Q1 2025 Ballard Power Systems Inc Earnings Call
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Sumit: I'd now like to turn the conference over to Mr. Sumit condo manager and an Investor Relations. Please go ahead Sir.
Sumit: 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 Macewen, Ballard's, President and CEO.
Speaker Change: <unk> <unk> Chief Financial Officer.
Speaker Change: Given that our 2024 year end earnings call was only eight 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.
Speaker Change: 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.
Randy Macewen: I'll now turn the call over to Randy.
Randy Macewen: Thank you Sumit and welcome everyone to today's conference call.
Randy Macewen: In the first quarter amidst an uncertain macroeconomic geopolitical and industry context, we made important progress against our controllable.
Randy Macewen: Including our customer deliveries, our operating cost and our product development programs.
Randy Macewen: Per the prior year 2025, Q1 revenue increased 6% engine shipments were up 31% gross margin improved by 14 points and total operating expenses were down 31%.
Randy Macewen: We're starting to see the positive financial impact of the corporate restructuring we initiated in September last year.
Randy Macewen: We expect to realize further reductions to our operating costs and reduce cash utilization over the remainder of the year from this restructuring.
Randy Macewen: In addition to realizing the benefits from the 2020 for restructuring we're actively assessing opportunities for deeper cost rationalization in 2025.
Randy Macewen: Before we get into the commercial highlights we'd like to make a few comments regarding tariffs.
Randy Macewen: While uncertainties.
Randy Macewen: Around evolving global tariff policies remain expected policy changes are not likely to materially impact our business in 2025.
Randy Macewen: We're closely monitoring tariff developments that may impact the sale of our fuel cell products, including into the U S. We've.
Randy Macewen: We've 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 Bom component.
Randy Macewen: We expect sales in the U S to represent roughly 20% of our 2025 revenue.
Randy Macewen: Based on current information and following certain mitigation actions. We next we expect an increased tariff costs of about 20% odd products being sold into the U S market for which we expect to fully pass the incremental costs onto our customers.
Randy Macewen: Moving next to bus.
Randy Macewen: We're encouraged with the demand growth in the bus market, which contributed 81% of Q1 revenue up 41% year over year.
Randy Macewen: We continue to be the market leader for supplying fuel cell engines to bus Oems in the European and North American Transit bus markets.
Randy Macewen: We believe there's a growing recognition by transit bus operators of the value proposition of fuel cell buses.
Randy Macewen: We ended Q1 with an order backlog of $158 million, including a 12 month order book of $92 4 million.
Randy Macewen: As discussed on many previous calls market adoption remains early in our target applications with the transition from customer trials to higher volume deployments over time.
Randy Macewen: Accordingly, our business remains project base. This means new order intake is subject to significant variability quarter to quarter and can be lumpy.
Randy Macewen: After securing record new order intake of $75 4 million in Q4 of 2020 for order intake in Q1 was soft.
Randy Macewen: Notwithstanding we continue to progress significant sales opportunity, which we expect to convert to closed orders over the coming quarters, including opportunities in rail stationery and marine.
Randy Macewen: As we look to the remainder of 2025, we will continue to navigate uncertainties related to hydrogen policies and trade tariffs will continue to focus on our customers' new order intake on time delivery of quality products gross margin expansion initiatives and prioritize progress product.
Randy Macewen: Development and cost reduction programs with that ill now pass the call over to Kate.
Kate: Thank you Randy.
Kate: In our seasonally 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 vertical.
Kate: Our fuel 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: He also engine shipments were up 31% compared to Q1 2024, representing a 14 megawatts of fuel cell deliveries.
Kate: Similar to prior years, we expect 2025 revenue to be indexed to the second half of the year.
Kate: Although Q1 gross margin was negative 23%, we realized a 14 point improvement compared to Q1 2024.
Kate: Gross margin remains negative as we continued to be impacted by relatively low revenue and absorption against our manufacturing overhead costs.
