Q3 2024 Ballard Power Systems Inc Earnings Call
Hello and welcome to the Ballard Power Systems 3rd Quarter 2021 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 one on your telephone keypad.
Should you need assistance during the conference call? You may signal an operator by pressing star, then zero. I would now like to turn the conference over to Sumid Kundo with Manager and Investor Relations. Please go ahead.
Sumid Kundo: Thank you, operator and good morning. Welcome to Ballard's third quarter financial and operating results conference call. With us on today's call, our Randy MacEwen, Ballard CEO and Kate Igbo-Lode, Chief Financial Officer.
We will be making forward looking statements that are based on management, 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.
Speaker Change: I'll now turn the call over to Randall.
Randall: Thank you so much and welcome everyone to today's conference call. We'll keep our prepared comments today relatively brief, to allow sufficient time for Q&A.
Randall: I think there can be no question as is a difficult moment in the hydrogen and fuel cell industry.
and the context of an uncertain, macroeconomic and geopolitical outlook and a mid-protractive policy uncertainty, we observed a multi-year push-out of hydrogen project development and the availability of low-cost, low-carbon hydrogen and hydrogen refueling infrastructure.
Randall: We also observe a continued deterioration in the financing environment for companies in the hydrogen fuel cell industry complex, including reduced access to capital and continued compression in industry valuations.
taken together the push out and market adoption and the challenging capital markets environment is putting pressure on the financial position of many industry players across the value chain.
Randall: Many participants are taking restructuring actions to reduce their cash burn, improve their liquidity and extend their cash runway.
Randall: This industry context presents a significant headwind to our corporate growth plan.
Accordingly, in Q3, we made the difficult decision to initiate a global corporate restructuring to moderate our investment intensity and pacing to better align with delayed market adoption.
Randall: Our restructuring includes a sizable workforce reduction, rationalization of product development programs, consolidation of global operations and facilities, and a reduction in plan capital expenditures.
In addition, give and continue policy and other challenges in the China fuel cell market and the underperformance for the Wachai Ballard Joint Venture.
Randall: We've reduced our corporate cost structure in China, an initiated strategic review of our trying to strategy with consideration of all options, including related to the way Chai ballers JV.
Given this industry context, we do not see a business case for production capacity expansion investments in the foreseeable future.
Accordingly, we have also repositioned our previously planned Texas Gagor Factory expansion program to an optionality plan. We will defer our final investment decision to 2020-6 pending clear market adoption and demand indicators.
Randall: While still preserving our over $94 million of awarded government funding.
Randall: With no material, capital investments made during this optionality period will reassess the underlying business case in 2020-6.
The
Randall: We expect our global restructuring to reduce total annualized offering costs by more than 30% with a substantial part of the annual cost savings to be realized in 2025.
Randall: These actions will meaningfully extend our cash runway. Importantly, and a differentiator for bowled, we entered the quarter with a strong cash position.
Our Q3 results are reflective of this challenging industry context in near-term outlook.
Randall: wed week revenue, soft new order intake, adverse order book adjustments, a restructuring charge of 16.1 million, a non-tash goodwill and P.T. impurments totaling approximately $847 million.
Randall: I want to comment on the order backlog. We removed certain previously booked orders from our order backlog and 12-month order book. While these orders have not been cancelled by our customers, we believe these removals are prudent given heightened concerns on the relevant market adoption risks and customer risks.
Randall: While we had disappointing new order intake of only 7.1 million during Q3, we see a pickup in new order intake in Q4, including secured orders from two customers over the past few days that I want to highlight.
Randall: First, we received a new order from New Flyer for the supply of 200 fuel cell engines representing 20 megawatts with delivery planned for 2025.
Randall: This represents the second order under our previously announced long-term supply agreement with a doubling from the new fire order of 100 fuel cell engines for 2024 delivery.
Randall: We believe this new order for 200 engines is the largest order in the history of the industry for fuel cell engines in the North American bus market.
Randall: Second, we also received a repeat order from an undisclosed European Bus OEM customer where we previously signed a long-term framework supply agreement. This order is for the supply of 80 fuel cell engines planned for delivery in 2025 and 2026.
