Ballard Power Systems, Inc.

Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems Q4 and full year 2020 results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Guy Macri, Director of Investor Relations. Please go ahead.

Thanks very much, and good morning, everyone. Welcome to Ballard's fourth quarter and full year 2020 Financial and Operating Results Conference Call. With us today on the call, we've got Randy McKeown, our President and CEO, and Tony Gugelman, our Chief Financial Officer. We'll 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. So today, Randy is going to provide his perspective on Ballard's progress throughout 2020, as well as our focus for the current year. Tony is then going to review Q4 and full-year financials, followed by a Q&A session. I'll turn the call over to Randy.

Thanks, Guy, and welcome everyone to today's conference call. I'd like to start today's call by thanking all of the members of Ballard's global team. I'm immensely proud of how our team responded to the global pandemic. We were guided by our purpose to deliver fuel cell power for a sustainable planet and by our cultural values. In every decision we made, we put the safety, health, and well-being of our employees, customers, and partners first. And we demonstrated once again Ballard's resilience and ability to adapt with both care and speed. I want to provide a brief summary of Q4 and full year 2020 results. Valid revenue was $28.6 million in the final quarter of the year, with total 2020 revenue of $103.9 million, consistent with our internal projections with the impact of COVID-19. Full year 2020 gross margin was 20%, adjusted EBITDA was negative $38.9 million, Year-end cash reserves were $763.4 million, and we ended the year with a 12-month order book for delivery in 2021 of $83.5 million. While Fowler's operations continued uninterrupted through the year, some customers, suppliers, partners, and end users were forced to shut down temporarily at points during the year, and some also deferred capital expenditures. So while our sales pipeline was very robust, growing 55% in 2020, reflecting the continued increase in market interest, order flow is muted. Looking forward to 2021, the impact of the pandemic continues to be uncertain. As a result, inconsistent with our practice in the early stage of market development and adoption, we're not providing specific financial guidance for 2021. What I do want to share with you is how excited and confident I am about our business, about the important work we're undertaking in 2021 and our long-term future. Customer engagement in all of our medium and heavy-duty motor market segments, bus, truck, rail, and marine, are at record levels. We're well positioned with technology, products, field experience, customer relationships, partners, brand, and financial strength. As reviewed in our September Investor and Analyst Day, we have a clear strategy and deliverables in 2021, including on technology innovation, product cost reduction, capacity expansion, our HIBeller JV, and our relationship with Mali. So the company's never been in a stronger position than right now at this very moment. We're attacking big problems, decarbonization of mobility in large, attractive, addressable markets, bus, truck, rail, and marine. We're making solid progress in each of these market segments. I believe we'll exit 2021 with a growing sales pipeline and order book that will start our ramp for scaling with a steepening growth curve between 2024 and 2030. Importantly, we have a strong cash position. During Q1 2021, we completed a further equity transaction that added incremental net proceeds of approximately $528 million to our cash balance, which currently exceeds $1.2 billion. This positions us to aggressively pursue our two themes, acceleration and expansion. These two themes cut across three specific areas for planned deployment of our capital, The first is product innovation that will help accelerate market adoption by levering next generation stacks and modules for bus, truck, rail, and marine applications, including expanding the range of power product levels available in our portfolio and continued cost reduction. The second area involves investments in the expansion of production capacity and localization. We're currently finalizing the expansion of MEA production capacity at our Vancouver facility. and we have established gigawatt production capacity in China through our joint venture with Weichai. We're now carefully considering further localization opportunities in China as well as the potential to deepen our manufacturing presence in Europe. And finally, we plan to invest in M&A. We have a growing pipeline of corporate development activities. Our focus is on opportunities that help to simplify the customer experience by reducing adoption friction points and reducing costs. We also see M&A as a path to more fully participate in the secular growth of the hydrogen economy and continue to strengthen our competitive position in the market. At the macro level, the pandemic appears to have strengthened global resolve to confront the climate crisis. Indeed, the decarbonization agenda has gained remarkable momentum in the past year. There are now close to 50 countries with carbon pricing initiatives and 75 countries with net zero carbon emission targets. And notably, the growing importance of hydrogen in the future energy mix continues to be signified by supportive policy measures around the world. There are now 32 countries representing over 70% of global GDP that have announced hydrogen roadmaps. The CEO-led Hydrogen Council, after being launched by only 13 founding members in 2017, now has 109 member companies. The group has escalated its advocacy work to raise the profile of hydrogen, and a growing number of sizable corporate investments, joint ventures, collaborations, and green hydrogen projects are being announced seemingly almost daily in