Q1 2025 Ballard Power Systems Inc Earnings Call
Conference Operator: Thank you for standing by, this is the conference operator. Welcome to the Ballard Power System's first quarter 2025 results call. As a reminder, all participants are in a listen only mode, and the conference call is being recorded. After the presentation, there will be an opportunity to ask questions.
Conference Operator: 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 Mr. Sumit, Kondu, Manager, and investor relations. Please go ahead sir.
Sumit Kundu: Thank you, operator and good morning. Welcome to Ballard's first quarter financial and operating results conference call.
Speaker Change: With us on the call, today are Randy McEwen, Ballard's President and CEO , and Kate Igbelode, Chief Financial Officer.
Speaker Change: Given that our 2024 year-end earnings call was only 8 weeks ago, we will keep today's scripted remarks relatively brief.
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.
Speaker Change: Please refer to our most recent annual information form and other public filings for our complete disclaimer and related information.
I'll now turn the call over to Randy.
Thank you Sumit and welcome everyone to today's conference call.
Speaker Change: In the first quarter, amidst an uncertain macroeconomic geopolitical and industry context, we made important progress against our controllables.
Speaker Change: including our customer deliveries, our operating costs, and our product development programs.
Speaker Change: Compared to prior year, 2025 Q1 revenue increased 6%, engine shipments were up 31%, gross margin revenue by 14 points, and total operating expenses were down 31%.
Speaker Change: We're starting to see the positive financial impact of the corporate restructuring we initiated in September last year. We expect to realize further reductions to our operating costs and reduce cash utilization over the remainder of the year from this restructuring.
Speaker Change: In addition to realizing the benefits from the 2024 restructuring, we're actively assessing opportunities for deeper cost rationalization in 2025.
Speaker Change: Before we get into the commercial highlights we would like to make a few comments regarding
Speaker Change: While uncertainties are brought around evolving global terror policies remain, expected policy changes are not likely to material impact our business in 2025.
Speaker Change: We're closely monitoring tariff developments that may impact the sale of our fuel cell products, including into the US.
Speaker Change: We reviewed the bills of materials for each of our fuel cell engines and assessed the potential tariff impact based on the country of orange origin of each bomb component.
Speaker Change: We expect sales in the U.S. to represent roughly 20% of our 2025 revenue.
Speaker Change: Based on current information and following certain mitigation actions, we expect an increased tariff cost of about 20% on products being sold into the US market from which we expect to fully pass the incremental costs onto our customers.
Moving next to bus [inaudible]
Speaker Change: We're encouraged with the demand growth in the boss market, which contributed 81% of Q1 revenue up 41% year-over-year.
Speaker Change: We continue to be the market leader for supplying fuel cell engines to bus OEMs in the European and North American transit bus markets.
Speaker Change: We believe is a growing recognition by transit bus operators of the value proposition of fuel cell buses.
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Speaker Change: We ended Q1 with an order backlog of 158 million, including a 12 month order book of 92.4 million.
Speaker Change: As discussed on many previous calls, market adoption remains early in our target applications, with a transition from customer trials to higher volume deployments over time.
Speaker Change: Accordingly our business remains project base. This means new order intake is subject to significant variability, quarter to quarter and can be lumpy. [inaudible]
Speaker Change: After securing record new order intake of 75.4 million in Q4 of 2024, order intake in Q1 was soft.
Speaker Change: Notwithstanding, we continue to progress significant sales opportunity which we expected convert to closed orders over the coming quarters, including opportunities in rail, stationery and marine.
Speaker Change: As we look to the remainder of 2025, we'll continue to navigate uncertainties related to hydrogen policies and trade tariffs.
Speaker Change: We'll continue to focus on our customers, new order intake, on-time delivery of quality products, gross margin expansion initiatives, and prioritize product development and cost reduction programs.
With that, I'll now pass the call over to Kate
Kate Igbalode: Thank you, Randy. In our seasonly slow Q1, Ballard delivered 15.4 million in revenue, up 6% driven by strong growth in the bus vertical, which increased by 41% in the period, but largely was offset by decreases in other verticals.
