Q4 2024 Ballard Power Systems Inc Earnings Call
and others.
Speaker Change: Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems fourth quarter 2024 results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded.
Speaker Change: Notwithstanding the challenging industry backdrop, Ballard achieved important progress in 2024, and I want to highlight four key achievements relating to order intake.
Speaker Change: Product shipments operating cost reductions and product development milestones.
Speaker Change: First on order intake.
Speaker Change: Put 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 new order intake of $75 4 million in Q4 both.
Speaker Change: 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% 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.
Speaker Change: Underscoring Ballard technology and market position.
Speaker Change: We were front and center for most major commercial order announcements in the European and North American markets for pellet fuel cells in our target applications in 2024.
Speaker Change: We move next to product shipments.
Speaker Change: Delivery of fuel cell engines in 2024 grew by approximately 30% increasing from from over 500.
Speaker Change: In 2023 to more than 660 in 2024.
Speaker Change: This marked the fourth consecutive year of engine shipment growth, representing a CAGR of approximately 40%.
Speaker Change: Our 2024 deliveries of 10 fuel cell engines accounted for over 90% of our total revenue in 2024.
Speaker Change: We shipped a total of 56.5 megawatts of fuel cell engines, reflecting a 10% increase from 51 two megawatts in 2023.
Speaker Change: These engine shipment milestones represent new records for Ballard and our 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 Penn fuel cell engines in various applications and duty cycles.
Speaker Change: This data helps us gain deeper insights into our customer requirements and product performance in various operating conditions.
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 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 initiated a global corporate restructuring at September to moderate our investment intensity and pacing to better align with delayed market adoption.
Speaker Change: We expect a restructuring to reduce total annualized operating costs by more than 30% with a substantial part of the anticipated reductions.
Speaker Change: Being realized in 2025.
Speaker Change: Our restructure include the sizable workforce reduction rationalization and consolidation of certain global operations and facilities and a reduction of 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 text the Giga factory to 2026 pending market adoption and demand indicators.
Speaker Change: With continued policy and other child, uncertainties and other challenges in the China fuel cell market and underperformance of the way, we try Ballard JV and.
Speaker Change: And as part of our global restructuring, we also reduced our corporate cost structure in China and initiated a strategic review of the <unk> Ballard JV.
Speaker Change: Following this review, we will not be making any additional significant investments in China, including in the <unk> Ballard JV for the foreseeable future.
Speaker Change: As we look to our long term strategic plan. We continue to believe hydrogen fuel cells will play an important long term role a decarbonising select heavy mobility and stationary power applications.
Speaker Change: We believe there are certain use cases, where customers will be attracted to the differentiated <unk> 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 to closely monitor various factors impacting the commercial adoption of our markets and products and can you turn to reassess our investment plans cost structure and cash 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 Capex plans, we have no near or mid term financing requirements.
Speaker Change: Let me repeat that we have no near or mid term financing requirements.
Speaker Change: And now we move to product development milestones 2024, it was a banner year at Ballard for product innovation.
Speaker Change: <unk> 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 aimed FC move XD resetting the industry standard for <unk> fuel cell engine performance for heavy duty mobility.
Speaker Change: FC move XD delivered 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 joined supplier bounce up a plant component development.
Speaker Change: For our fuel cell stacks, we realized important milestones on our development programs for membrane electrode assemblies bipolar plates and stock compression hardware.
We also successfully completed the initial development phase of project Forge.
Speaker Change: Our high volume bipolar plate manufacturing line that we've talked about before this is a key achievement on our ongoing efforts to substantially lower bipolar plate costs and increased pipe plate manufacturing capacity without expanding our burnaby manufacturing footprint.
Speaker Change: Taken together our product cost reduction initiatives are valuable leavers to enable gross margin expansion.
Speaker Change: Next I'd like to move to some comments on key verticals starting with bus.
Speaker Change: The bus vertical was a standout in 2024 driven by 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: Additionally, in the U S.
Speaker Change: Federal transit.
Speaker Change: Administration low no awards was the most successful for fuel cell buses to date, showing an increase of over 150% above the 2023 year Awards.
Speaker Change: Ballard's bus market revenue was approximately $44 million in 2024, and 51% increase compared to 2023.
Speaker Change: And this represented over 60% of our total revenue for 2024.
Speaker Change: Bus engines account for almost half of our current order backlog.