our industry. Now in California, transit agencies began filing zero-emission bus rollout plans, as required by CARB's innovative clean transit program. And in 2020, CARB introduced its landmark advanced clean truck regulations that mandate the scaled adoption of zero-emission commercial trucks in that state. In addition, 14 other states signaled their support in 2021. through an MOU supporting a target for 30% of new truck purchases being zero emission by 2030. In China, the government updated its fuel cell policy in September last year, which we expect to have a significant impact on commercial activity going forward. And I'll comment further on this in a moment. In 2020, Bloomberg NEF projected that clean hydrogen could reduce greenhouse gas emissions by up to 34% over the coming decades at a manageable cost. Its report concluded that renewable hydrogen could be produced for as little as $1.6 per kilogram in most parts of the world before 2050, making it a highly competitive fuel globally, with falling hydrogen costs enabling fuel cell market penetration along the way. During 2020, we made considerable progress in the execution of our growth strategy while working to transparently provide stakeholders with insights into our business, including strategy and current market position. We shared details on our six times increase in MEA production capacity, module assembly capacity in our Vancouver facility, in addition to commissioning our joint venture facility in China. And we shared our planned reduction in fuel cell stack and module product costs by more than 70% We also detailed the estimated $130 billion annual market for engine sales into the bus, truck, rail, and marine segments by 2030, which represents a multi-billion dollar revenue opportunity for Ballard. Importantly, during our Investor and Analyst Day 2020 last September, we also emphasized the significance of ESG reporting and Ballard's commitment to it. including the issuance of our first ESG report with the company's 2019 annual report in April last year and our second ESG report that will accompany the 2020 report later this month. We're excited with our goal to achieve net carbon zero at Ballard by 2030, as well as our continued work on diversity and inclusion. Now, I'd like to briefly review specific commercial developments in key geographies during 2020, beginning with China. As we previously shared, the Weichai Ballard Joint Venture is now operational. During 2020, the facility construction and commissioning activity was completed to enable bipolar plate production, stack production, along with module assembly. Furthermore, Ballard Products manufactured the JV passed a series of quality audits so that the joint venture is now a qualified supplier to a number of bus and truck OEMs in China, including OEMs within the Weichai Group. China's state government has set a target of 20% of all vehicle sales being new energy vehicles by 2025, growing to 50% by 2035. In parallel, the government is targeting the fuel cell electric vehicle deployments reaching 1 million in the 2030 to 2035 timeframe. In support of these targets, China's government updated its fuel cell policy last September with a focus on a number of hydrogen demonstration clusters. Numerous applications for demonstration region status were submitted to the national government, and we anticipate the selection of initial demonstration collections to be announced soon. We expect this announcement to help unlock considerable pent-up demand for FCEVs as the market slowed over the past year, awaiting regulatory clarity. Now, I recently returned from an important six-week trip to China. What I can report at this time is that the way CHI Ballard joined venture operation is very impressive. We believe this is now the largest fuel cell production facility focused on the bus and commercial truck markets. Supported by our Ballard team, our JV team has done an exceptional job with our infrastructure and with production capabilities, including optimizing production equipment and processes over the past six months. We're now seeing production yield metrics at the JV already similar to yield results in Vancouver. The JV has also made important progress on localizing a significant portion of the bill of materials of our new joint venture modules. We expect this work will translate to exciting cost reductions at the module level. In addition to meetings with Chairman Tan of Weichai and important strategic initiatives to further strengthen our business in China, I also had the opportunity to meet with key government officials and policy influencers, as well as new vendors emerging on the supply chain side. I also saw many fuel cell buses and trucks on the road while I was in China and with Ballard Technology inside. I also rode the world's first operating fuel cell tram line with five CRRC trams powered by Ballard engines, which started operation more than a year ago. At the current time, Ballard products are inside approximately 1,100 buses and 2,200 trucks in China, representing a market share of about 45%. Ballard has an industry-leading 70 million cumulative kilometers of on-road vehicle experience that Ballard has achieved to date. Ballard was also very active in Europe last year and into 2021. In 2020, we announced a key strategic collaboration with Mahle, a major tier one supplier to the transportation industry, for the development and industrialization of advanced fuel cell engines to power various classes of trucks, initially classes six to eight in Europe. Mahle's expertise in powertrain design and mechanics, together with Ballard's fuel cell technology and know-how, creates a formidable partnership to address requirements of a zero-emission heavy-duty truck market in Europe. We're currently working with Mahle on design of a prototype 240-kilowatt engine for the heavy-duty commercial truck market, which we expect to have ready for testing by the end