Randall: As we look to our long-term strategic plan and our retuned capital allocation, we continue to have high conviction on hydrogen and PEM fuel cells playing an important role in decarbonizing select heavy mobility and stationary power applications.
Randall: We see compelling use cases where customers are attracted to the differentiated PEM fuel cell value proposition of long-range, fast refueling, heavy payload, operation in all weather climates, and zero tailpipe emissions.
Randall: We remain focused on our customers and our controllables, including the development of next-generation, low-cost fuel cell products, while maintaining discipline, spending, and balance sheet strength for long-term competitiveness and sustainability.
Kate: With that, I'll now pass the call over to Kate.
Kate: Thank you, Randy. In Q3, Valor delivered orders totaling $14.8 million, a decrease of 45% year-over-year due to slowing customer demand, reflective of a pushout in the adoption curve for hydrogen and PEM fuel cells.
Kate Igbo-Lode: Product sales accounted for approximately 93% of total revenue, continuing an increasing trend as we transitioned to a commercial products company.
Kate: We expect 2024 revenue to be heavily indexed to Q4.
Kate: Lower revenue, changes in our revenue mix, and onerous contracts and inventory provisions resulted in a gross margin of negative 56%, 45 points lower compared to the same period last year.
Kate: In the quarter, total operating expenses were $54.9 million, 58%, or $20.2 million higher year-over-year. This is primarily due to a restructuring charge of $16.1 million and $7.9 million of impairment of certain trade receivables.
Kate: With our restructuring actions, we expect total operating expense, excluding restructuring charges, to be at the low end of our guidance range of $145 to $165 million for the year.
Kate: With restructuring charges included, we expect to be at the higher end of the range.
Kate: We also expect a modest additional restructuring charge in Q4 in the $2-$5 million range.
Kate: Cash operating costs in the quarter were $28 million.
Kate: Capital expenditures totaled approximately $12 million in Q3. And for the full year guidance on capital expenditures, as a reminder, we reduced our guidance range in the previous quarter to $25 to $40 million.
Kate: With the delay of a final investment decision for the Texas facility, as well as reductions in capital investments due to scope reductions from our restructuring activities, we expect capital expenditures for the year to be at the low end of this range.
Kate: As Randy commented on earlier, during the quarter, we incurred approximately $147 million of non-cash impairment charges.
Kate: As a result of the decline in our market cap, our global corporate restructuring, and indicators of slowing hydrogen and fuel cell policy implementation and market adoption, we have updated our goodwill and non-financial asset impairment tests due to these potential indicators of impairment.
Kate: This resulting impairment is made up of approximately $40 million of goodwill and $107 million of PP&E to impair these assets to their estimated residual value.
Kate: This PP&E impairment charge is as a result of the accounting treatment and is not reflective of our belief in the ability for our investment to deliver value to Ballard through product development, testing, and manufacturing.
Kate: We continue to have a strong balance sheet, ending the quarter with approximately $635.1 million in cash and cash equivalents. And with that, I'll turn the call over to the operator for questions.
Speaker Change: 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.
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Speaker Change: If you are using a speakerphone, please pick up your handset before pressing any keys.
Speaker Change: And to withdraw your question, please press star, then two. We are asking callers to kindly limit themselves to one question and one follow-up. We will pause for a moment to assemble our roster.
Speaker Change: And the first question will come from Rob Brown with Lake Street Capital Markets. Please go ahead.
Rob Brown: Good morning, Randy and Kate.
Speaker Change: Morning, Rob.
Rob Brown: Just wanted to get a little bit of sense on kind of the order environment good to see some bus orders here But are you seeing I guess continued bus activity and and really that's it or or that's maybe a little extreme But but maybe just just kind of where you seeing activity now And what are you hearing I guess in the in the heavy-duty truck market and some of the other heavy-duty markets
Speaker Change: Yeah, great question Robin and notwithstanding kind of the muted order book new intake for Q3 We had a lot of activity in Q3 advancing opportunities with customers
Speaker Change: to late stages in our sales pipeline. So, we feel very good about, you know, new order intake for Q4 and the new flyer announcement is one illustrative example. Obviously, the
Speaker Change: the European bus OEM that I referenced as a second, but there will be more coming in Q4. So we're pretty excited about some of the developments there, and they are primarily in bus
Kate: rail and stationery. I would say the two markets that are really not tracking as quickly as we had expected particularly would be the truck market and the marine market.
