Q4 2024 Ballard Power Systems Inc Earnings Call
Speaker Change: Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems 4th quarter 2024 results conference call. As a reminder, all participants are in listen only mode and the conference is being recorded.
Speaker Change: 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.
Speaker Change: I would now like to turn the conference over to Sumit Kundu, manager, investor relations. Please go ahead.
Sumit Kundu: Thank you operator and good morning. Welcome to Ballard's fourth quarter financial and operating results conference call.
Speaker Change: With us on today's call, our Randy MacEwen, Ballard CEO , and Kate Igbalode, Chief Financial Officer
Speaker Change: 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 newly filed annual information form and other public filings for our complete disclaimer and related information.
I'll now turn the call over to Randy.
Thank you Sumit, and welcome everyone to today's conference call.
Speaker Change: 2024 was a difficult year for the hydrogen fuel cell industry.
Speaker Change: Emits prolonged policy uncertainty, a multi-year push out in the development of hydrogen projects and the deployment of fuel cell applications, and a challenging funding environment, and industry rationalization is underway.
Speaker Change: Notwithstanding this challenging industry backdrop, Ballard achieved important progress in 2024 and I want to highlight four key achievements.
relating to order intake.
Product Shipments, Operating Cost Reductions, and Product Development Milestones
First on order intake [inaudible]
Speaker Change: puts, simply, 2024 was a record breaking year for Ballard for two total new order intake for our power products.
Speaker Change: We secured new order intake of approximately 113 million during 2024, punctuated by a new order intake of 75.4 million in Q4. Both were records.
Speaker Change: We ended the year with a record year-ending order backlog of 173.5 million, an increase of 41% compared to the end of Q3.
Speaker Change: This order backlog includes a 12 month order book of 98.9 million up 48 percent compared to the prior year.
Speaker Change: Now this outcome is particularly noteworthy given the challenging industry dynamics and the contrast with most of our competitors.
Underscoring Ballard's Technology and Market Position
Speaker Change: We were front-to-center for most major commercial order announcements in the European and North American markets for PEM fuel cells in our target applications in 2024.
We move next to product shipments.
Speaker Change: Delivery of fuel cell engines in 2024, grew by approximately 30%, increasing from from over 500 engines in 2023 to more than 660 in 2024.
Speaker Change: This marked the fourth consecutive year of engine shipment growth, representing a cager of approximately 40 percent.
Speaker Change: R2024, Deliveries of Pemfield Cell Engines, Accountant for over 90% of our total revenue in 2024.
Speaker Change: We shipped a total of 56.5 MW fuel cell engines, reflecting a 10% increase from 51.2 MW in 2023.
Speaker Change: These engine shipment milestones represent new records for Ballard and are critical proof points in our manufacturing execution capabilities.
Speaker Change: With our shipments in 2024, we continue to grow industry-leading field deployments, with valuable real-world data on the performance of our PEM fuel cell engines in various applications in three cycles.
Speaker Change: This rich field data is another Ballard differentiator and helps inform our next generation product development programs, reliability and warranty models, and field maintenance approach.
Speaker Change: We're pleased to report we had another successful year with our engines deployed and monitored in the field with zero reported safety incidents and fuel cell engine availability around 99% in 2024.
We move next to operating costs
Speaker Change: In 2024, we observed further indicators of slowing hydrogen and fuel cell policy implementation and market adoption .
Speaker Change: We noted a material weakening of the financial position of certain customers, and we also observed a continuing deterioration in the financing environment for our industry.
Speaker Change: As this context represents a significant headwind to our corporate growth plan, we initiated a global corporate restructuring in September to moderate our investment intensity and pacing to better align with the lead market adoption.
Speaker Change: We expect our restructuring to reduce total analyzed operating costs by more than 30% with the substantial part of the anticipated reductions being realized in 2025.
Speaker Change: Our restructuring include a sizable workforce reduction, rationalization and consolidation of certain global operations and facilities, and a reduction in certain planned capital expenditures.
Speaker Change: Given the revised industry outlook, there's no business case for production capacity expansion investments for the foreseeable future.
Speaker Change: Accordingly, we have deferred any final investment decision on the proposed Texas Gigafactory to 2026, handing market adoption and demand indicators.
Speaker Change: With continued policy and other challenges in the China fuel cell market and underperformance of the WAYCHI Ballard JV and as part of our global destruction we also reduced our corporate cost structure in China and initiated a strategic review of the WAYCHI Ballard JV.
Speaker Change: Following this review, we will not be making any additional significant investments in China, including in the way child bellards JV for the foreseeable future.