Kate: The 14 point improvement was primarily driven by lower manufacturing overhead costs, resulting from our 2020 for restructuring activities.
Kate: Total operating expenses of $25 5 million in cash operating cost of $23 2 million were down 31% and 22% respectively.
Kate: The reduction in total operating expenses reflects reductions of 28% in research and product development, 32% in general and administrative and 23% and sales and marketing expenses.
Kate: Our total operating expenses guidance for 2025 is between 101 hundred $20 million, reflecting an approximately 30% reduction at the midpoint compared to 2024.
Kate: Capital expenditures totaled $2 7 million in the quarter, primarily for planned investments in production and test equipment, including related to project porch.
Kate: Q1, Capex was 64% lower compared to Q1 of 2024 and.
Kate: And our capital guidance capital expenditure guidance is between 15% to $25 million for the year also reflecting an approximately 38% reduction at the midpoint compared to 2024 guide.
Kate: Notably we are actively reviewing and considering various options to reduce both our operating cost structure and our capital expenditure plan for 2025, which May result in a revision to our guidance ranges.
Kate: Importantly, we ended Q1 with $576 $7 million in cash no debt and no requirement for near or mid term financing.
Kate: We will remain disciplined but we will remain we maintained disciplined spending and balance sheet strength for long term sustainability.
Kate: We believe our balance sheet strength represents another significant competitive advantage for Ballard compared to other peer play pattern fuel cell competitor.
Kate: With that I'll turn the operator are turned over to the operator for questions.
Kate: Thank you we will now begin the question and answer session.
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Kate: We ask callers to kindly limit themselves to one question and one follow up.
Kate: We will pause for a moment as callers join the queue.
Speaker Change: And the first question will come from some y'all Jain with UBS. Please go ahead.
Jain: Oh good morning, do you have any update on the Caterpillar Microsoft cooperation.
Speaker Change: Great.
Speaker Change: Yeah. So let me first of all thank you for the question I would say that's still a kind of win win.
Speaker Change: Cat and Microsoft had some announcements related that last year, including a winning a deal we award.
Speaker Change: But I think converting it from our first trial to next next stage is going to take likely a you know a year or two before we see some progress against that.
Speaker Change: Got it. Thank you and then how is the cost per kilowatt for the customers looking.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Yeah, so the cost per kilowatt.
Speaker Change: There's two variables are that I want to highlight versus the sales price and then the second is the cost.
Speaker Change: And on the sales price I would say there is a particularly in the China market, there's a lot of pressure on the.
Speaker Change: Selling price in the China market.
Speaker Change: Say in Europe, and North America, we're seeing pressure there as well both from a value proposition for the customer as well as competitive pressures.
Speaker Change: And then on the cost side.
Speaker Change: The key variables there for a fuel cell engine related to the.
Speaker Change: The fuel cell stack plus the balance of plant components.
Speaker Change: We continue to do a lot of important work on reducing the cost of the stack and reducing the cost of the balance of plant components for a full engine.
Speaker Change: And we've talked about some of the the product cost reduction initiatives, we have been engaged in over the last number of years.
Speaker Change: And you know one of the key ones in my opinion on the stock side is a project for that Keith alluded to in terms of the investment we're making there.
Speaker Change: We expect to see pretty significant reductions in our bipolar fleet costs in.
Speaker Change: And that project should be fully implemented by the end of this year. So we expect to see some enhancement there, but as a trend I would say are the overall selling price is relatively flat this year compared to the prior year and.
Speaker Change: And we expect to see the costs coming down later this year.
Speaker Change: My phone call.
Rob Brown: The next question will come from Rob Brown with Lake Street Capital markets. Please go ahead.
Speaker Change: Okay.
Speaker Change: Hi, good morning.
Speaker Change: Almost on your sales pipeline, where are you kind of at this point, where you're seeing the most activity and how do you see that playing out throughout the year.