Kate Igbalode: Our Field Cell product sales revenue made up 94% of the total revenue compared to 88% in Q1 of last year, once again emphasizing our shift into a commercial product company.
Kate Igbalode: Fuel cell engine shipments were up 31% compared to Q1 2024, representative 14 MW of fuel cell deliveries.
Kate Igbalode: Similar to prior years, we expect 2025 revenue to be indexed for the second half of the year.
Kate Igbalode: Although Q1 growth margin was negative 23%, we realized a 14-point improvement compared to Q1 2024.
Kate Igbalode: Gross Margin remains negative as we continue to be impacted by relatively low revenue and absorption against our manufacturing overhead costs.
Kate Igbalode: The 14-point improvement was primarily driven by lower manufacturing overhead costs resulting from our 2024 restructuring activities.
Kate Igbalode: Total operating expenses of 25.5 million, and cash operating costs of 23.2 million were down 31% and 22% respectively.
Kate Igbalode: The reduction in total operating expenses reflects reductions of 28% in research and product development, 32% in general and administrative, and 23% in sales and marketing expenses.
Kate Igbalode: Our total operating expenses guidance for 2025 is between 100 and 120 million, reflecting in approximately 30% reduction at the midpoint compared to 2024.
Kate Igbalode: Capital expenditures totaled $2.7 million in the quarter, primarily for planned investments in production and test equipment, including related to Project Forge.
Kate Igbalode: C1 CapEx was 64% lower compared to Q1 of 2024 and our capital expenditure guidance is between 15 to 25 million for the year, also reflecting in approximately 38% reduction at the midpoint compared to 2024 guide.
Kate Igbalode: Notably, we are actively reviewing and considering various options to reduce both our operating cost structure and our capital expenditure plans for 2025, which may result in revisions to our guidance ranges.
Kate Igbalode: Importantly, we added Q1 with $576.7 million in cash, no debt, and no requirements for near- or midterm financing.
Kate Igbalode: We will remain disciplined, but we will remain, we maintain discipline spending and balance sheet strength for long-term sustainability. We believe our balance sheet strength represents another significant competitive advantage for Ballard compared to other pure-play Pemfield
With that, I'll turn the operator over to the operator for questions.
Conference Operator: Thank you. We will now begin the question and answer session.
Conference Operator: To join the question queue, you may press star than one on your telephone keypad. You will hear a tone to acknowledging your request.
Conference Operator: If you're using a speaker phone, please pick up your handset before pressing any keys.
And to withdraw your question, please press star, then two.
Speaker Change: We ask collars to kindly limit themselves to one question and one follow-up. We will pause for a moment as collars join the queue in the queue.
Speaker Change: And the first question will come from Sam Yaljean, with UBS, please go ahead.
Samyal Jain: Hey, good morning. Do you have any update on the Caterpillar and Microsoft collaboration or any future data
Speaker Change: Yeah, so on me, first of all, thank you for the question. I would say that's still kind of been whip.
Samyal Jain: Kat and Microsoft had some announcements related to that last year, including winning a DOE award but I think, you know, converting it from a first trial to next stage is going to take likely, you know, a year or two before we see some progress against that.
Samyal Jain: Got it. Thank you. And then, how is the cost per kilowatts for the customers looking, and is it impacting it specifically?
Samyal Jain: Yeah, so the cost per kilowatt, you know, there's two variables that I want to highlight first is the sales price and then the second is the cost.
Samyal Jain: And on the sales price I would say there's particularly in the China market there's a lot of pressure on the selling price in the China market. I would say in Europe , in North America, we're seeing pressure there as well, both from a value proposition for the customer as well as competitive pressures. Cheers.
Samyal Jain: And then on the cost side, the key variables there for a fuel cell engine relate to the fuel cell stack plus the balance of plant components.
Samyal Jain: And, you know, one of the key ones in my opinion on the stack side is Project 4, that Kate alluded to in terms of the investment we're making there.
Samyal Jain: And that project should be fully implemented by the end of this year, so expect to see some enhancement there. But as a trend, I would say the overall selling price is relatively flat this year compared to the prior year. And we expect to see the cost coming down later this year.
Thank you.
Rob Brown: The next question will come from Rob Brown with Lake Street Capital Markets. Please go ahead.
