Yahoo Finance Ballard Power Systems Inc. (NASDAQ:BLDP) Q1 2024 Earnings Call Transcript
Ballard Power Systems Inc. (NASDAQ:BLDP) Q1 2024 Earnings Call Transcript May 7, 2024
Ballard Power Systems Inc. misses on earnings expectations. Reported EPS is $-0.14 EPS, expectations were $-0.13. Ballard Power Systems Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems' First Quarter 2024 Results Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Kate Igbalode, Vice President, Investor Relations. Please go ahead.
Kate Igbalode: Thank you, operator and good morning. Welcome to Ballard's first quarter financial and operating results conference call. With us on today's call are Randy MacEwen, Ballard's CEO; and Paul Dobson, Chief Financial Officer. Given that our 2023 year-end earnings call was only eight weeks ago, we are will keep scripted remarks today relatively brief. 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 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.
Randy MacEwen: Thank you, Kate, and welcome, everyone, to today's conference call. In our last earnings call, in addition to providing 2024 OpEx and CapEx guidance ranges, we outlined four specific milestones that investors can expect from Ballard in 2024. We noted the following four milestones; first, continued growth in our order backlog; second, a major order announcement from a bus customer; third, a major order announcement from a stationary customer; and fourth, the announcement of our next manufacturing facility. In Q1, we delivered against each of these four milestones, highlighting our continuing journey to a commercial products company. I would like to comment on each of them in turn. So, first, on continued growth in our order backlog, we're encouraged with our progress over the past six months with new order intake.
After booking record new order intake of $64.7 million in the fourth quarter of 2023, we booked another $64.5 million of new orders in Q1, bringing total new bookings over the past two quarters to almost $130 million, a Ballard record for a six-month period. Our order backlog grew by 38% since the start of the year. Second, on a major order announcement from a bus customer. Here, we announced a multiyear supply agreement and the largest order fuel cell engines in Ballard's history. The supply of 1,000 engines through 2027 to Solaris for the European bus market. This landmark agreement is a testament to our collaborative partnership with Solaris over the past decade and the progress we've made with our fuel cell engines. We have proven our fuel cell engines as safe, reliable, and durable.
This agreement also reflects an acceleration in adoption of fuel cell buses in Europe, supported by policy tailwinds and regulations to decarbonize public urban transport fleets. The transition to zero-emission city buses has accelerated as the value proposition of hydrogen fuel cells is increasingly understood zero-tail pipe emissions, rapid refueling, long daily range in all weather conditions, and scalable refilling infrastructure as fleet sizes increase. Indeed, we believe we're on the road to achieving scaled deployment of fuel cell buses in the medium term, which is a critical lever to facilitate economies of scale and cost down initiatives, driving improved economics and reduced emissions for fleet operators. Now, I'd like to linger here for a moment on the bus market.
Over the past five months, we've received orders, all repeat orders from existing platform customers for a total of 1,200 engines for fuel cell buses in Europe and North America. This is very, very exciting. We see a tripling of the existing operating fleet in these markets over the next two to three years. Now, let's move to the third milestone, the announcement of a major order in the stationary market. We announced a multi-year supply agreement and the largest order in Ballard's history for the stationary market in order for 150 engines totaling 15 megawatts of fuel cell systems from a UK-based customer specializing in renewable off-grid power generation. Again, this is a repeat order from an existing customer and reflects a scaling in their market opportunities.
Our customer is targeting the replacement of traditional diesel generators with fuel cell systems that can provide resilient, predictable, clean and quiet solutions for on-site power generation in a variety of applications, including EV charging, filming, events and construction. The customer also has an option to purchase an additional 296 engines by March 2026. Finally, to turn to the fourth milestone, the announcement of our next manufacturing facility. As context, as part of our local for local global manufacturing strategy, we conducted a comprehensive comparative analysis during 2023 of sequenced production capacity expansion options in North America, Europe and China. Based on our review, we determined to prioritize the US as our next market for production capacity expansion.
We announced our plan to build a new manufacturing facility to be located on a parcel of 22 acres of industrial land within the Rockwall Technology Park in Rockwall, just outside of Dallas, Texas. The facility is expected to have an initial main plate production capacity of 8 million MEAs, 8 million bipolar plates, 20,000 fuel cell stacks, and 20,000 fuel cell engines per year, or the equivalent of 3 gigawatts of fuel cells. Dubbed Ballard Rockwall Giga 1, we plan to manufacture next-generation fuel cell products, incorporating the benefits of our work related to technology innovation and design changes, supply chain collaboration, and the introduction of volume production processes and advanced automation to drive down costs. We also recently announced two separate non-dilutive funding awards to Ballard, totaling up to $94 million, consisting of 40 million in expected grants from the US DOE Hydrogen and Fuel Cell Technologies Office, and up to another $54 million in expected Advanced Energy Project Tax Credits, known as 48C, funded under the Inflation Reduction Act.