Speaker Change: As we look to our long-term strategic plan, we continue to believe hydrogen and chemical cells will play an important long-term role in decarbonizing select heavy mobility and stationary power applications.
Speaker Change: We believe there are certain use cases where cussers will be attracted to the differentiated pem fuel cell value proposition of long range, fast-refueling, heavy payload, and zero tailpipe emissions.
Speaker Change: However, given near-term market challenges, we expect further industry rationalization, failures, restructuring and consolidation in 2025.
Speaker Change: We will continue closely monitor various factors impacting the commercial adoption of our markets and products and can you continue to reassess our investment plans, cost structure and cost usage based on these factors.
Speaker Change: We started 2025 with over $600 million in cash and no bank debt.
Speaker Change: With our reductions in operating costs and changes to our long-term cop-ex plans, we have no own year or mid-term financing requirements.
Speaker Change: Let me repeat that. We have no near or midterm financing requirements [inaudible]
Speaker Change: And now we move to product development milestones. 2024 was a banner year at Ballard for product innovation, including our programs on product cost reduction.
Speaker Change: We made important progress against our technology and product roadmap with the execution of high impact development programs.
Speaker Change: We launched our ninth generation, high performance fuel cell engine, named FC Move XD, resetting the industry standard for PEM fuel cell engine performance for heavy duty mobility.
Speaker Change: FC Move XD delivers significant improvements in reliability, durability, efficiency, power density, scalability, serviceability, and total cost of ownership.
Speaker Change: We have programs underway to drive down the cost of next generation modules through simplifying system design, reducing part count, and joint supplier about a plant component development.
Speaker Change: For our fuel cell stacks, we realized important milestones in our development programs for membrane electrode assemblies, bipolar plates, and stack compression hardware.
Speaker Change: We also successfully completed the initial development phase of Project Forge [inaudible]
Speaker Change: Our High Volume Bipolar Plate Manufacturing Line that we've talked about before.
Speaker Change: This is a key achievement in our ongoing efforts to substantially lower bipolar plate costs and increase plate manufacturing capacity without expanding our Bernabé manufacturing footprint.
Thank you.
Speaker Change: Taken together, our procost reduction initiatives are valuable levers to enable gross margin expansion.
https://www.kenhub.com
Speaker Change: Next, I'd like to move to some comments on key verticals starting with bus.
Speaker Change: The bus vertical is a standout in 2024, driven by a growing demand for fuel cell buses in both Europe and North America.
Speaker Change: Industry-wide, in Europe , 378 fuel cell buses were registered in 2024, marking an impressive 82% increase from the previous year.
Speaker Change: Ballard's bus market revenue was approximately 44 million in 2024, a 51% increase compared to 2023.
Speaker Change: and this represented over 60% of our total revenue for 2024.
Speaker Change: Plus, engines account for almost half of our current order backlog .
Speaker Change: Indeed, over the past year, we've secured orders from 7 bus OEMs for more than 1,600 fuel cell engines tolling around 130 megawatts for city transit buses across Europe and North America. This is roughly triple the number of engines currently in operation today in those regions. [inaudible]
Thank you very much. And we'll see you next time.
Speaker Change: Notably, these orders include the largest fuel cell bus contracts on record in both Europe and North America.
Speaker Change: For example, early in 2024, Solera signed a long-term supply agreement for a thousand fuel cell engines.
Speaker Change: A new flyer in North America increased its orders significantly doubling from the previous year where the purchase commitment for 200 fuel cell engines slated for delivery in the North American market in 2025.
Speaker Change: We also are collaborating with Gillick, another leading heavy duty transit bus manufacturer in the U.S. to expand their zero bus lineup. Zero mission bus lineup.
Speaker Change: We move next to truck. Now the truck market is disappointed with adoptive timelines being truly pushed out.
Speaker Change: There's also been several business failures of smaller integrators of zero-mission trucks, which has caused challenges in this market.
Speaker Change: While we continue engagements with multiple large truck OEMs, as they consider long-term development and commercialization of fuel cell trucks, we don't anticipate any material volumes in the truck market in the near term.
Turning Next to Rail Bill?
Speaker Change: We're excited, and be very excited, but the market opportunity in North American freight rail market, which is a market defined by long, heavy, high-powered trains operating on non-electrified long-distance routes.
Speaker Change: hydrogen fuel cells presented transformative opportunity to replace traditional diesel engines with cleaner, low emission powertrain solutions.
Thank you.
Speaker Change: DPKC, a leading North American rail operator is at the forefront of this innovation, leading away in the adoption of fuel cell powered locomotives.