Thank you.
Rob Brown: Good morning. On your sales pipeline, where are you, kind of at this point, where are you seeing the most activity and and how do you sort of see that playing out throughout the years?
Yeah Rob, thanks for the question.
Speaker Change: Certainly, I would say where we see the most consistent and repeat business opportunities is in the bus segment, for sure.
Speaker Change: Both in Europe and North America, we see customers there with repeat orders.
Speaker Change: You know, over the last year too, but going forward as well [inaudible]
Speaker Change: In fact, just about two weeks ago, we had an end user, a transit operator in our office here in Vancouver.
Speaker Change: You know, they have a pretty significant deployment in the US market and are looking to add a significant number of fuel cell buses to their fleet, which is very encouraging. So the bus market is certainly a key contributor in the sales pipeline, but then we do get a significant, lumpy projects.
Speaker Change: In-Rail, In-Stationary, and I would say kind of a distant third would be Marine.
Speaker Change: And so rail and stationery, we see lots of opportunity there for validating value propositions with customers.
Speaker Change: and longer-term, moving to a more consistent cadence. But right now, very lumpy. On the real side, we continue to see opportunity in the freight locomotive market in North America, as well as some commuter rail opportunities in the North American market as well. [inaudible]
Speaker Change: Stationery, a number of different applications we're seeing interest in, and particularly somewhat a call off grid or weak grid scenarios, where customers are looking for remote sites.
Speaker Change: or construction or event type power requirements, or even EV charging. And those are the applications we're seeing kind of the most uptake in our sales opportunities right now.
Speaker Change: Thank you for the color. And then on the bus market that's got the most sort of maturity of deployments. Are there starting to see cases where you can get the value proposition economics and kind of value proposition sketched out because where do you see the most sort of functional deployments and the most data?
Thank you. Thank you. Thank you.
Speaker Change: Yeah, so we have just under 600 fuel cell buses operating today in Europe and North America with very good data coming back from the field in terms of uptime, you know availability, reliability, safety, all those metrics of course.
Speaker Change: And what I'd say is that, and by the way, there are quite a few buses that will be entering into service over the coming 12 to 18 months.
Speaker Change: So that's very encouraging to see that. And there what we're seeing effectively is that the key variable on customers having an improved total cost of ownership is really the cost of the fuel.
Speaker Change: And that's a variable we don't have a lot of control over. You know, we do expect to see by 2030, more access to low cost, low carbon hydrogen in both the North American and European markets. And that's what we're going to do.
Speaker Change: at a price approaching, you know, kind of TCO parity, but it still is a premium comparison diesel buses today.
Thank you.
Thank you.
Craig, thank you all for coming.
Conference Operator: Thank you. The next question will come from Rupert Merer with National Bank. Please go ahead.
Hi, good morning, everyone.
Rupert Merer: With the restructuring you've gone through, can you talk about the process and what compromises you've had to make to achieve your targets? And have you had any impact to your product cost reduction initiatives or have you given up any fundamental R&D initiatives?
Rupert Merer: Yeah, great question, Rupert. So I think anytime you look at a cost reduction, the biggest question is what are you going to stop doing and what are you compromising or what are the puts and takes and the trade-offs.
Rupert Merer: And, you know, we've certainly believed that much of the value creation that occurs at Ballard is in our technology and our engineering. So, we've tried to as much as possible protect.
Rupert Merer: The Core IP, and, obviously, the core roadmap that relates to our core products, and so-
Rupert Merer: Basically we've prioritized and sequenced product development programs. I would say previously you would have seen us doing a number of different programs in parallel and now we're going to more of a sequential approach.
Rupert Merer: With the push out in the timeline for adoption, particularly in the truck market, we de-prioritize investment into fuel cell engines at this time that relate to the truck market.
Rupert Merer: Our focus is very much on making sure we have higher performing lower cost modules for the bus market, a market that we're winning in and a market we plan to continue to win in.
Rupert Merer: and similarly, as we kind of look at the larger products for stationary and rail and the truck market, making sure that the balance of plant components to extent that can be harmonized with the smaller products.