of this year. In Europe's bus market through 2020 and to this point in 2021, we've received orders for a cumulative total of 135 modules under the Jive funding program. including 65 modules with right bus for buses to be deployed in a number of UK cities, 60 modules from Solaris for buses to be deployed in the Netherlands, Germany, and Sweden, and 10 modules for Van Hul for buses to be deployed in the Netherlands. In 2020, we delivered 29 of these 135 modules. I would note in summary that Ballard's share of the fuel cell modules for all buses deployed in order to date under the Jive program now exceeds 85%. In the train segment of Europe, our work with Siemens Mobility on development of a 200-kilowatt fuel cell engine for the Morale Plus H train is on track, and we understand that Siemens is now quoting this train to its customers. In addition, earlier this year, we announced an order from Arcola Energy in the UK to power its passenger train, which is planned for demonstration during COP26 in Glasgow. In Europe's marine segment, we launched our FC Wave 200 kilowatt modular engine last year, and our Marine Centre of Excellence is now in operation at Ballard Europe's facility in Denmark. And finally, in the backup power segment last year, we announced the sale of our initial 500 air-cooled FC Gen 1020 fuel cell stacks to ADCOR and FC Energy, with a potential for up to 1,500 stacks in systems at radio tower sites in Germany. We also announced a collaboration agreement with Eltech Nordic for backup power solutions focused on countries such as Norway, Denmark, and Iceland. In North America, early this year, we announced an MOU with Chart Industries for joint development of an integrated system solution that includes a fuel cell engine with onboard liquid hydrogen storage and vaporization. The ability to equip vehicles with a liquid hydrogen supply, whether it be in a bus, truck, train, or marine vessel, will address very long-haul use cases, since liquid hydrogen provides two to three times the energy by volume as compared to compressed hydrogens. And earlier this week, we jointly announced with Canadian Pacific that Ballard will be supplying 1.2 megawatts of fuel cell product for CP's pioneering hydrogen locomotive program to power the first ever fuel cell powered line haul freight train. CP, with its fleet of 1,300 locomotives, has made a strong commitment to sustainability, including a vision that includes sustainable freight transportation. Once the fuel cell freight train is operational, CP plans to conduct rail service trials and qualification testing to evaluate the technology's readiness for the freight rail sector. This exciting program with a major North American transcontinental railway will expand our work in the rail segments from trams in China and passenger trains in Europe to freight trains in North America. In addition to these activities in our key geographic markets, we've been experiencing increased customer interest in other geographic markets. For example, in Australia, New Zealand, and India. In Australia, last year, we signed an MOU as a consortium partner to establish the H2OZ bus project for the evaluation and deployment of fuel cell electric buses for use in public transit in that country. FCEBs offer an excellent option for public transit in Australia's challenging conditions, and green hydrogen from renewable energy will offer a flexible, scalable, and low-carbon fueling solution at bus depots. Announced in Australia earlier this year, Ballard signed an MOU with Global Energy Ventures to design a multi-megawatt power solution for its CH2 ship. a tanker-sized marine vessel that will store and transport hydrogen from Australia to other parts of the globe, consistent with Australia's ambition to become a net supplier of hydrogen to the world. So 2020 was a critical year on the hydrogen fuel cell industry. And here in Ballard, while meeting operating challenges posed by the pandemic, we made significant progress on critical strategic initiatives to position the business for growth over the years to come. We have a range of zero emission mobility opportunities that we believe present large attractive market opportunities for Ballard's technology and products over the long run. With a strengthened balance sheet, we're increasing our investments in 2021 to seize these opportunities. In 2021, we'll increase our investment in talent, competencies, technology innovation, product development, and customer experience related to our core markets of bus, truck, rail, and marine. will continue to invest in our strategic partnerships with Weichai in China and Mali in Europe. We'll also consider investments in further production capacity and localization in key geographies, as well as strategic partnerships and acquisitions. Before finishing, I'd like to address the CFO transition at Ballard. As you would have seen in yesterday's press release, Paul Dobson will be joining the company as Senior Vice President and Chief Financial Officer, effective March 29th. Paul has 25 years of global financial operations and leadership experience, including as CFO and Interim CEO at Hydro One and as CFO at Direct Energy. His skills and experience will serve Ballard well as we seek to scale our business over the coming decade. At the same time, Tony Gugelman will be staying on in an advisory role until May 31, supporting the smooth transition of this role. On a personal note, I want to thank and acknowledge Tony as he moves into retirement. He served in the CFO role at Ballard for over 10 years, delivering significant value to the company, including through his professional leadership of our finance and administration functions, his important strategic contributions and there's leadership on numerous corporate and finance transactions. Everyone here at Ballard wishes Tony well in his retirement. And with that, I'll turn the floor over to Tony to briefly review the financials.