Speaker Change: In December , Ballard signed and landmark long-term supply agreement with CPTC to provide 98 fuel cell engines, totaling approximately 20 megawatts for delivery in 2025.
Speaker Change: This order represents the largest pantheosal engine contract ever placed for use in freight locomotives globally, underscoring the significant role Ballard is playing in this transition to sustainable and low emission freight rail.
Speaker Change: We also marked additional engine sales for passenger rail applications with eight megawatts to Stadler to support low-carbon transit in California, rounding at a positive year of order intake for the rail vertical.
Speaker Change: also want to highlight in Germany six Siemens-Murrayal-plus-H trains powered by Ballard Fuel Intelligence Elections have recently entered into passenger service in the Berlin area.
Speaker Change: We moved to stationery and similar to the rail sector, while the stationery market remains in its early stages of adoption, we made significant progress and saw notable advancements throughout the year.
Speaker Change: We secured a 15 megawatt order from a repeat customer, specializing in renewable, off-grid power generation. Additionally, we formed a strategic partnership with Vertif to develop a backup power solution for data centers.
Co-development work is underway and tracking to plant
Speaker Change: In Q4, we divested our small backup power business which was non-core to our strategy going forward. This allows us to focus more sharply on high power station applications aligned with our core product strategy.
Speaker Change: We next provide some comments or in the status of hydrogen policies in the dynamic US market.
Speaker Change: First, from September to January , the U.S. Department of Energy was extraordinarily busy with various funding awards related to the hydrant industry, including hydrogen hubs, grants, credits
Speaker Change: And second, in early January , the Department of Treasury and IRS released, at long last, the final rules for the 45-V Clean Hydrogen Production Tax Credit.
Speaker Change: These rules were an improvement from the draft proposed in December 2023.
Speaker Change: Unfortunately, following that, and with a flurry of executive orders, [inaudible]
Speaker Change: From the White House, what we've seen is a temporary pause on IRA and IIDA funds, including the issuance of new awards and is a spursment of federal walk funds under open awards.
Speaker Change: Now we've seen a strong reaction to this proposed pause, including legal challenges.
Speaker Change: These developments likely mean the U.S. hydrogen fuel cell industry will experience continued policy uncertainty for the foreseeable future
Speaker Change: Of course, we're closely tracking the dynamic tariffs context and the implications for our business.
Speaker Change: Now a few final comments before high on the call over to Kate to walk through our financial results
Speaker Change: In 2024, while our financial results, including revenue and margins, faced challenges from broader industry headwinds, we made significant progress in several important areas, including order intake, product shipments, operating cost reductions, and product milestones.
Speaker Change: We started 2025 with an exciting position for expected deliveries for the year, our 12 month order book, stood at 98.9 million.
Speaker Change: Up 48% compared to the prior year. Based on our order book and sales activity, we expect a solid year for production and shipment of fuel cell engines for the bus, rail, and stationery markets in 2025.
Our 2025 focuses on our customers and our controllables
Speaker Change: Including prioritized, product development, and product cost reduction programs will also maintaining discipline spending and balance sheet strength for long-term competitiveness and sustainability. With that, I'll now pass the call over to Kate.
Kate Igbalode: Thank you, Randy. Amid challenging market conditions, particularly the delay in the availability of low-cost, low-carbon hydrogen, which has led to a slower adoption of hydrogen technology.
Kate Igbalode: Compounded by materials removed from our order of books that were communicated in Q3, Ballard reported $24.5 million in revenue for Q4, reflecting a 42% decrease compared to the same period last year.
Kate Igbalode: For the full year, revenue totalled $69.7 million, representing the 32% decline compared to 2023.
Kate Igbalode: Ballard reported a Q4 gross margin of negative 13% and improvement of 9% points compared to Q4 2020-23.
Kate Igbalode: However, lower annual revenue and a product makes heavily weighted towards power products plays pressure on our gross margins for full year 2024 which decrease by 11 percentage points from 2023 reaching negative 32%.
Kate Igbalode: The reported total operating expenses of 161.3 million for the year, which included a $17 million per vision of which $0.7 million was incurred in the fourth quarter.
Kate Igbalode: Excluding these one-time costs, underlying total operating expenses were 144.3 million at the lower end of our guidance range of 145 to 165 million dollars.
Kate Igbalode: Looking ahead to 2025, we expect total operating expenses to range between 100 and 120 million, representing an approximately 30% reduction for $45 million from 2024.