Speaker Change: And indeed over the past year, we've secured orders from seven bus Oems for more than 1600 fuel cell engines totaling around 130 megawatts for city transit buses across Europe, and North America. This was roughly triple the number of engines currently in operation today in those regions.
Speaker Change: Yes.
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 2020 for Soliris signed a long term supply agreement for 1000 fuel cell engines and.
Speaker Change: New Flyer in North America increased its order significantly doubling from the previous year with a purchase commitment for 200 fuel cell engines slated for delivery in the North American market in 2025.
Speaker Change: We also are collaborating with gillig, another leading heavy duty transit bus manufacturer in the U S to extend expand their zero bus lineup.
Zero emission bus lineup.
Speaker Change: We move next to truck now the truck market is disappointed with adoption timelines being materially pushed out.
Speaker Change: There's also been several business failures of smaller integrators of zero emission 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.
Speaker Change: Turning next to rail.
Speaker Change: We're excited indeed very excited about the market opportunity the north American freight rail market, which is a market defined by long heavy high powertrains operating a non electrified long distance routes.
Speaker Change: Hydrogen fuel cells presented transformative opportunity to replace traditional diesel engines with cleaner low emission powertrain solutions.
Speaker Change: C P. Casey a leading north American rail operator is at the forefront of this innovation, leading the way in the adoption of fuel cell powered locomotives.
Speaker Change: In December Ballard signed a landmark long term supply agreement with CP Casey to provide 98 fuel cell engines totaling approximately 20 megawatts for delivery in 2025.
Speaker Change: This order represents the largest 10 fuel cell 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: I also want to highlight in Germany, six Siemens Mario plus age trains powered by Ballard fuel cell engines have recently entered into passenger service in the Berlin area.
Speaker Change: We moved to stationary and it's similar to the rail sector, while the stationary 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.
Speaker Change: Additionally, we formed a strategic partnership partnership with Virtu to develop a backup power solution for data centers.
Speaker Change: Co development work is underway and tracking to plan.
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 shop sharply on high power station applications aligned with our core product strategy.
Speaker Change: We next provide some commentary on the status of hydrogen policies in the dynamic U S market.
Speaker Change: First from September to January the U S Department of energy was extraordinarily busy with various funding awards related to the hydrogen industry, including hydrogen hubs.
Speaker Change: Rents credits and loans.
Speaker Change: And second in early January the Department of Treasury, and IRS released at long last the final rules for the 45, the clean hydrogen production tax credit.
Speaker Change: These rules were an improvement from the jobs proposed in December 2023.
Speaker Change: Unfortunately, following that and with a flurry of executive orders.
Speaker Change: From the White House, what we've seen is a temporary pause on IR array in Iga funds, including the issuance of New awards and the disbursement of federal 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 to use 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 I hand, the call over to Keith 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.
We started 2025 with an exciting position for expected deliveries for the year, our 12 month order book.
Speaker Change: Stood at $98 9 million.
Speaker Change: Up 48% compared to the prior year.
Speaker Change: 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 stationary markets in 2025.
Speaker Change: Our 2025 focuses on our customers and our controllable, including prioritize product development and product cost reduction programs, while also maintaining disciplined spending and balance sheet balance sheet strength for long term competitiveness and sustainability with that I'll now pass the call over to <unk>.
Speaker Change: Right.
Speaker Change: Thank you Randy.
Speaker Change: The 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.
Speaker Change: Compounded by materials removed from our order book that were communicated in Q3.
Reported $24 5 million in revenue for Q4, reflecting a 42% decrease compared to the same period last year.
Speaker Change: For the full year revenue totaled $69 7 million, representing a 32% decline compared to 2023.
Speaker Change: <unk> reported a Q4 gross margin of negative 13% an improvement of nine percentage points compared to Q4 2023.
Speaker Change: However, low lower annual revenue and a product mix heavily weighted towards our product placed pressure on our gross margins for full year 2024, which decreased by 11 percentage points from 2023, reaching negative 32%.
We reported total operating expenses of $161 3 million for the year, which included a $17 million restructuring provision of which <unk> 7 million was incurred in the fourth quarter.
Speaker Change: Excluding these one time costs underlying total operating expenses were $144 3 million at the lower end of our guidance range of $145 million to $165 million.
Speaker Change: Looking ahead to 2025, we expect total operating expenses to range between 101 hundred $20 million, representing an approximately 30% reduction or $45 million from 2024.