Kate: Certainly the marine market is very very slow for us this year compared to prior year.
Kate: and the truck market for a variety of reasons. I continue to see that get extended. And that's, when we kind of look at the delayed market adoption, the truck market is a very significant contributor there because of the size of that market.
Kate: So those are the two markets, truck and marine, where we're seeing pretty significant, you know, challenges securing orders. We feel very good, though, about the bus...
Kate: Rail and stationary markets where we continue to see progress, and I think we'll see additional order flow coming out of those market applications in Q4 in the next year.
Speaker Change: Okay, great. Follow-up on kind of the CapEx comments. What's sort of the baseline or sort of maintenance level CapEx you think you'll run at before you get some clarity on the market?
Speaker Change: Thanks for the question. I think as we look into 2025, obviously we haven't put out our guidance expectations and ranges for next year as of yet, but I think if you kind of look at our current guidance range for this year of kind of that $25 to $40 million, if you take that midpoint, I think that the low to mid end of that range is a reasonable expectation as we look into 2025.
Speaker Change: Okay, thank you. I'll turn it over.
Speaker Change: Thanks, Rob. See you next question.
Speaker Change: The next question will come from Jordan Levy with Truist Securities. Please go ahead.
Jordan Levy: Morning all. Given the timing, I guess I'll first ask around the election. Can you just give us a sense of how you see the outcome of the U.S. election today impacting anything on the adoption timeline? And then maybe just a second part of that, if you think that there was any holdup from any U.S. customers you were in potential order discussions with during the third quarter ahead of the timing of the election?
Speaker Change: Yeah, so first of all, Jordan, thanks for the question. We were expecting a question on the U.S. election just given today's date here.
Speaker Change: We're not really basing our business plan on any one administration in any one country, so we really look to make sure we have a plan that's resilient around different administrations.
Speaker Change: What I would say is that we were, I think, pleased that we saw some indicators that we are expecting guidance, final guidance, to move to, you know, policy implementation.
Speaker Change: on the 45V by the end of this year. So we certainly have seen indicators from the IRS.
Speaker Change: and the DOE that there's an expectation that should happen by the end of the year, notwithstanding what happens in the election. So that's a recent statement.
Speaker Change: So, hopefully that is the case.
Speaker Change: You'll recall this was supposed to be finalized under the rules August 23rd, 2023.
Speaker Change: The IRS came out with their guidance last December.
Speaker Change: So this is fairly significantly delayed.
Speaker Change: And I think that, in my opinion, is causing significant delay on the development of hydrogen projects, which is having implications for all hydrogen applications, including mobility applications, in the U.S. market.
Speaker Change: Now, as a reminder, we are focused on projects and opportunities where you have centralized depot refueling, which does mitigate a little bit on the refueling infrastructure side, but of course...
Speaker Change: A clean hydrogen is a big part of the landscape moving forward to make sure zero tailpipe emissions really mean zero tailpipe emissions.
Speaker Change: Yeah, that makes total sense. Maybe just to follow up, I just wanted to see if we could get any more insight into the $39 million in removals, not asking for any specifics.
Speaker Change: specific customers, obviously, but from, I know you called out China in the comments as included in that, but I just wanted to see, were there any insights you could provide us with there? Were there orders that were more weighted toward any particular segment or geography or anything like that?
Speaker Change: Certainly for the two largest ones that we moved out.
Speaker Change: certainly the Waichai Ballard JV and the
Speaker Change: As we're doing a strategic review here, we're reassessing really everything on the table in terms of the product roadmap for the joint venture, future investments, governance.
Speaker Change: but also the tech transfer program that we've been working on and what we do on that tech transfer program going forward.