Kate Igbalode: Our 2024 Capital Expenditures were 27.6 million, also at the low end of our 2024 Guidance range of 25 to 40 million dollars.
Kate Igbalode: We expect 2025 capital expenditures to fall between $15 million and $25 million, representing a reduction of approximately 38% or $12.5 million from 2024.
Kate Igbalode: Our 2024 cash usage of $147 million was down 10% from the prior year due to only a portion of the restructuring benefit being realized in year.
Kate Igbalode: We expect to see this full benefit of our cost reduction initiative to be achieved in 2025 with lower overall operating cost and capital investment.
Kate Igbalode: As of your end, we had approximately $604 million in cash, a reduction of 20% from the previous year.
Kate Igbalode: Given the current macroeconomic environment and in the context of our 2025 operating plan, we remain disciplined in our spending ensuring we continue to invest strategically in our growth while maintaining a robust balance sheet, accelerating our past across ability, and extending our cash runway.
Speaker Change: As Randy highlighted, as a result of these initiatives, we have no near or midterm financing requirements.
Speaker Change: With that, I'll turn the call over to the Operator for questions [inaudible]
Speaker Change: Thank you. We will now begin the question and answer session. To join the question, you may press star then one on your telephone keypad. You will hear tone acknowledging your request.
Speaker Change: If you're using a speaker phone, please pick up your handset before pressing any keys. If you draw your question, please press star, then two. We ask colors to kindly limit themselves to one question and one supplemental.
Speaker Change: The first question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.
Good morning.
Morning, Rob.
Speaker Change: Just starting with kind of the order activity seems to be quite strong in the quarter. How does the order book look in the 25 is there is sort of continuing activity or is the uncertainty there kind of weighing on things and it's too early to say.
kind of how 25 borders are.
are shaping up.
But interestingly, about 40% is in the rail market [inaudible]
Speaker Change: And then when you look at the geographic split, roughly 60 percent, 40 percent Europe and North America And so I do expect that split Europe North America likely to continue as we move forward in terms of new order intake in 2025.
Speaker Change: There are a couple of opportunities we're working against right now that we would expect to close out, you know, likely in April , May, timeframe.
Speaker Change: But I would say whether it's April , May, September , et cetera, historically what we've seen is that Q4 is typically a large order intake month or quarter. We've seen that the last two years. [inaudible]
Speaker Change: And I do say there's volatility from quarter to quarter and we are seeing when you kind of step back.
Speaker Change: in 2024, and even a little bit in 2023 and Q4 of 2023. We are seeing some larger, chunky orders coming in, and so that does wait the order book in those quarters when they land.
Speaker Change: In some cases, those orders will effectively be burnt off over the next year or two, depending on how long those orders are for. So in some cases, it will take a period of time before those customers come back for to follow on to orders.
Speaker Change: But we're very excited about the order intake we've really seen since Q4 2023, in Q1 2024 and Q4 2024 and we expect to see a couple of good quarters this year as well.
Speaker Change: Okay, great. Thank you. And then on the stationary business, where do you are you seeing the demand growth? And then you talked about focusing the higher power up part of the market, but to get some color on the stationary market growth you're seeing.
Speaker Change: A couple of areas that we see is kind of the, I'll call it weak grid or micro grid applications.
Speaker Change: Think about things like filming sites or event sites or construction sites where you need power and there may not be high grid reliability.
Speaker Change: Similar with seeing opportunities for EV charging, whether some weak grid applications [inaudible]
Speaker Change: There are a few customers that are pulling on those market opportunities and we're seeing demand from.
Speaker Change: And then I think the data center market is still very early stage. You know, we complete an important
Program or Trial, I should say.
Speaker Change: with Microsoft and Caterpillar, and now we're looking at, you know, next opportunities.
Speaker Change: And, of course, we've announced the Avertiv development plan that we're working on. It's an interesting market opportunity, but we need to validate the value proposition for Pemfuel cells.
Speaker Change: in that application. So that's kind of the landscape. We're not really focused on small stationary applications. We're really looking at things that are, you know, typically 100, 200 kilowatts and up.
Speaker Change: and we have some customers that are looking at opportunities in the one megawatt plus range as well.
Okay, thank you, I'll turn it over. Yep, thanks, Rob.
Thank you very much. Thank you.
Speaker Change: The next question comes from Dushyant Ailani with Jeffrey, please go ahead.
We don't need customers [inaudible]
Speaker Change: We have probably eight customers that account for 70-80%
Speaker Change: of the business, and all of those eight customers are effectively repeat business.
