Ballard Power Systems, Inc.

Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems Q3 2021 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 one 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 Kate Charlton, Vice President, Investor Relations. Please go ahead.

Thank you, Operator, and good morning. Welcome to Ballard's third quarter 2021 Financial and Operating Results Conference Call. With us today are Randy McEwen, Ballard's CEO, and Paul Dobson, Chief Financial Officer. 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.

Thanks, Kate, and welcome everyone to today's conference call. Given the growing number of research analysts covering the company, we'll keep our prepared marks relatively brief to leave sufficient time for questions. We join today's call with an exciting industry backdrop, including COP26, $9 billion of fresh commitments to hydrogen coming in the United States and a growing global recognition of the important role of hydrogen to achieve deep decarbonization, including hard to abate sectors such as heavy duty mobility. We continue to have high conviction in our strategy and growth plan. Our business model has significant leverage and resiliency as we deploy the same core competencies and fuel cell technology across multiple verticals. Bus, truck, rail, marine, off-road, and stationary power, and across multiple regional markets, Europe, North America, and China. We're focused on large market segments where the value propositions for fuel cells are strongest and the barriers to refueling infrastructure are lowest. We made solid progress across our business activities over the past quarter, including in customer programs and deliveries, in our technology and product development programs in strengthening our operating platform in new customer acquisition and in our partnership strategy. We also achieved a major corporate and industry milestone. In October, we announced that Ballard's PEM fuel cell technology and products have now powered fuel cell electric vehicles over 100 million kilometers around the globe. Let me repeat this again. Buses and trucks with Ballard technology have now accumulated over 100 cumulative kilometers of real on-road experience. This is a massive differentiator for us and puts us in a different league of demonstrated capabilities compared to any other company that provides fuel cells for medium and heavy-duty mobility. Our proven in-service experience with a track record of safety, quality, availability, and performance continues to be a compelling value proposition for our customers and a strong calling card for Ballard. This provides customers with confidence in Ballard technology, product durability, quality, and our total cost of ownership in real-world duty cycles and operating conditions. And we've been very busy on the customer side and with our partnership strategy. On partnerships, we continue to focus on simplifying the fuel cell electric vehicle experience and ease implementation friction points for OEM customers and end users. We are putting the customer at the heart of our strategy and our investments. We believe there's high value to offer our customers integrated fuel cell powertrain solutions that are optimized for performance and cost. We have strengthened our platform to better support our OEM customers, including our recent partnerships with Hexagon Puris and 4C Power. California-based Hexagon Purist is a leading hydrogen equipment supplier and integrator. We're planning to work together to develop Class VI and VII fuel cell electric truck markets, incorporating their turnkey electric drivetrain and hydrogen storage solutions with our fuel cell engines. And a few weeks ago, we announced the signing of an MOU with 4C Power, a France-based leader in smart battery systems for sustainable electromobility. Through this strategic partnership, we plan to develop integrated fuel cell and battery solutions optimized for performance cost and installation for heavy-duty hydrogen mobility applications. Now, what does this all mean when you look at the landscape of our strategic partnerships, including Weichai, Mahle, Linamar, Hexagon Purists, 4C Power, and others? It means we're positioning Ballard to deliver innovative, high-value, high-performing, efficient, low-cost fuel cell engines that can be produced at scale. We're designing engines that can be paired and optimized with complimentary powertrain solutions and which can be easily integrated into powertrain and vehicle platforms for our OEM customers. So our proven track record of 100 million kilometers, our continued work on product cost reduction, and our strategic partnerships to simplify the fuel cell electric vehicle experience are all leading to increased customer engagement at the very time when end users are demanding zero-emission solutions. This is leading to repeat business with existing customers as well as new customer acquisition. On the new customer front, we recently announced an exciting new customer relationship with Quantron, a German-based specialist in electric vehicle integration. The initial collaboration will see Quantron integrate Ballard's FCMOOV family of heavy-duty fuel cell power modules into Quantron's electric drive train and vehicles. The fuel cell electric platforms currently in development include a 7.5 ton delivery truck, a 44 ton heavy duty truck, and a municipal waste collection truck. Initial delivery of Quantron fuel cell electric trucks is scheduled for late next year. We also want to highlight today the growing activity levels for fuel cell buses in Europe. We recently announced repeat orders for a total of 40 fuel cell engines from existing bus OEM customers for deployment in new and existing European transit operations. Over the past 12 months, we've expanded our deployment market from 10 European cities to over 25 cities in 10 countries. As of the end of October, there are nearly 160 fuel cell buses powered by Ballard in service across Europe. This is an increase of over 80% from