Speaker Change: Our 2024 capital expenditures were $27 6 million also at the low end of our 2024, our guidance range of $25 million to $40 million.
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.
Speaker Change: Our 2020 for 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.
Speaker Change: We expect to see the full benefit of our cost reduction initiatives to be achieved in 2025 with lower overall operating costs and capital investment.
Speaker Change: As of yearend, we had approximately $604 million in cash a reduction of 20% from the previous year.
Speaker Change: 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 path to profitability and extending our cash runway.
Speaker Change: Randy highlighted as a result of these initiatives, we have no near or mid term financing requirement.
Speaker Change: With that I'll turn the call over to the operator for questions.
Speaker Change: Thank you.
Speaker Change: We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.
Speaker Change: Here tone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any keys and enjoy a question. Please press star then two.
Speaker Change: Yeah colors to kindly limit themselves to one question and one supplemental.
Speaker Change: Our first question comes from Rob Brown with Lake Street Capital markets. Please go ahead.
Hi, good morning.
Speaker Change: Good morning, Rob.
Speaker Change: Just starting with kind of the order activity.
Speaker Change: It seems to be quite strong in the quarter. How does the how does the order book look into 'twenty five as 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 orders are shaping up.
Speaker Change: Yeah. Good question I think first of all perhaps a comment just on the overall order backlog. So $173 5 million I think it's notable roughly half of that is in the bus market, but interestingly about 40% is in the rail market and then when you look at the geographic split roughly 60%, 40% Europe and north.
Speaker Change: Erica.
Speaker Change: 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.
Speaker Change: Likely in the April may timeframe.
Speaker Change: But I would say, whether it's a April may September et cetera. Historically, what we've seen is that Q4 is typically a large order intake month quarter, we've seen that the last two years.
Speaker Change: And I do say, there's volatility from quarter to quarter and we are seeing when you kind of step back in 2024, and even a little bit in 2023 in Q4 of 2023, we are seeing some larger chunkier orders coming in and so that does weight. The order book in those quarters when they land.
Speaker Change: Our goal the last number of years has been to secure long term supply agreements kind of platform wins with customers.
Speaker Change: Lock them up get our products into their into their infrastructure into their platforms.
Speaker Change: And.
Speaker Change: In some cases are those orders are 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 follow on orders.
Speaker Change: But we're very excited about the order intake we've really seen since Q4 2023 in Q1 2024 in 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 there I know you've talked about focusing on the higher power.
Speaker Change: The market, but could you give some color on the stationary market growth Youre seeing.
Speaker Change: Yeah, that's been one of the markets I think surprised us with some of the orders and an opportunity set that we've seen and I expect we will see some more significant orders from stationary and 2025.
Speaker Change: A couple of areas that we're that we see as kind of the I'll call it weak grid or micro grid applications.
Speaker Change: I think about things like filming sites or events sites or construction sites, where you need power and there may not be high grid reliability.
Speaker Change: Similarly, we're seeing opportunities for EV charging where theres some weak grid applications. So there are a few customers that are pulling all those market opportunities and we're seeing demand from and then the I think the data center market is still very early stage.
Speaker Change: We completed an important program or trial I should say.
Speaker Change: With Microsoft and Caterpillar and now we're looking at next opportunities and of course, we've announced the vertical development plan that we're working on it's an interesting market opportunity, but we need to validate the value proposition for <unk> fuel cells.
Speaker Change: That application.
Speaker Change: So that's kind of the landscape, we're not really focused on small stationary applications. We're really looking at things that are 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.
Speaker Change: Thanks, Rob.
Speaker Change: Your next question comes from Vishal <unk> with Jefferies. Please go ahead.
Vishal: Hi, Yeah, that's for taking my question.
Vishal: Just a I guess the first one on the platform customers that you talked about could you share what percentage of your backlog or order book is all those long term platform customers versus how many of them are actually.
Vishal: You know when your customers.
Vishal: Yeah, the way I would think about it is that roughly.
You kind of look at our revenue last year in our revenue this year and our order book, we have probably eight customers that account for <unk>.
Vishal: 70% to 80% of the business and.
Vishal: And all of those eight customers are effectively repeat business.
Vishal: So we've done a very good job once we are getting into platforms to helping customers transition from development to trials and ultimately to more scale deployments and so we've seen customers are progressed through that there are additional customers that are on that journey as well.