Speaker Change: So we've done a very good job once we've getting into platforms to helping customers transition from development to trials and ultimately to, you know, more scale deployments and so we've seen customers progress through that, there are additional customers that are on that journey as well.
Speaker Change: Thank you, and then just on the Opex Guide, the 120. Could you talk about what are some of the levers you can pull to maybe...
to Stam the Cashboard.
Speaker Change: Yeah, I think that's an excellent question, particularly in light of the restructuring in September . I think Rady spoke to it very effectively in the script when we're looking at our overall program prioritization activities and the rationalization of our product portfolio. So I think as we're moving kind of away from our legacy products and into our next generation of core products that are going to be introduced later part of this year and into next year, I think that's really an opportunity for us to find additional efficiency. Thank you very much.
Thank you.
Jordan Levy: Next question comes from Jordan Levy with Truist. Please go ahead.
Jordan Levy: Thanks for all the details. Just going back to some of the earlier comments on kind of cadence of borders in 4Q. Create to see that tick up. I think you mentioned that these timing borders can be lumpy in 4Q. I'm just wondering if at least in the US we should expect that to be a little more lumpy this time around given some of the the expiration of the fuel cell ITC and some of that sort of thing.
Jordan Levy: I don't think so. I think when we look at kind of the key market we have in the US is the bus market and we continue to see strong interest in that marketplace. I don't think so.
Jordan Levy: And the funding that that typically relates to the Lono funding is really kind of not in the hydrogen space, if you would, more in zero mission buses.
Jordan Levy: So we're not seeing any retraction from that initiative. Of course everything is, it's very dynamic and things could change, but right now we're seeing kind of consistent type of growth opportunities in the US on the bus type.
Jordan Levy: Craig, and then maybe just a follow-up on Project Forge, I know.
Speaker Change: You all kind of continue to make good progress on that. You just remind us one maybe on the timing of that and then two kind of what the ultimate kind of impact you all expect from a margin perspective is I know that ultimately kind of volume ramp is sort of the biggest lever, but I know that this is kind of another way to...
Robert, some of that margin here. [inaudible]
Speaker Change: Yeah, well, I mean, this is a really critical initiative on the cost reduction for our bipolar plates, which...
Speaker Change: We're looking at a potentially 70% cost reduction. This is pretty significant.
Speaker Change: In terms of the timing, we've had some challenges with one supplier of equipment that's delayed
Speaker Change: They've, you know, did some testing and have completed some changes to that equipment and have sent ship those so they've actually arrived here this week, some of the final
Speaker Change: pieces to that. So certainly the front end, there are kind of five key steps in our bipolar plate production. All five steps have been reimagined with new processes and tech times, but importantly with new equipment and a lot of automation. Thank you very much.
Speaker Change: And so we'll see a pretty significant increase, 5X increase in the ability of produced bipolar plate capacity, while also seeing that reduction in cost.
Speaker Change: That reduction in cost volume is not the key lever on that, it's very much the new processes and new materials and so we're expecting that to likely really move into production in 2026.
Speaker Change: As you think about the timing, the additional equipment that's arrived recently here will be commissioned certainly by June . We'll look at some optimization in Q3 and in Q4 and start to see some real benefits from this in the 2026 timeframe.
Great, thanks so much.
Sure.
Speaker Change: The next question comes from Rupert Muir with National Bank. Please go ahead.
Speaker Change: that you're seeing in the market. I'm wondering if you can talk about how that impacts your customers and supply chain and maybe we can start with the 12 month backlog. There's any potential for that to be impacted by further rationalization. Thank you very much.
Speaker Change: Yeah Rupert, great question. Certainly last year we saw some dropout of the order book with rationalization we had a few customers last year.
Speaker Change: That One Insolvent File for bankruptcy. As you kind of look at the order book that we have this year and the customers we have in that order book, they don't have the same risk profile from a liquidity perspective that those customers, some of those customers did last year.
So we're not expecting to see that type of duplication.
Speaker Change: I do think when we look at the kind of industry rationalization, we have seen some suppliers
Speaker Change: You know, showing a lot of concern, particularly those suppliers who have invested in production capacity expansion, they're now seeing very low utilization, and some of them thinking about the long term strategy and whether this should be corn for them going forward.
Speaker Change: But overall, a number of the suppliers that we've been working with, we've revalidated their commitment and feel pretty strong about the key supplier list that we have right now. Not just in the stack material set, but also in the key balance of plant components. [inaudible]
Speaker Change: I think Tariffs will pose another challenge for some supply front, but...
Speaker Change: You know, I think we've done quite a bit of work on that front.
