, things like filming applications or event applications where, you know, stand by power or backup power, primary power in any of those cases are required for, I'll call it, a relatively short period of time for an event. So we're seeing that construction, for example, is another type of market. The one that to me is really quite interesting, of course, is the data center market.

Randy McEwan: Here we're not talking about primary power and you know, renewable energy is the clear enabler for data centers in terms of time to market, but as you look past primary power, you start looking at backup power. It's very clear that the customers and users are looking for zero-mission solutions throughout their kind of critical infrastructure. And our announcement with our strategic technology partnership with virtue, I think they're kind of four important points that are to highlight.

Randy McEwan: One is this large and fast-growing market, not just for the primary power for data centers, you know, as a result of Gen AI and the compute power increase, but also for required backup power. The second is, you know, having a partner in that market who's a market leader and we're very fortunate to be working with virtue who's very well positioned in the data center market. The third is really kind of validating the value proposition.

Randy McEwan: And I think there are five key points on the value proposition here as we look at fuel cells for backup power and the UPS architecture. The first is that you're talking about having kind of single-supplied, very complex power infrastructure from one supplier and so virtue is basically doing all the systems integration for all of the critical infrastructure for backup power. Second is not just zero emissions, but also low noise. And when you put those two together, compared to diesel generators, you're seeing this is becoming increasingly important for permitting.

Randy McEwan: Third is kind of low maintenance. We think that hydrogen fuel cells will offer a cost adventure in the long run against diesel generator backup solutions for maintenance and then also extended backups. So having UPS for days, not for hours. And so there with a fuel cell engine your only limit really is your fuel storage capacity. And the last is really the ability to optimize your footprint to have megawatt scale applications in a tight configuration which we can accomplish with fuel cells and you can't accomplish with batteries.

Randy McEwan: So I think there's a lot of advantages that fuel cells can offer. We're validating these value propositions and working to make sure we have the optimized solution for what I think could be a very game changing market opportunity for Ballard and with a very strong partner that's investing in this solution with Virgin.

Randy McEwan: Great, thanks guys.

Craig Irwin: Thank you. The next question comes from Craig Irwin with Roth Capital Partners. Please go ahead. Good morning. Thanks for taking my questions. Surandi, can you maybe comment a little bit about the pricing environment? Is there much that's changed in the last quarter or last year? Are customers actually price sensitive or do they tend to move more on functionality and quality? Yeah, great question Craig. I would say we haven't seen any change in the last quarter.

Craig Irwin: Certainly over the last year, we've certainly seen some downward pressure. But it's mostly where we're seeing customers who are looking at now larger scale programs and wanting to look at their their cost points there. I still think in kind of the demonstration at earlier stage projects, it's more about safety, reliability, durability, making sure that when they deploy their first boss or they deploy their first truck or their first train, they've got Ballard technology that they know is going to deliver on promise.

Craig Irwin: So I don't think pricing is a Z driver in the smaller orders in the demonstration market, but as you move to higher volume orders, as we saw earlier this year, for example, with Stellaris for a thousand fuel cell buses, pricing becomes very important. Thank you for that.

Paul Dobson: So my second question is about positive growth margins in the fourth quarter. Can you maybe unpack the risk there for us? Are we looking at the greatest risk maybe being around business mix or are there timing issues? Or is there any price sensitivity in the fourth quarter? I mean, what should we see as sort of the biggest risk to reaching positive growth margins this year? Yeah, so maybe I'll just make a quick comment, Craig, and then turn it over to Paul.

Paul Dobson: From my perspective, one of the most significant risks on a period of time, Q4 revenue is Q4 growth margin really relates to the revenue. And do you get a sufficient revenue to cover your fixed overhead costs beyond contribution margin? And that's what we're forecasting for Q4. We still need additional orders in order to make that revenue happen for Q4. And Q4 could be 50-60% of our revenue for the full year. So there's some risk there.

Paul Dobson: I'll let Paul add some additional color as well. Yeah, I think that captures it. So we've got good line of sight on what has been booked in the margins that we expect to earn on those. And of course, our costs and are working towards that. There is still some that is un-booked, but have got good line of sight on where those bookings could come from. I suppose the other risk is to if there is additional deferrals by customers that they want to push orders or deliveries, I should say, into the next quarter.

Paul Dobson: We're not seeing a significant amount of that for Q4 at this point. But that certainly could be, could be at risk as well. So as I mentioned also in the prior comments, another question. We're not expecting the same level of provisioning on our, on our inventory. So our inventory management now is much sharper. And as we build up inventory and anticipation of deliveries, we'll see inventories come down and, and are quite confident that we won't have the same sort of write-offs anywhere near the level that we had last year.

Paul Dobson: We did a lot of that cleanup work, which will have a big contribution to gross margin as well. So, so at this point, we are looking forward to positive gross margins in, in the quarter, everything else equal. Okay, just, just the point of clarification though, Randy, you mentioned it could be as much as 50 to 60% of deliveries this year. Do you need the fourth quarter to have that level of revenue contribution, or is positive gross margin achievable at lower levels?

Paul Dobson: Yeah, I think right now with, when you look at a Q1, Q2, Q3 revenue run rates, they're not sufficient at current contribution margins to drive to a gross margin with our fixed overhead cost structure. So you do need to have, you know, sufficient revenue. So I think, you know, that's one of the challenges that we have is still is that the fixed overhead cost structure is invested in. We need to scale the revenue and get a more consistent revenue across the four quarters going forward.

Craig Irwin: Fantastic. Thanks again for taking my questions. Yep, thanks Craig.

Randy McEwan: This concludes the question and answer session. I would like to turn the conference back over for any closing remarks. Yeah, thank you for joining us today. Paul Kayn, I look forward to speaking with you next quarter. This brings to a close today's conference call. You may disconnect your line.

Operator: Thank you for participating and have a pleasant day.