Speaker Change: We're completing existing deliverables, but what the next stage of that is. And so we've.
Speaker Change: We've taken that out at this stage, given the level of uncertainty in that strategic review.
Speaker Change: And then there is one other customer, I won't name the customer, but they are having liquidity challenges.
Speaker Change: and we thought this was a prudent thing to do.
Speaker Change: Given that it's unclear whether their commercialization plans and we have a take or pay contract with that customer
Speaker Change: That being said...
Speaker Change: you know their their commercialization plans are not materializing at the pace they expected.
Speaker Change: and they're going through a financing process. So with those two variables, we thought this was the prudent thing to do. Thanks so much.
Speaker Change: Thank you very much.
Speaker Change: The next question will come from Somya Jain with UBS. Please go ahead.
Somya Jain: Yeah, I think certainly
Speaker Change: The trend across the broader space is, as we characterize, is a deferred, delayed market adoption that's both protracted policy uncertainty and the availability of low-cost, low-carbon hydrogen are compounding factors for sure.
Speaker Change: and what most customers and end customers are doing particularly in the bus and rail and stationary markets where we're seeing continued attraction there.
Speaker Change: So I feel like, you know, we're going to have additional contributions to the order book as I mentioned in Q4.
Speaker Change: But I think it'll be very weighted as it has been with BUS. And just just to give you an example, you know, the BUS market is contributing the lion's share of revenue through 2024. We expect that to continue in 2025.
Speaker Change: Okay, got it. And then how are you guys seeing, I know last quarter you mentioned the cost per kilowatt sold to customers coming down. Do you still see that or how is that playing out?
Speaker Change: Yeah, like from on a quarter-to-quarter base, so we haven't seen any material change on that front, but you know we do expect and contemplate in our financial model annual reductions in selling price.
Speaker Change: and we do plan for annual cost reductions as well.
Speaker Change: So both those are in our plans and we expect to see that continuing trend. There is pressure in the marketplace. There are a number of...
Speaker Change: competitors who are trying to get their demonstration projects, trying to get
Speaker Change: you know, pilot projects and field experience is a major competitive advantage we have with our market share and our field experience and others are trying to get into the market and are using pricing as a mechanism to achieve that.
Speaker Change: Thank you.
Speaker Change: The next question will come from Amit Thakkar with BMO Capital Markets. Please go ahead.
Amit Thakkar: Good morning. Thanks for taking my questions. I just wanted to follow up, I guess, Randy, on your comment regarding, I guess, part of the write-down of the
Amit Thakkar: and the backlog or the removal of it. And you mentioned you had a customer with a take or pay contract that was in some sort of financial distress. Is that what also drove the, I think, the $7, $8 million write-down on trade receivables? Is it the same customer?
Speaker Change: No, no, different situation.
Speaker Change: Okay, and then I think, you know, at your Capital Markets Day back in 23, I mean, you kind of highlighted, you hit kind of nine.
Speaker Change: kind of critical massive orders and, you know, kind of maybe in the hundreds.
Speaker Change: I was just wondering if you could kind of level set us right now on how many customers you have in that kind of deployment phase. I mean, certainly Flyover looks like they're one of them, maybe Solaris. But I was wondering if you could kind of maybe level set us on that. Thanks.
Speaker Change: Yeah, so the bus market is clearly where we're seeing that occur. We have a number of bus OEMs
Speaker Change: in the European market.
Speaker Change: that, you know, I would characterize as, you know, on long-term supply agreements now, framework of agreements.
Speaker Change: repeat orders moving from a handful to, you know, larger deployments. And so, when I look at the bus market, just as an illustrative example, I think probably
Speaker Change: over the last 12 months.
Speaker Change: By my count, we've secured orders for about 1,600 fuel cell engines for fuel cell buses
Speaker Change: regions respectively.
Speaker Change: And, you know, there are probably about five key bus OEMs that I would characterize.
Speaker Change: in that category as being real players now for fuel cell buses.
Speaker Change: There is one other we expect to sign up and secure in Q4.