Vishal: Awesome. Thank you and then just on the Opex guide the Honda.
Could you talk about what are some of the levers you can pull to maybe.
Vishal: I mean, it kind of trend below that or you know towards the low end of the guidance basically just trying to figure out if there's any more.
Vishal: <unk>.
Vishal: To step the Cashcall.
Speaker Change: Yeah, I think that's an excellent question, particularly in light of the restructuring in September.
Speaker Change: Really spoke to it very effectively in the script, we're looking at our overall program prioritization activities and the rationalization of our product portfolio. So I think as we're moving away from our legacy products and into our next generation of core products that are going to be introduced in the later part of this year and into next year I think that's really an opportunity for us to find additional efficiencies.
Speaker Change: Thank you.
Jordan Levy: Our next question comes from Jordan Levy please.
Speaker Change: Please go ahead.
Jordan Levy: Good morning, all and thanks for all the details just going back to some of the earlier comments on kind of a cadence of orders and <unk>, great to see that tick up a bit.
Speaker Change: I think you mentioned that.
These are the timing of orders can be lumpy and <unk> just wondering if at least.
Speaker Change: In the U S. We should expect that to be a little more lumpy. This time around given some of the exploration of the fuel cell ITC and some of that sort of thing.
Speaker Change: I don't think so I think when we look at kind of the key market. We have in the U S. As the bus market and we continue to see strong interest in that marketplace and we.
Speaker Change: Well you know, we're gonna be delivering 200 engines at least in that market. This year.
Speaker Change: And we're working with.
Speaker Change: The key players in that market and we're seeing that they've got sales pipelines out there working against and the funding that that typically relates to the low no funding is really kind of not in the hydrogen space. If you would more than zero emission buses.
Speaker Change: So we're not seeing any any retraction from that initiative.
Speaker Change: Of course, everything is a it's a very dynamic and things could change, but right now we're seeing.
Speaker Change: Kind of consistent type of the growth opportunities in the U S on the bus side.
Speaker Change: Great and then maybe just a follow up on projects.
Speaker Change: You all kind of continue to make good progress on that can 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 as 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 chop out some of that.
John here.
Speaker Change: Yeah, well I mean, this is a really critical initiatives on the cost reduction for our bipolar pleats switch.
Speaker Change: We're looking at a potentially 70% cost reduction this is pretty significant.
Speaker Change: In terms of the timing.
Speaker Change: We've had some challenges with one supplier of equipment.
Speaker Change: To lead a little bit a couple of months.
Speaker Change: Dave.
Speaker Change: Did some testing and have completed.
Speaker Change: Some changes to that equipment and have since ship those still they have actually arrived here. This week some of the final pieces to that so certainly the front end there are kind of five key steps in our bipolar fleet production all five steps have been re imagined with new processes in tough times, but importantly, with new equipment and a.
Speaker Change: A lot of automation.
Speaker Change: And so we will see a pretty significant increase to five X increase in the ability to produce bipolar plate capacity, while also seeing that our reduction in cost there.
Speaker Change: Reduction in cost volume is not not the key lever on that it's very much the new processes and new materials.
Speaker Change: So we're expecting that to.
Speaker Change: Likely really move into production in 2026 as you think about the timing the additional equipment. That's arrived recently here will be commissioned certainly by June we will look at some optimization in Q3 and into Q4 and start to see some real benefits from this in the 2026 timeframe.
Speaker Change: Great. Thanks, so much.
Speaker Change: Sure.
Speaker Change: The next question comes from Budd <unk> with National Bank. Please go ahead.
Speaker Change: Hi, good morning, everyone. Thanks for taking the question if I if I can start with the rationalization that you're seeing in the market and I'm wondering if you can talk about how that impacts your customers and supply chain and maybe we can start with the.
Speaker Change: The 12 month backlog, if there's any potential for that to be impacted by further rationalization.
Speaker Change: Yeah Rupert Great question, certainly last year, we saw some drop out of the order book with rationalization. We had a few customers last year that went insolvent filed 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.
Speaker Change: So we're not expecting to see that type of duplication.
Speaker Change: I do think when we look at.
Speaker Change: It kind of industry rationalization, we have seen some suppliers.
Speaker Change: Showing a lot of concern, particularly those suppliers, who have invested in production capacity expansion Youre now seeing very low utilization and some of them thinking about the long term strategy and whether this should be core for them going forward.