Speaker Change: Yeah, Rob Thanks for the question certainly I would say, where we see the most consistent and Ah repeat business opportunities is in the bus segment for sure both in Europe, and North America, we see our customers there.
Speaker Change: With repeat orders over.
Speaker Change: Over the last year or two but going forward as well in fact, just about two weeks ago. We had an end user of transit operator at our office here in Vancouver.
Speaker Change: They have a pretty significant deployment in the U S 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 significant lumpy projects in real in stationary and I would say.
Speaker Change: A distant third would be marine and so rail and stationary we see lots of opportunity there.
Speaker Change: For validating value propositions with customers 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.
Speaker Change: Stationary a number of different applications, we're seeing interest in.
Speaker Change: And particularly some what I call off greater week grid scenarios.
Speaker Change: Where customers are looking for remote sites or construction or or.
Speaker Change: You know event type power requirements or even EV charging.
Speaker Change: And those are the applications, we're seeing kind of the most uptake in our sales opportunities right now.
Speaker Change: Great. Thank you for the color.
Speaker Change: On the bus market, that's got the most sort of maturity of deployments.
Speaker Change: Are there are there are you starting to see cases, where you can get the value proposition economics.
Speaker Change: Kind of value propositions good stuff.
Speaker Change: Or do you see the most.
Speaker Change: Both sort of functional deployments in the most data.
Speaker Change: Yeah. So we have just under 600 fuel cell buses operating today in Europe and in North America with very good data coming back from the field in terms of uptime availability reliability safety all of those metrics of course.
Speaker Change: And what I'd say is that and by the way Theres. 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 it 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.
Speaker Change: We do expect to see by 2030 more access to low cost low carbon hydrogen and in both the north American and European markets.
Speaker Change: Our price approaching.
Speaker Change: Tcl parity, but it's still as a premium compared to diesel buses today.
Speaker Change: Okay.
Speaker Change: Great. Thank you I'll turn it over.
Speaker Change: Thank you.
Speaker Change: The next question will come from Rupert Mayer with National Bank. Please go ahead.
Rupert Mayer: Hi, good morning, everyone.
Rupert Mayer: With the restructuring you've gone through can you talk about the process and what compromises you you've had to make to achieve your targets.
Rupert Mayer: And have you had any impact to your product cost reduction initiatives or have you given up any fundamental R&D initiatives.
Rupert Mayer: Yeah, Great question Rupert So I think any time 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 in the trade offs.
Rupert Mayer: And.
Rupert Mayer: We certainly believe 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 Mayer: The core IP.
Rupert Mayer: And obviously the core roadmap that relates to our core products and so on.
Rupert Mayer: Basically, we've prioritized and seek which product.
Rupert Mayer: 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 Mayer: Just a push out in the timeline for adoption, particularly in the truck market, we prioritize investment into fuel cell engines. At this time that relate to the truck market. So 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 a market we plan to continue to win.
Rupert Mayer: So winning in the bus market is critical and as some of these other markets start to scale longer term.
Rupert Mayer: We'll be taking the products that we're developing for the bus market applying them to some of these other markets.
Rupert Mayer: And similarly, as we kind of look at the larger products.
Rupert Mayer: For stationary and rail.
Rupert Mayer: In the truck market.
Rupert Mayer: Making sure that the balance of plant components to extent that can be harmonized with the smaller products.
Rupert Mayer: Some leverage there.
Rupert Mayer: So there certainly has been some reduction in R&D and I think.
Rupert Mayer: Why are we focused on making sure we're preserving the core M. B, a R&D activities, where we think we have a competitive advantage.
Rupert Mayer: And in less activity, perhaps on things like the balance of plant components, where we think the supply chain has been a little bit more matured over the last two years than previously.
Rupert Mayer: So theres certainly been some compromises.
Rupert Mayer: One of the key ones, though is really focusing the product roadmap and doing fewer programs.