Speaker Change: We've been working with that customer for about a year.
Speaker Change: and expect to sign a long-term supply agreement with them as well. So I think we probably have five or six key customers on the bus side that I would characterize as moving past demonstration and into real deployments.
Speaker Change: So that's very exciting on the bus market. When you're talking about 1,600 buses ordered in one year, 1,600 engines for buses in one year, you know, it's no longer a pilot program.
Speaker Change: I don't think when you look at truck
Speaker Change: and Marine, we see anything similar to that at this time. I do think on the rail side, there are probably three customers on the rail side that I'd highlight as moving into areas where the volume of
Speaker Change: either agreed contracts we have or that we expect, you know, in the next six months, would put them into that deployment category. You know, two of them are in the commuter rail market and one of them is in the freight locomotive market.
Speaker Change: And then on stationery, just to pause for a minute on stationery, because I think this is kind of a very interesting market, and it's a market that's...
Speaker Change: I'm going to take some time to develop, but some interesting developments over the last quarter, you know, Caterpillar, a partner we've worked with, won a U.S. Department of Energy 2024 Hydrogen Program Merit Review Award.
Speaker Change: for Systems Development and Integration. This is on a project in collaboration.
Speaker Change: with Microsoft and Ballard where they tested the feasibility of a large
Speaker Change: format hydrogen fuel cell for reliable backup power over a simulated 48 hour outage at a data center.
Speaker Change: that was a data center basically hosted at a Microsoft...
Speaker Change: site in Cheyenne, Wyoming.
Speaker Change: And that included a 1.5 megawatt Ballard fuel cell solution.
Speaker Change: For an unnamed customer at this stage, one of the world's largest companies doing a field trial, and we expect to have more to say on that as that customer prepares for disclosure on that project.
Speaker Change: And then the last thing on the stationary market, we have announced previously our co-development work with Vertiv and that continues and I think is a very important collaboration for us, particularly focused on stationary backup power solutions for the data center market.
Speaker Change: So, a couple of customers on the stationary side, they're still in demonstration phase at this point, but they are blue chip customers that have a lot of understanding on the market requirements.
Speaker Change: particularly for the data center market and you know we'll continue to work with some of these partners to advance the opportunities there.
Speaker Change: Great. Thank you for all the color.
Speaker Change: Your next question will come from Craig Scheer with Tui Brothers. Please go ahead.
Craig Scheer: Good morning. So first, any other details on that China receivable write-off and implications for
Craig Scheer: I mean, is it just?
Craig Scheer: geopolitical? Is it there's no money there? What's driving that? And are you in your strategic review of HIJB at all contemplating
Craig Scheer: a full exit from the market or is this just something that would go into hibernation possibly until China eventually does become the largest hydrogen market in the world?
Speaker Change: Craig, thanks for the question. First of all, you mentioned China as the largest hydrogen market in the world. It is the largest hydrogen market today with one-third of global demand, about 28 million tons per year, I think more than double the U.S.
Speaker Change: It's the largest renewable energy market as we know.
Speaker Change: the largest market for fuel cell buses today probably 90% of the fuel cell buses globally more than 90% are in China and probably more than 95% of fuel cell trucks on roads today are in China
Craig Scheer: And about one-third of hydrogen refueling stations globally are in China today, so a lot of indicators of a market that's not just the largest today, but we think will be the largest in 2030 and 2050.
Craig Scheer: On the Waichai-Ballard JV, the various options, you mentioned kind of hibernation, exit.
Craig Scheer: All those are on the table.
Craig Scheer: Absolutely all of those are on the table. This is a full strategic review.
Craig Scheer: I don't want to presume the outcome, because there's a...
Craig Scheer: discussions underway with our partner in that market.
Craig Scheer: But we are looking at the structure of the JV, we're looking at governance, we're looking at the roadmap. The JV is currently fairly well capitalized, there's no investments required for 2024 and 2025.
Craig Scheer: But we are revisiting our tech transfer program there. We're looking at our equity investment. So all things are on the table. And we'll report on that as we conclude that. In terms of the receivable that you asked about, that's really a situation, you know, where this is a receivable with the joint venture.