Speaker Change: In terms of just the other aspect on industry rationalization, on the competitive side does offer opportunity and what we're seeing is that
Speaker Change: You know, probably about nine, ten companies in the space went bankrupt last year. We obviously had another one filing for bankruptcy overall in 2025 already. You know, that's not good for the industry. It's not good for overall landscape. But of course, it does mean there are a few players that we were competing with before. [inaudible]
Speaker Change: that really had very diminimous market share and were putting out very low prices to try and grab market share. We've seen some of those players fall off in 2024. We actually kind of look at a five year outlook on what does the competitive landscape look like five years from now? [inaudible]
Speaker Change: And with the investments we're planning, with the position we have currently, we feel very strongly about our five-year outlook in terms of our competitive positioning.
Speaker Change: Great. Thanks for the color. Quick follow up on that. Does that open up any M&A opportunities already?
Speaker Change: Those competitors that are falling off that maybe have some interesting technology opportunities for you.
Speaker Change: Yeah, in the cases of some companies that have filed for bankruptcy or insolvency, we didn't see anything there that we found that was attractive or additive to our business. What are things we are most to do is make an investment that would increase our cash burn.
Speaker Change: And so certainly as we look at M&A opportunities in a market that's going through rationalization and we haven't seen a lot of consolidation but I expect to see some happening. [inaudible]
Speaker Change: One of the highest criteria for us to assess any opportunity is whether it's cash flow positive contributing as opposed to cash burning.
Great, I'll leave it there, thank you. Yeah, thanks, Rupert
Speaker Change: Next question comes from Martin Malloy, with Johnson Geiss, please go ahead [inaudible]
Martin Maloy: Good morning. Thank you for taking my question. Just a bigger picture question. We'd love to get your thoughts as you look out on availability of hydrogen for your customers and how that might change going forward. Particularly interesting your thoughts about. Thank you very much.
Speaker Change: Gray and Blue Hydrogen, potentially becoming more available to some larger projects in that area, if you could just maybe offer your thoughts on that and how you see that developing in the timetable. [inaudible]
Speaker Change: Martin, thanks for the question. We actually spent quite a bit of time in the last 60 days.
on some European customer trips.
Speaker Change: and Industry Events, and then at the fuel cell and hydrogen expo in Tokyo recently as well.
Speaker Change: And I have the opportunity to meet with a lot of partners and customers and industry players and
Speaker Change: Exchange thoughts on what's happening in history in 2024, what's happening in 2025, or the key trends, and one of the big topics of discussion, of course, Martin is availability of low-cost, low-carbon hydrogen.
Martin Maloy: But as you point out, there's an increasing perspective, including in some markets where we saw really reluctance on looking at...
Speaker Change: What I would characterize is blue and gray hydrogen market opportunities as well. So I do think, as you think about the U.S.
Speaker Change: Context right now with a new leadership there. There's far more support, I would say, for Blue Hydrogen than we'd seen probably a few years ago. And to us...
Speaker Change: Particularly between now and 2030, 2035 time frame, the colors of hydrogen is not too critical for us.
Of course, we'd like to see lower admissions
Speaker Change: But what is important to us is getting deployment of vehicles and stationary power applications with low cost hydrogen, and seeing over the longer term a transition to much lower forms of hydrogen.
Speaker Change: in terms of carbon intensity. I do think the next two or three years will be important on how the hydrogen, the clean hydrogen production tax credit plays out in the U.S. marketplace.
Speaker Change: But we're seeing and just had some discussions with a key industry participant yesterday on the dynamics in that market. And there's certainly development going on. You know, that is associated with blue hydrogen opportunities. And I think there's some progress being made on CCUS.
Speaker Change: and SAF, and certainly some applications where you could see some offtake. [inaudible]
So, I would say kind of mixed report overall.
Speaker Change: The policies aren't as strong as we'd like to see. The financing environment is...
Speaker Change: is challenged when policy is uncertain but we are seeing more opportunities on the gray and blue hydrogen side and in terms of green hydrogen coming online I do think that
Speaker Change: The revised forecast put out by the Hydrant Council in the late fall are kind of forecast that we think are credible forecast for 2030 and 2035.
Very appreciate your thoughts. Thank you.
Thank you.
Speaker Change: The next question comes from Craig Irwin with Robb Capital Partners. Please go ahead.
Craig Irvin: Good morning and congratulations on the strong voting, Surandi. Nice to see the progress there.
Craig Irvin: So, one thing I was hoping you might be able to do is kind of bridge the disclosures around shipments in 25 versus 24.
So-
Today, you said a 24 had 660 engines shipped.