Speaker Change: But overall a number of the suppliers will be working with we've re validated their commitment and feel pretty strong about the.
Speaker Change: Key supplier list that we have right now.
Speaker Change: Not just in the <unk>.
Speaker Change: Stock material set but also in the key balance of plant components.
Speaker Change: I think tariffs will will pose another challenge for us on the supply front, but.
Speaker Change: 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. This is on the competitive side does offer opportunity and what we're seeing is that.
Speaker Change: Probably about 910 companies in the space what went bankrupt last year, we obviously had another one filing for bankruptcy overall and in 2025 already.
Speaker Change: That's not good for the industry, it's not good.
Speaker Change: Four.
Overall landscape, but of course it does mean there are a few players that we're competing with before that really had very de minimis market share and where.
Speaker Change: 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.
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. So thanks for the color a quick follow up on that does that open up any M&A opportunities or any of those competitors that are falling off and maybe have some interesting technology opportunities for you.
Speaker Change: In the cases of some companies that have filed for bankruptcy and solvency. We didn't see anything there that we found that was attractive or additive to our business. One of the things. We are loath to do is make an investment that would increase our cash burn.
Speaker Change: And so <unk>.
Speaker Change: Certainly as we look at M&A opportunities in a market that's going through rationalization and we.
Speaker Change: We haven't seen a lot of consolidation, but I expect to see some happening.
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.
Speaker Change: Okay, Great I'll leave it there thank you.
Rupert: Thanks Rupert.
Speaker Change: The next question comes from Martin Malloy with Johnson Rice. Please go ahead.
Martin Malloy: Good morning. Thank you for taking my question just a.
Speaker Change: A bigger picture question would love to get your thoughts as you look out on availability of hydrogen for your customers and how that might change going forward.
Particularly interested in your thoughts about <unk>.
Speaker Change: Gray and blue hydrogen potentially becoming more available there's some larger projects in that area. If you could just maybe.
Off your thoughts on that and how you see that developing in the timetable.
Speaker Change: Yeah Martin Thanks for the question, we actually have spent quite a bit of time in the last 60 days.
Speaker Change: On some European customer trips and industry events, and then at the fuel cell and hydrogen Expo in Tokyo recently as well.
Speaker Change: I have the opportunity to meet with a lot of our partners and customers and industry players in exchange thoughts on what's happening in industry in 2020 for 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, but as you.
Speaker Change: No theres, an increasing perspective, including in in some markets, where we saw.
Speaker Change: Really reluctance on looking at.
What I would characterize as blue and gray hydrogen market opportunities as well. So I do think you know as you think about the Europe the.
Speaker Change: U S.
Speaker Change: Context, right now with the new leadership there.
Speaker Change: There is far more support I would say for blue hydrogen than we'd seen probably a few years ago and.
Speaker Change: And to us.
And particularly between now and 2000 32035 timeframe. The Kohl's the hydrogen is not too critical for us of course, we'd like to see lower emissions.
Speaker Change: But what is important to us is getting deployment of vehicles and stationary power applications with low cost hydrogen.
Speaker Change: <unk> seen 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 the a key industry participant yesterday on the dynamics in that market and there is certainly development going on.
Speaker Change: That is associated with blue hydrogen opportunities and I think there is some progress being made on <unk>.
Speaker Change: And SaaS.
Speaker Change: And certainly some applications, where you could see some offtake.
Speaker Change: So I would say kind of mixed report overall policies aren't as strong as we'd like to see.
The financing environment is is.
Speaker Change: 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 the revised forecast put out by the hydrogen council.
Speaker Change: In the.
Speaker Change: Late fall or kind of forecast that we think are credible forecast for 2030 in 2035.
Speaker Change: Alright I appreciate your thoughts thank you.
Speaker Change: Yes. Thank you.
Speaker Change: The next question comes from Craig Irwin Roth Capital Partners. Please go ahead.
Craig Irwin: Good morning, and congratulations on the strong bookings Randy.
Speaker Change: Nice to see the progress there.
Speaker Change: So one thing I was hoping you might be able to do is kind of bridged the disclosures.
Speaker Change: Around shipments in 25 versus <unk> 24. So today, you said 24 had a 660 engines are shipped representing 56 megawatts and that was up 30% over 23 last year you said.