Craig Scheer: kind of milestone developments under our technology program. So there's a lot happening there, a lot of moving pieces. And so we've taken an impairment on that receivable to be prudent, but that's kind of where we are right now.
Speaker Change: Thank you.
Speaker Change: Yep, you're welcome.
Speaker Change: The next question will come from Rupert Muir with National Bank. Please go ahead.
Rupert Muir: Hi, good morning everyone.
Rupert Muir: So, as part of your restructuring, you're rationalizing your product development plans. Can you give us more color on how the plans could change? What are you able to give up from your plans and where are you going to keep your focus?
Speaker Change: and really focus the investment going forward on the next generation, higher performing, low cost product, particularly what we call our small core and our medium core products.
Speaker Change: So a couple of market applications where we have effectively discontinued investment. So the marine market, we have a product today, the FC Wave. We are not working on a next version of that FC Wave product, given what we've seen in the marine space.
Speaker Change: And on the truck market, the much larger engines required for the truck market, we've deferred our investment programs for large engines out into future years. So those are some of the decisions we've made based on the market indicators that we're seeing and where we're seeing.
Speaker Change: Market Adoption, both from a rationalization as well as a sequencing perspective.
Speaker Change: I would say as well, moving from the engines to the core stacks, similarly, we've reduced the amount of investment on legacy stacks.
Speaker Change: and are really focused on the next generation stacks that have higher performance and much lower cost. So the big emphasis for us on our investment going forward.
Speaker Change: We feel like we understand a lot about the market requirements and how technology translates to safety, reliability, durability.
Speaker Change: And what the big focus for us is really around product cost reduction to help obviously expand the market opportunities, but obviously gross margin expansion is a key driver for us moving forward.
Speaker Change: So as a follow-up, you have a little bit more time now before mass commercialization and as you identify, there is a cost to carrying.
Speaker Change: legacy products or commercializing products. Does this give you time to...
Speaker Change: delay the next generation, push the technology and the cost a little further before finalizing your designs?
Speaker Change: Yeah, so in terms of prioritization, as I mentioned, given the attraction we're seeing in the bus market, so our next generation bus products is really where the big focus is over the next, you know, 24-48 months.
Speaker Change: I should say really 12-24 months and then over the next 36-48 months is where we're looking at starting to bring on the larger truck modules given the timeline for adoption is out multiple years.
Speaker Change: Okay, great. Thank you for the color. I'll leave it there.
Speaker Change: Yeah, thanks Rupert.
Speaker Change: The next question will come from Mack Will with Cormark Securities. Please go ahead.
Mack Will: Hi, just following up on a couple issues, maybe you've sort of answered this, but if you look at the backlog and it sounds as if that's weighted more, say, to the bus market than it has in the past, maybe there was more trucks, would we expect to see, like, are there positive implications then for margins on that? Like, how does, how does the shifting in the backlog
Speaker Change: speak to the possibility of getting the margins in that positive territory, or does it?
Speaker Change: Yeah, so, you know, I would say for customers that are using, you know, current products and legacy products
Speaker Change: The margin profile is not that attractive for us in the bus market, particularly in Europe, where the pricing pressure is more pronounced, not just for the fuel cells, but also for the buses themselves.
Speaker Change: In terms of the cost of the bus as well as battery packs selling prices as well for buses
Speaker Change: But, so I would say, you know, margin profiles are slightly better in the U.S. or North American environment.
Speaker Change: but I think really what we're looking at is introducing next generation products for the bus market is where we're going to see that leg up on facilitating cost like selling price reductions but also facilitating gross margin expansion.
Speaker Change: Okay, and so when we when you think about when you put in your backlog some orders are they really on how do you
Speaker Change: Do they go in there on pricing and margin as it is now, or is it based on future developments that you expect to have in place over that time of the contract?
Speaker Change: effectively, first of all, we're only putting into the order book, not we're saying we've had things come out of the order book, we're only putting in real orders, right? So these are signed contracts, signed purchase orders, and in a number of cases there are take or pay commitments as well, just to start there.