Craig Irvin: for representing 56 MW and that was up 30% over 23. Last year you said 540 modules.
Obviously the module definition is a little bit broader.
Craig Irvin: Can you maybe close the gap and help us understand that if we use the wider definition what the megawatt ships could have been for 24, is this still similar to a 30% growth rate, or is there something else here that maybe you're de-emphasizing to pursue these large or orders you're talking?
Yeah, so Craig, thanks for the question.
Craig Irvin: A couple of things. First of all, we're providing two metrics because they're both critically important, so one is...
The Engine Unit Volume.
Craig Irvin: and certainly when we look at our revenue forecast and currently, for example, at 20, 28, 20, 30, etc, the revenue lines are important, but to me, I'm always looking at the engine unit volumes line to see how that is going to impact supply chain and cost reduction opportunities, etc.
Craig Irvin: What you do see in terms of the difference between the number of engines that we ship versus the megawatts is which engines were shipping.
Craig Irvin: So, you know, we have 70 kilowatt engines which typically are being shipped for the European bus market for 12 meter buses. We have 100 kilowatt engines that are typically being shipped to the US bus market plus the European 18 meter bus market.
Craig Irvin: And then you have 200 kilowatt engines that were shipping for a variety of applications, originally designed for marine, but we've been able to use the container package solution quite elegantly for some other market applications, including for rail and for
Stationary Power Market Applications as well.
Craig Irvin: So that's typically what's driving the difference. I think what you'll see this year is we're going to have quite a few 200 kilowatt engine shipping in 2025, given the rail order we have from CPTC. So the total megawatts.
Craig Irvin: Relative to the number of units will be disproportionately higher I would say in 2025 based on that driver. They're both critical numbers because as you scale up the megawatts [inaudible]
Craig Irvin: Certainly, that's improving our leverage on the MEAs and bipolar plates and stacks overall.
Craig Irvin: And then as you scale up the number of unit volume units on modules, that's really helping on components that go into our engines as well.
Craig Irvin: Understood, understood. Then, you know, as I look at the the forecasts out there for adjusted evidence for this year, it seems your position for some fairly dramatic improvement over the last couple of years, you know, your restructuring activities, and then the progress you've made on gross margins.
Right, you done a good job there. Yeah.
is Gross Margin, so maybe can you [inaudible]
Craig Irvin: Unpacked the puts and takes, as far as the Rose Martin Outlook for this year to the end of this year.
Craig Irvin: You know, is it feasible for us to see positive gross margins before the end of the year?
Craig Irvin: Is that really an operating priority right now given that you are serving several customers at the early stage of a multi-year ramp?
Yeah, it's a great question and good observation.
Speaker Change: Before I talk about margins and cake and supplement as well, just a comment on the cash operating costs. I appreciate the commentary that we've made some progress there. We're still looking though at opportunities for additional cost reduction, particularly we're tracking the market adoption indicators very closely, and as if we see changes there that we think require changes in our cost structure, we'll take action as well.
Speaker Change: When we look at gross margin, and I want to talk about contribution margin first, a couple of key really important levers there are pricing and then our total variable costs. And we have spent quite a bit of time assessing both pricing and total variable costs.
Speaker Change: And I think we have strategies on how to improve in some cases or hold the line in some cases on the pricing side.
Speaker Change: and, and importantly, reducing our total variable costs on existing modules that we're shipping in 2025 and 26 et cetera. We have 11 key initiatives underway here that will improve contribution margins.
Speaker Change: in 2025 and into 2026. So I do think we're going to see a nice movement on contribution margins and it'll drop down to gross margins as well. I didn't want to highlight though on the gross margin front. [inaudible]
The fixed production overhead costs we have, [inaudible]
Speaker Change: There's fairly limited levers to adjust that cost structure at this stage.
Speaker Change: We consolidated, you know, did some rooftop consolidation with some of our European facilities in 2025.
Speaker Change: That will show up a little bit in our gross margin expansion in 2024, that will show up in 2025.
Speaker Change: But we now are going to need volume to help see the move from contribution margin to gross margin expansion and that, you know, is going to take Canada a couple years before you really see some acceleration there. So the levers are mostly at the contribution margin level. [inaudible]
Speaker Change: and there's a high, you ask whether this is a priority. I can tell you it's probably the highest corporate priority is that contribution, growth, margin, those lines.
Kate, if you want to ask? [inaudible]
Speaker Change: I think the only thing I would add is I think Brandy walked through that beautifully. I think the only thing I would point out is in terms of the trajectory and expectation on gross margin for 2025.