Rupert Mayer: And looking at sequential product development programs rather than in parallel.
Rupert Mayer: So would you still be on track with your cost reduction plans from from a few years ago.
Rupert Mayer: So that's one of the areas. We think we've made a lot of progress on certainly on the M&A front.
Rupert Mayer: We've realized pretty significant reductions there project forward as I mentioned earlier will come online.
Rupert Mayer: Pretty well almost finished installation right now.
And that will dramatically reduce the cost of the bipolar plates. Just just as a reminder for people project forged as kind of this really important plan, where we look at not only materially reducing the costs, but also scaling the production of kind of next generation graphite plates.
Rupert Mayer: And it kind of reduces the cost of the play each by about 70% increase.
Rupert Mayer: And increases the production capacity by about 10 times, while also significantly reducing production tack times and really are the three.
Rupert Mayer: Throughput is enhanced but the some additional things like kind of reduced energy demand and elimination of waste wastewater.
Rupert Mayer: Consumption from plate manufacturing there are a lot of benefits from this project.
Rupert Mayer: We expect to see a kind of a step change in our plate production, starting next year and after maa's bipolar plates or the next largest cost item into fuel cell stack. So from an M. B a bipolar plate.
Rupert Mayer: Product cost reduction perspective, no impact from our.
Rupert Mayer: Our program plans there are.
Rupert Mayer: And then.
Rupert Mayer: 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, what we call our small core products that will significantly lower the cost of engines and enhance our margins.
Speaker Change: Thank you Randy I'll leave it there.
Randy Macewen: Thanks Robert.
Speaker Change: The next question will come from Jordan Levy with true Securities. Please go ahead.
Henry: Hi, all it's Henry on for Jordan here, Thanks for taking my questions I.
Speaker Change: I guess just understanding that the tariff situation remains very fluid.
Speaker Change: Just curious if there any actions or updates we should be looking for from you. All see later on this year with regards to supply chain movement or material sourcing.
Speaker Change: Yeah, Henry first of all thanks for the question.
Speaker Change: There are a bunch of our mitigation actions we've already taken.
Speaker Change: Into account so just as a couple of illustrative examples I kind of as a onetime measure we did accelerate the movement of some components and materials into the U S market before the tariffs were implemented.
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 theres anything any one.
Speaker Change: Change that's material by itself, but a couple of them together will be quite helpful.
Speaker Change: And then of course, just a I think the key is the whole market just understanding that theres going to be some pass through here of of tariffs cost through.
Speaker Change: Through the value chain. So I don't expect to have any major update on this front later this year I expect it to be kind of more of the same that we profiled here today.
Speaker Change: Got you understood. Thank you for that and then maybe just a quick housekeeping one for me.
Speaker Change: Looking at the relatively light capex spend for the first quarter here.
Speaker Change: How should we think about the cadence of that kind of moving through the remainder of the year.
Speaker Change: Okay. Thank you.
Speaker Change: Yeah, maybe I'll just make a comment and then Keith can follow up as well.
Speaker Change: 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 <unk>.
Speaker Change: Project Forge this is an $18 billion program.
Speaker Change: Just see now seeing the trailing cost of that occurring in 2025.
Speaker Change: And just from a you know as you look forward for the foreseeable future in my opinion at least through 2030 and beyond we really don't have any material kind of onetime capex spend during that time period. So.
There's really kind of a burn off if you will of this project for June 2025, as well and that's really front end loaded.
Speaker Change: And then as well as typical maintenance capex that we have here for our facilities in Vancouver, Canada. If theres anything. Additionally, you want to add to that no I think Henry for the purposes of kind of modeling and an outlook for the year I think taking kind of the midpoint of the guidance range would be a reasonable expectation and just sort of run rating that across the quarters to randy's point, there really isn't any kind of material.
Speaker Change: Expectations for outsized spend in one quarter versus the other.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: Okay.
Speaker Change: This.
Speaker Change: <unk> 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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