Our capacity expansion plan comes at the very time that platform customers are being clear about what they need from Ballard in the future. They're counting on us to be there for them at volume and at the right cost. The ability for us to demonstrate a clear roadmap to high production volumes at significantly reduced cost is critical to customers transitioning from demonstrations to future scaled deployments. With Ballard Rockwell Giga 1, we plan to bring scaled, advanced manufacturing of next-generation fuel cells online in late 2027, at the same time when we expect to reach capacity constraints of our existing North American production facilities based on our forecasted growth and production volumes. We expect to make a final investment decision on this facility later in 2024 and pending completion of certain customary conditions, including necessary approvals and definitive documentation, including with Rockwall and with the U.S. funding sources.
Accordingly, we will provide a detailed review of the plans of Ballard Rockwell Giga 1 during an earnings call later this year. We want to also provide two interesting updates on the rail market so far in 2024. First, one of our customers in the commuter rail market, Stadler, revealed its FLIRT H2 train powered by Ballard fuel cell engines has been entered in the Guinness Book of World Records for the longest distance achieved by a pilot hydrogen fuel cell electric multiple unit passenger train without refueling or recharging an impressive 1,742 miles. Second, and importantly, on April 16, CSX unveiled its first fuel cell locomotive, developed through its partnership with CPKC where CPKC provides CSX with a powertrain conversion kit using Ballard fuel cell engines to refurbish diesel locomotives.
We view this as a very exciting development. We believe hydrogen fuel cells offer the only viable zero-emission powertrain solution to replace or refurbish diesel locomotives in North America. The total North American fleet is estimated to be around 40,000 locomotives, and notably, CPKC has approximately 2,500 diesel locomotives and CSX has approximately 3,500 diesel locomotives with high power line haul locomotives using 2.4 megawatts of fuel cells, which is equivalent of amount of fuel cells were required to power about 24 buses. We believe this represents a large and attractive addressable market for Ballard. And before I turn the call over to Paul to review our Q1 financial highlights, I'd like to provide a headline summary of Q1 and some commentary on our setup moving forward.
In Q1, we booked $64.5 million in new orders, increased our order backlog by 38%, announced total non-dilutive funding of up to $94 million for the planned build-out of our Rockwall Gigafactory, grew revenue by 9%, improved gross margin by 5 points, and reduced cash operating costs slightly, while continuing to invest in next-generation products and product cost reduction. Looking forward, in the context of an increasingly constructive policy environment, growing order backlog and with sustained investments in product cost reduction in advanced manufacturing capacity expansion, we see an exciting setup for the second half of 2024 and growth in 2025. We are well positioned to enable our customers to compete in the energy transition and the adoption of hydro fuel cells to decarbonize heavy-duty mobility and select stationary power applications.
With that, I'll turn the call over to Paul to discuss our financials.
Paul Dobson: Thanks, Randy. In Q1, Ballard delivered $14.5 million in revenue, driven by strong growth in the bus and stationary verticals. Heavy-duty motive applications accounted for approximately 84% of the total and with added to stationary power, our fuel cell products as a whole represented approximately 88%, once again emphasizing our shift into a commercial products company. As a reminder, from previous years, we see that Ballard revenue is typically weighted approximately 30%, 70% between the first and second half of the year and heavily indexed to Q4. 2024 looks to be no different. Even with the continued shift in revenue mix to power products and the burden of fixed production overhead costs being spread over a seasonally low revenue, gross margin of negative 37% showed a 5-point improvement compared to Q1 2023.
We are still anticipating underlying gross margins will breakeven in Q4, as revenue increases and product cost reduction activities have greater impact. We reported total operating expenses of $37.1 million and cash operating costs of $29.8 million, both relatively flat compared to the prior year comparables. Capital expenditures totaled $7.5 million in Q1. We are maintaining our guidance ranges for total operating expenses and capital expenditures for the year. Our guidance for 2024 includes capital for the initial design and scoping activities for the Rockwell Gigafactory, assuming FID. The expected US government funding for the facility would impact our net capital expenditures in subsequent years starting in 2025. We ended the quarter with a strong balance sheet with cash and cash equivalents just over $720 million.
With that, I'll turn the call over to the operator for questions.
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