October last year. And in total, there are approximately another 150 fuel cell modules currently on order, which will nearly double the number of fuel cell electric buses driving passengers on European streets. A similar growth trajectory is also being seen in the North American markets, particularly in California. as transit authorities make strides towards decarbonizing their bus suites to meet ICT regulatory compliance, which requires all new transit buses in California to be zero emission by 2029 and 50% of new transit buses to be zero emission by 2025. We expect to soon have nearly 80 additional Ballard-powered fuel cell electric buses on California roads, complementing the approximately 50 already in service. We're excited by the pace and scale of fuel cell electric bus implementation across California and are encouraged at the increasing rate of adoption in other states as well. In the truck market, our joint development program with Mahle continues to progress as planned. The concept of demonstration module is expected to be in test in Germany by the end of the year. Testing of this 240 kilowatt module is expected to continue into 2022. and commercial prototypes are expected to be ready for initial customer projects by early 2023. And as I've discussed in the past few earnings calls, the long-term outlook for the rail market continues to strengthen with new orders announced for hydrogen-powered passenger train with Talgo in Spain, a pilot with CP Rail Locomotives in Canada and ongoing work with Siemens in Germany. As announced earlier this year, Ballard worked with a consortium of other industry leaders to deliver Scotland's first hydrogen powertrain, which is currently being showcased as part of COP26 in Glasgow. This is yet another proof point of the growing global interest in fuel cells in rail applications, where rail operators can electrify and decarbonize their rail lines without the need for costly overhead catenary wire infrastructure and where heavy payload, long range and rapid refueling are key customer requirements. In the marine market, we're seeing a high amount of customer engagement driven by increased pressures for decarbonization. We've continued to progress our work with NORLED to deliver a hydrogen fuel cell powered passenger ferry and expect to deliver the first FC wave modules to NORLED by the end of the year. The backup and stationary power opportunities are also gaining traction with about a 90% increase in revenue from Q3 last year. As a proportion of our 12-month order backlog, we've seen a four-fold increase in the past two quarters, surprising to the upside for backup and stationary power. We recently announced the construction of our project with HDF in French Guiana. The Containerized Power Project is the world's first multi-megawatt baseload hydrogen power plant and the largest green hydrogen storage of intermittent renewable electricity sources powered by an on-site solar park. In Europe, we announced a project with Fusion fueled in Portugal to deliver a peak shaving unit also to be fueled by green hydrogen. Now, we're also seeing strong initial market uptake for critical zero-emission power for data centers, particularly for backup power. Large format hydrogen fuel cells present an opportunity to produce reliable backup power as a sustainable alternative to incumbent diesel technology. So our core industry-leading PEM technology is being leveraged in a variety of cross-vertical applications as the broad uses of hydrogen as a critical pathway for decarbonization expand. Let's now move to China. China fuel cell policy and the related sales of our Weichai Beller JV have disappointed in 2021. While we've been challenged with the adoption pace of fuel cell electric vehicles in China amid extended policy uncertainty, we've continued to achieve important technical and operational milestones in our joint venture, including in stack and module development, and as part of our technology development program to advance the localization of products. As of the end of September, there are over 3,330 fuel cell electric vehicles deployed in China powered by Ballard Technology. Our Weichai-Ballard joint vendors continues to make decisions and investments to have leading market share in the fuel cell truck and bus market in China over the long term. We're focused on developing the right products, localization strategy, cost structure, scaled manufacturing, and market positioning to win in the national China market over the next decade. In the near term, we're interpreting the complicated cluster policies and positioning our platform to target and penetrate the initial cluster regions. So while 2021 has been disappointing and visibility for 2022 remains cloudy, we have high conviction or remain firmly bullish on the long-term market for our technology in China. We expect to be in a position to provide an update during the next earnings call. We also want to comment on the supply chain challenges. Throughout 2021, we've been working hard to risk mitigate global supply chain disruptions. We've seen delays in freight shipments and have been moving more inbound products by air, resulting in elevated costs and putting pressure on gross margins. In the fuel cell industry, Ballard is one of the leading customers for many specialized suppliers. As a result, our long-standing relationships with key global suppliers continues to help us navigate these supply chain dynamics. In some cases, we've accelerated the supply of materials to de-risk customer impacts, which has also elevated inventory levels. As we look to next year, we're encouraged by the record levels of customer engagement across all application verticals in Europe and North America. We're set up for an exciting 2022 Marked by continued customer wins, product innovation, cost reductions, additional deployment and development of key partnerships and technology, and the start of a long-term revenue ramp. With that, I'll turn the call back over to the operator for questions.