Speaker Change: We clearly do not provide guidance for growth margin, but I would expect, due to all the things that Randy had mentioned, that we would see a stepwise improvement on growth margin on the year, kind of looking at the trajectory from 23 to 24 and then into 2025. So I don't expect us to be positive growth margin on the year, but certainly a lot more positives than we were in 2024. [inaudible]
Speaker Change: I understand. Last question, if I can squeeze another one in, you know, you guys have been disciplined around CapEx, you know, the...
Speaker Change: Suspension of your investments into the Gigafactory. Everybody understands that in this environment.
Speaker Change: Can you maybe talk about what priorities you have in this $15 to $25 million tepx guide for the year and that $10 million delta in there? Are there individual projects or is this maybe just a contingency?
for upgrades or repairs in existing facilities.
Speaker Change: Yeah, I'll start and then Kate Consupplement Craig and it's a good question. So certainly, as we look at 2025 CAPEX, one of the key contributions to the plan spent this year is the completion with Project
Speaker Change: And you know, that's a program we had budgeted about three years ago, about…
Speaker Change: 18 million in total and so there's a component that will land this year as well as we complete that project.
Beyond that, we're looking at fairly modest. [inaudible]
Speaker Change: CapEx Spended in Year, and we typically have kind of between $5 and $8 million a year just in, I'll call it maintenance, CapEx for our facilities and testing infrastructure, and then some modest investments in additional testing improvements, I would say.
Kate Igbalode: Kate, do you think you want to add there? No, well good. Well, thanks again for taking my questions. Congratulations on the book hints.
Thanks, Craig.
Speaker Change: Next question comes from Jeffrey Osborne with TD Coin. Please go ahead.
Jeffrey Osborne: Good morning, Randy. Just two questions on my side. One, a quick one on the orders in Q4, where any of those, say, Barbara related as it relates to cash timing or delivery timing. I assume not given the comments about second half with it.
Speaker Change: So Jeff, welcome back, first of all, and I apologize. I don't think we heard the question clearly.
Speaker Change: Yeah, I was asking about, thanks for the welcome back, but I was asking about any orders in Q4, were those related to safe harboring activity for the 2020 investment tax credit? Yeah, no, not none.
Speaker Change: That's what I assumed. And then just as you look at the 40% of the backlog as it relates to the U.S. or North America, I think...
Speaker Change: For the US portion of that, are you going through sort of a count by account on both the bus and the railside?
Speaker Change: to ascertain the potential delays in timing of the hydrogen build out associated with those bus depots or other locations or these folks producing on site. Just with the third party delays is that it goes any risk to the timing of deliveries of the finished bus module.
Speaker Change: Yeah, so first of all on the rail side, the two key deliveries we have on the rail side are the North American local mode of market with TPKC.
Speaker Change: They've already installed two hydrogen refueling stations, one in Edmonton and one in Calgary. They also have an electrolyzer or hydrogen production, so they have a hydrogen production capacity.
Speaker Change: So there's no linkage with that order to availability of hydrogen hydrogen.
Speaker Change: The second one in the rail market is the Stadler Order for a commuter rail application in the San Bernardino area and that one already has hydrogen availability secured so no issues there here.
Speaker Change: On the bus side, a number of bus transit operators that we've been selling to...
Speaker Change: I already have on-site in some cases hydrogen fueling stations, so there's no infrastructure requirements in terms of dispensing, and they're procuring and have been procuring hydrogen for some time. A couple of them have actually on-site hydrogen production.
Speaker Change: So if you look at the AC Transit in Oakland...
Speaker Change: If you look at OCTA in Orange County and Sunline and Palm Desert area, there's a few of them that have very locked down hydrogen strategies as well. Of course, there's a number of new transit operators, by the way, but Hill Transit in the LA area already has their hydrogen strategy as well. So, I don't see a lot of challenge with the deliveries in 2025.
on the bus side in the US market.
Speaker Change: and what, you know, we have seen, of course, from time to time, there are delays.
Speaker Change: Where the transit operators aren't ready to take the buses and that causes the bus so we am to push back on our delivery schedule. We're not for seeing that this year, but of course that's always a possibility.
Speaker Change: Good to hear you. That's all I have. Thank you. Sure. Thank you. Yes.
Speaker Change: This concludes the question and answer session. I would like to turn the conference back over to Randall MacEwen for any closing remarks. Please go ahead.
Speaker Change: Thank you. And thank you everyone for joining us today. Kate, Subin, and I look forward to speaking with you next quarter. Thanks again.
Speaker Change: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.