Speaker Change: <unk> hundred 40 modules and 74 megawatts.
Speaker Change: Obviously, the AR the module definition is a little bit broader.
Speaker Change: Can you maybe closed the gap and help us understand that if we use the wider definition, what the megawatts shipped could've been a 424.
Speaker Change: Is that still similar to a 30% growth rate.
Speaker Change: Or is there something else here that maybe you're deemphasizing.
Speaker Change: To pursue these large order bookings.
Craig Irwin: Yeah, So Craig thanks for the question.
Craig Irwin: A couple of things first of all we're providing two metrics because they are both critically important. So one is the engine unit volumes and certainly when we look at our revenue forecasts internally for example at 'twenty 'twenty eight 'twenty 30 et cetera. 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 et cetera.
Craig Irwin: What you do see in terms of the difference between the number of engines that we ship versus the megawatts as which engines. We're shifting so 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.
Craig Irwin: U S bus market plus the European 18 meter bus market and then you'll 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 are quite elegantly for some other market applications, including for rail.
Craig Irwin: And for <unk>.
Craig Irwin: Stationary power market applications as well so that's typically what's driving the difference I think what you will 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 CPE Casey.
Craig Irwin: So the total megawatts are relative to the number of units will be disproportionately higher I would say in 2025 based on that driver. They are both critical numbers because as you scale up the megawatts certainly that's improving our leverage on the <unk> and bipolar plates and stacks over.
Craig Irwin: Raul.
Craig Irwin: And then.
Craig Irwin: As you scale up the number of unit volume units on modules.
Craig Irwin: That's really helping on components that go into our engines as well.
Craig Irwin: Understood Understood then you know as I look at the forecasts out there for adjusted EBITDA for this year it.
Craig Irwin: It seems you're positioned for some fairly dramatic improvement over the last couple of years.
Craig Irwin: Your restructuring activities and then the progress you've made on gross margins.
Craig Irwin: But the point of uncertainties at.
Craig Irwin: Most of US are looking at right now is not how effectively you budget your frictional costs.
Craig Irwin: Done a good job there is gross margin so maybe can you.
Craig Irwin: Unpack the puts and takes as far as the gross margin outlook for this year.
It feasible for us to see positive gross margins before the end of the year.
Craig Irwin: Is that really an operating priority right now.
Given that you are serving several customers that are at the early stage of a of a multiyear ramp.
Craig Irwin: Yeah, So great question and good observation before.
Craig Irwin: Before I talk about margins and Kate can supplement as well just to comment on the cash operating costs I. Appreciate the commentary that we've made some progress there we're still looking at opportunities for additional cost reduction, particularly we're tracking the market adoption indicators very closely.
Craig Irwin: As if we if we see changes there that we think are required changes in our cost structure, we will take action as well when.
Craig Irwin: When we look at gross margin.
Craig Irwin: And I wanted to talk about contribution margin for a couple of key really important levers there are pricing.
Craig Irwin: And then our total variable costs and we have spent quite a bit of time assessing both pricing and total variable costs.
Craig Irwin: And I think we have strategies on how to.
Craig Irwin: You know improved in some cases or hold the line in some cases on the pricing side.
Craig Irwin: And as importantly, reducing our total variable cost 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.
Craig Irwin: In 2025 and into 2026, so I do think we're going to see a nice.
The movement on contribution margins.
Craig Irwin: And then it'll drop down to gross margins as well I did want to highlight though on the gross margin front.
Craig Irwin: The fixed production overhead costs, we have there is fairly limited leavers to adjust that cost structure at this stage, we consolidated some rooftop consolidation with some of our European facilities in 2025 that will show up a little bit in our gross margin expansion in.
2020, sorry in 2024 that will show up in 2025.
Craig Irwin: But are.
Craig Irwin: We now are going to need volume to help see the move from contribution margin to gross margin expansion and that is going to take candidly a couple of years before you really see some acceleration there. So the leavers are mostly at the contribution margin level.
Craig Irwin: And there's a high you you asked whether this is a priority I can tell you, it's probably the highest corporate priority is that.
Craig Irwin: Contribution gross margin.
Craig Irwin: Those lines.
And you want to add I think the only thing I would add I think Randy walked walked through that beautifully I think the only thing I would point out is in terms of the trajectory and the expectation on gross margin for 2025 weeks.