Speaker Change: Secondly, when we approve a contract at Ballard, we do a review of that contract.
Speaker Change: Looking at the pricing
Speaker Change: looking at the gross margin, looking at the payment terms, looking at the commercial terms, etc. And one of the things that gets the most scrutiny is the contribution margin related to that opportunity, including the selling price and the cost assumptions.
Speaker Change: on the cost assumptions.
Speaker Change: when we're selling current products for current period, year, or even in the following year, we have very good visibility on what our costs are going to be. There might be some modest assumptions on some components, but we typically have most components locked in on the pricing side. So we're not taking huge risks on the cost side there.
Speaker Change: But as you look at longer-term supply agreements, where we're supplying pricing indicators out two and three years, there are cost assumptions embedded in those.
Speaker Change: in those plans.
Speaker Change: We typically don't have orders out two and three years. We typically have...
Speaker Change: a pricing indicators for those subsequent years. And then the orders get confirmed both by the customer and for us on the pricing side. You know, I'll use New Flyer as an illustrative example. We signed a long-term supply agreement. We signed up our purchase order in early 2024 for the 2024 deliverables.
Speaker Change: We've just signed up our purchase order for 2025.
Speaker Change: Again, we've now locked in our selling price to New Flyer, as an illustrative example, and our costs are understood. In many cases, given the lead time for materials, a lot of those costs are already underway.
Speaker Change: Okay, that's helpful. And then I just wanted to, the last question was just on the restructuring. Are you, have you, the restructuring charges you've taken to date, does that get you the 30% savings you expect next year or is that a process over a number of quarters where we could expect some more?
Speaker Change: Yeah, I'll just make some comments, and Kate can supplement as well. So first of all, most of the cost reduction
Speaker Change: will be coming out in 2025. There's some modest costs that we're carrying, very modest in the first part of 2025.
Speaker Change: as part of the closure of operations in our Hobro Denmark facility. So we have a facility in Denmark that's doing manufacturing of our marine fuel cell engines.
Speaker Change: We are effectively transferring the production of those engines to Burnaby.
Speaker Change: And so to facilitate
Speaker Change: that transfer. There's some activities that will occur early 2025.
Speaker Change: Once that's completed, we'll see basically the cost there drop off fully. So overall, by mid-next year, I think the new analyzed operating costs should be fully expressed, but most of it should be realized in Q1 of 2025 as well.
Speaker Change: Yeah, I think, thanks for the question, Mac. I think if you're kind of just looking at kind of 2025 again, kind of similar to the earlier question around capital, right now if you kind of take our current guidance midpoint, reduce that by 30%, I think would be a fair proxy going into 2025 on a full year basis.
Speaker Change: Okay helpful great. Thanks guys
Speaker Change: Yep.
Speaker Change: The next question will come from Martin Molloy with Johnson and Rice. Please go ahead.
Martin Molloy: Good morning. I just wanted to ask kind of a bigger picture question here. Assuming there's positive...
Martin Molloy: guidelines coming out of Treasury for 45Z, and projects get sanctioned next year for supplying blue or green hydrogen.
Martin Molloy: When do you think that would start to impact the market adoption for your products, and when do you think that would start to impact your orders? Is that out in the 2028 kind of time frame?
Speaker Change: Yeah, I think three, four years is kind of the earliest that you would see that occurring. You know, it's going to take time for these projects.
Speaker Change: Once guidance is in place...
Speaker Change: you know, to understand that guidance, and then for project developers to work with financers and then to build a project. So it'll take a number of years before hydrogen is actually available. So in terms of moving from, you know, the kind of
Speaker Change: moving from city buses deployments and looking at adding a really sizable truck fleet and adding a really sizable freight locomotive fleet for example in the US market you know I think you're looking at that 28 and to 2030 time frame
Speaker Change: Okay and then for a follow-up question I want just want to ask about if you're seeing any interest from customers in using methanol as a fuel source for PEM
Speaker Change: yourselves.
Speaker Change: Yeah, so we used to have many years ago a methanol-based business for stationary power.