Rupert Merer: There's some leverage there. So there certainly has been some reduction in R&D and I think we've focused on making sure we're preserving the core MEA R&D activities where we think we have a competitive advantage.
Rupert Merer: and less activity perhaps on things like the balance of plant component where we think the supply chain has been a little bit more matured over the last two years than previously. This is a little bit more matured over the last two years than the last two years.
Rupert Merer: So there's certainly been some compromises. One of the key ones, though, is really focusing the product roadmap and doing fewer programs and looking at sequential product development programs whether they in parallel.
Thank you.
Speaker Change: So you still be on track with your cost reduction plans from a few years ago?
Speaker Change: Yeah, so that's one of the areas we think we've made a lot of progress on. Certainly on the MBA front, we've realized pretty significant reductions there.
Speaker Change: Project Forge, as I mentioned earlier, will come online. It's pretty well almost finished installation right now.
Speaker Change: And that will dramatically reduce the cost of the biopolder place and just as a reminder for people, Project Forge is kind of this really important plan where we look at not only materially reducing the cost but also scaling the production of kind of next generation graphite plates. [inaudible]
Speaker Change: And it kind of reduces the cost of the plates by about 70 percent and increases the production capacity by about 10 times while also significantly reducing production tax times. [inaudible]
Speaker Change: and really the throughput is enhanced but the some additional things like kind of reduced energy demand and elimination of wastewater consumption from plate manufacturing. There are a lot of benefits from this project.
Speaker Change: So we expect to see kind of a step change in our plate production starting next year and after the A's bipolar plates are the next largest cost item in the fuel cell stack.
Speaker Change: So, from an MEA and a bipolar product cost reduction perspective, no impact from our program plans there.
Speaker Change: And then I think the balance of plant components, much of those have been specified not just for products that we have in the field but for our next generation, we call our small core product that will significantly lower the cost of engines and enhance our margins.
Thank you, Randy. I'll leave it there. Yep. Thanks, Rupert.
Speaker Change: Hi, all. It's Henry on for Jordan here. Thanks for taking my questions. I guess it's understanding that the terror situation remains very fluid. I'm just curious if there are any actions or updates we should be looking for for you all to be later on this year with regards to supply chain movement or material sourcing.
Henry, first of all, thanks for the question.
Speaker Change: You know, there are a bunch of mitigation actions we've already taken into account. So, just as a couple of illustrated examples, kind of as a one-time measure, we did accelerate the movement of some components and materials into the U.S. market before the tariffs were implemented. So, let's take a look at some of the things that we've been doing in the U.S. market.
Speaker Change: And then secondly, of course there are suppliers that we're looking at transitioning. Some of that comes with some complexity and some timing of course. I don't think there's anything, any one change that's material by itself, but a couple of them together will be quite helpful. Thank you very much.
Speaker Change: And then of course just I think the key is the whole market is just understanding that there's going to be some pass through here of tariff's costs through the value chain. So I don't expect to have any major update on this front leader this year. I expect it to be kind of more of the same that we've profiled here today.
Speaker Change: Yeah, I'm interested. Thank you for that. And maybe just a quick housekeeping one for me. You know, looking at the relatively light cat-back spend for the first quarter here, I guess how should we think about the cadence of that kind of moving through the remainder of the year? Yeah, sure.
Thank you.
Speaker Change: Yeah, maybe I'll just make a comment and then Kate can follow up as well. You know, I think one of the things to understand as well as we did, you know, you go back a few years ago when we first started talking about Project Forge, you know, this is an $18 million program. We're just seeing now seeing the trailing cost of that occurring in 2025. [inaudible]
Speaker Change: And just from a, you know, as you look forward for the foreseeable future, you know, in my opinion, at least through 2030 and beyond, we really don't have any material kind of one-time capex spend during that time period. So, there's really kind of a burn off if you will of this.
and in one quarter versus the other. [inaudible]
Conference Operator: Again, if you have a question, please press star, then 1.
Thank you.
Conference Operator: 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 sir.
Randy Macewen: Thank you for joining us today and we look forward to speaking with you next quarter.
Randy Macewen: This brings today's meeting to a close. You may disconnect your lines. Thank you for your participation and have a pleasant day.
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