Craig Irwin: We clearly do not provide guidance for gross margin, but I would expect due to all the things that Randy had mentioned and that we would see a stepwise improvement on gross margin on the year kind of looking at the trajectory from 23 to 24 and then into 2025. So again I don't expect us to be positive gross margin on the year, but certainly a lot more positive.
Craig Irwin: We were in 2024.
Speaker Change: Understood last question, if I can if I can squeeze another one in.
Speaker Change: You know you guys have been disciplined around Capex you know the.
Speaker Change: Suspension of your your your investments into the the Giga factory everybody understands that in this environment.
Can you maybe talk about what priorities you have in this 15% to $25 million Capex guide for the year.
Speaker Change: And that $10 million delta in there or their individual projects or is this maybe just a contingency for upgrades or repairs are in existing facilities.
Speaker Change: Yes, I'll start and then Keith can supplement Craig and its a good question.
Speaker Change: So certainly as we look at 2025 Capex one of the key contributions to the plan to spend this year is the completion with project forge and.
Speaker Change: Thats a program we had budgeted.
Speaker Change: Three years ago about $18 million in total.
Speaker Change: And so there is a component that will land this year as well as we complete that project.
Speaker Change: And that we're looking at fairly modest capex spending each year.
Speaker Change: We typically have kind of between five 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.
Speaker Change: <unk> I would say Kate anything you want to add there.
Speaker Change: Well, thanks again for taking my questions congratulations on the bookings.
Speaker Change: Thanks, Greg.
Jeffrey Osborne: The next question comes from Jeffrey Osborne TD Colin Please go ahead.
Speaker Change: Hey, good morning, Randy just two questions on my side.
Speaker Change: One a quick one on the orders in Q4 were any of those safe harbor related as it relates to the cash timing our delivery time I assume that given the comments about second half weighted.
Speaker Change: So Jeff welcome back first of all and I apologize I don't think we heard the question clearly.
Yes, I was asking about.
Speaker Change: Well come back, but I was asking about.
The orders in Q4 were those related to safe harboring activity for the <unk>.
Speaker Change: The tax credit.
Speaker Change: Yeah, no no 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 U S portion of that.
Are you going through sort of account by account on the both the bus and rail side too.
Speaker Change: Ascertain the potential delays in timing of the hydrogen buildout associated with those bus depots or other locations or are these folks producing answer.
Speaker Change: Just with the third party delays does that pose any risk to the timing of deliveries.
Speaker Change: The finished bus module.
Speaker Change: So first of all on the rail side. The two key deliveries we have on the rail side or the North American locomotive market with CP Casey.
Speaker Change: <unk> already installed two hydrogen refueling stations wanted Edmonton and one in Calgary. They also have an electrolyzed our hydrogen production. So they have a hydro in house hydrogen production capacity.
Speaker Change: So there is no law.
Speaker Change: Linkage with that order to availability of hydrogen the second one in the rail market is the Stadler order.
Speaker Change: Four.
Commuter rail application in San Bernardino area and that one already has a hydrogen.
Speaker Change: Availability secured so no issues there.
Speaker Change: On the bus side a number of bus.
Speaker Change: Bus transit operators that we've been selling to.
Speaker Change: Through through our vehicle Oems typically new flyer that they've been selling their buses to with our engines are already have onsite.
Speaker Change: In some cases hydrogen fueling stations, so theres no infrastructure requirements in terms of dispensing.
Speaker Change: And there are they're procuring and have been procuring hydrogen for some time a couple of them have actually onsite hydrogen production.
Speaker Change: So if you if you look at the <unk>.
Speaker Change: Transit in Oakland, If you look at.
Speaker Change: Oc Ta and in Orange County, and our son line in Palm Desert area. There's a few of them that have very locked down hydrogen strategies as well of course, there is a number of new transit operators are by the way Foothill transit.
Speaker Change: In the L. A 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 in the U S market and.
Speaker Change: But we have seen of course from time to time. There are delays were the transit operators arent ready to take the buses and that causes the bus OEM to push back on our delivery schedule, we're not foreseeing that this year, but of course, that's always a possibility.
Speaker Change: Great to hear it that's all I had thank you.
Thank you Jeff.
Speaker Change: This concludes the question and answer session I would like to turn the conference back over to Randy Macewen for any closing remarks. Please go ahead.
Speaker Change: Thanks, Sheila and thank you everyone for joining us today, Kate Sumit 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.
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