Speaker Change: where methanol would be reformed right inside the total system and then that reformed methanol would end up with hydrogen that would be used in the PEM fuel cell.
Speaker Change: We sold that business a number of years ago. It was formerly focused on backup power, including the telecom market. I haven't really seen, if you go back...
Speaker Change: The customer that bought that business actually buys from us stacks.
Speaker Change: for those systems.
Speaker Change: And, you know, what I've seen is that there hasn't really been any takeoff in that market, you know, from five years ago to today, say the numbers are still relatively modest.
Speaker Change: And I don't see that changing for the foreseeable future. I haven't seen any massive demand for methanol-based stationary power applications, and certainly not in mobility.
Speaker Change: Okay, thank you. I'll turn it back.
Speaker Change: Sure.
Speaker Change: I should mention, Martin, that for...
Speaker Change: For marine applications, there's lots of opportunity for methanol.
Speaker Change: particularly for large
Speaker Change: freight going, sea freight, I think methanol is a very viable candidate but not used in PEM fuel cells, used in engines or possibly in solid oxide fuel cells.
Speaker Change: Thank you.
Speaker Change: You're welcome. The next question will come from Kashi Harrison with Piper Sandler. Please go ahead.
Kashi Harrison: Good morning, and thanks for taking my question. So, just one for me, I was wondering if we could get a bit more detail on how to think about 4Q revenues. Kate, I know you indicated that it's back-end weighted, but just any additional color would be greatly appreciated. Thank you.
Speaker Change: Thanks, Kashi, for the question. I think historically we've been messaging.
Speaker Change: We've somewhere between kind of a 30% to 40% H1 versus a 60% to 70% H2 revenue split. The last few years, we've been sort of a 30-70 split between H1-H2. I think this year, just given Randy's comments and the protracted revenue outlook and all the factors that are kind of being, I think, that are now flowing through our numbers, I think we can expect this year to be more of a 40-60 split H1-H2.
Speaker Change: Thanks for watching.
Speaker Change: Thank you.
Speaker Change: The next question will come from Bushian Aliani with the Jeffreys. Please go ahead.
Bushian Aliani: Thank you. Thank you.
Bushian Aliani: Hi, this is Dushan from Jefferies. Thanks for taking my questions. I just want to go back to the China JV with...
Bushian Aliani: Do you think that's going to impact all of H.I.'s 15% ownership in Ballard as you guys review the JV?
Speaker Change: I don't think at this time that that's something that WAI-CHI is interested in doing, but I can't speak for WAI-CHI.
Speaker Change: Thank you. And then just on the Texas Gigafactory, as you guys deferred that that option, is there any risk to the 94 million funding based on the election outcome?
Speaker Change: I don't think so. The funding has been awarded already, so, you know, it would be a situation where we are, if we move forward, we will already have an awarded fund that we're working against, so this isn't a new award that's required under a new administration.
Speaker Change: We've got it. Thank you.
Speaker Change: You're welcome. Thank you.
Speaker Change: The next question will come from Craig Irwin with Roth Capital Partners. Please go ahead.
Speaker Change: Hey guys, it's Andrew on for Craig. Quick one for me because most of my questions have been answered. But you guys talked about
Speaker Change: You know cost per kilowatt coming down I was wondering if you guys have any update on price and trends you guys are seeing in the market
Speaker Change: Yeah, Andrew, good question. I would say, depending on the market application, depending on the volume, we're still probably in the $700 per kilowatt to $1,000, plus sometimes, depending on the application, in that range.
Speaker Change: Great, thanks. I'll hop back in the queue.
Speaker Change: Yeah, thanks Andrew.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Mr. Randy MacEwen for any closing remarks. Please go ahead.
Randy Macewen: Thanks Chuck, and thank you all for joining us today. Kate, Sumit, and I look forward to speaking with you next quarter.
Speaker Change: This brings today's conference to a close. You may disconnect your lines at this time. Thank you for participating and have a pleasant day.
Speaker Change: Thank you.
Speaker Change: [music]
Speaker Change: [music]