Ballard Power Systems, Inc.

Q4 2022 Earnings Conference Call


spk_0: thank you for signing by this is the conference operator welcome to the power power system a fourth quarter and soldier twenty twenty two without conference call as a reminder all participants orange listen only mode and the conference is being recorded after the presentation they'll be an opportunity to ask questions to join the question to repress star is than one on your telephone keypad should you need assistance during the conference call you said signal one operator by pressing star and barrow i would now to turn the continent over decatur in the vice president investor relations
spk_1: he go ahead
spk_2: bq operator and good morning welcome to our the fourth quarter and urine and twenty twenty two financial an operating result conference call with us wanted a call or random urine powered ceo and paul dawson chief financial officers we'll be making for looking statements that are based on management for an expectation police and assumption concerning future events actual results could be mature really different please refer to her most recent annual information form and other public filings for complete disclaimer and related information before we discuss the quarter of i to provide an update on our the market say we're but we are pleased to announce that are capital markets say with scheduled for june thirteenth twenty twenty three in vancouver and will also be viewable online we'll be providing additional information over the coming months on out to the call or any thank you kate a welcome everyone today's conference call with an icu increasingly constructive policy landscape for hydrogen globally we're excited by the growing and customer interest to decarbonise mobility stationary tower applications with fuel cells twenty twenty to prove to be an important your progress for dollars as we chief t customer fought for wins across our verticals have been struck real in the rain along with early traction in select stationary power applications this progress is starting to show up in our order backlog into for we secured new orders totaling sixty two point two million dollars this activity improved our told order backlog for you to approximately one hundred and thirty three million at the end of cute for
spk_3: as we start twenty twenty three were seeing continued to met some on customer order him sick we expect to see further growth and are order backlog at the end of two one this strengthen our order backlog as well as a growing sales pipeline reflect progress across all of our verticals that as a reminder er strategies developed ten fuel cell technologies and products that the to the applied across multiple market market applications where fuel cell technology provides the strongest sky all you proposition and where the barriers to hydrogen refueling or lois
spk_2: these markets include bus truck real and lean as well as select stationary power generation offroad markets
spk_3: to provide a brief updates on these applications
spk_2: our bus vertical contingency see important progress in europe and the us finch only twenty two we received purchase orders for approximately two hundred and fifty modules for fuel cell bosses including about a hundred in few for
spk_3: this represents a roughly twenty five percent year over year increase in new boss module orders in these markets these orders included sales from nine european bus customers of which were a repeat bus customers and five or now new bus the we have relationships these two hundred and fifty one hundred and fuel cell powered buses are planned to be deployed across eleven countries over the coming twenty four months this was actively double the number of fuel cell buses operating in europe and the us chicken commute saw these from the current two hundred fifty busses in operation to about five hundred
spk_2: as we look forward weeks back to see this autumn momentum continue over the coming year through twenty twenty two and into early march twenty twenty three durbin announcements by transit operators in european cities with expected tendering activity for additional one thousand fuel cell buses to be deployed in germany italy poland spain and the uk
spk_3: processing a strengthening of a bus sales typhoid in north america and twenty twenty two foothill transit in the l a area progress on it's procurement of thirty one fuel cell busters representing approximately ten percent of it's fleet with new flyers supplying the fuel cell buses powered by ballard the now for the first time in us history and american city has indicated plants that to boy more than one hundred fuel cell bus passes so this is very very exciting we believe are well positioned to participate in supporting the rollout of larger fleet deployments of fuel cell buses
spk_2: now take a look a look at the truck market
spk_3: it's september of last year we announced a deeper strategic partnership with quantros a global electric vehicle integrator and in emerging specialty go am to accelerate fuel cell truck adoption valid will serve as exclusive fuel cell supplier to plunge ron for the forty fourth on fuel cell lecture trucks platforms as part of our strategic partnership quantros committed to purchase seventeen megawatts of modules which are expected to be livid over the next two years
spk_2: beyond quantros we're seeing increasing interest from other truck integrators and sitters to use our products in various trucks platforms we're pleased to see a more diverse set of customers interest in our products which compliment discussions for longer term supply of modules in heavy duty truck applications
spk_3: we see strengthening market signals that the value of hydrogen powered fuel cell trucks in certain classes and use cases will achieve high volume given of clear advantages of range refuel time and payload there's also a growing understanding really the infrastructure challenges associated with electrification of this market
spk_2: we look for the highlighting are insights and a value proposition of fuel cell trucks including the comparative total cost of ownership which we have a and a new model for in june at our capital markets day
spk_3: in a real market we end the year with exciting announcement of the first commercial scale order to up to forty megawatts of fuel cell engines from siemens so passenger commuter rail in germany the first thirteen fourteen fuel cell modules are expected to deliver on schedule and twenty twenty three for deployment in the berlin area in two thousand twenty two we saw additional progress in the commuter rail market as we seat and initial order from stadler the california markets
spk_2: the phrase locomotive applications hydrogen fuel cells have a unique and compelling value proposition as a zero mission one to one replacement to income a diesel electric power trains with diesel fuel accounting for both the number one operating costs an emissions source yourself offer similar performance for these long heavy trains without requiring overhead customary infrastructure
spk_3: while the freight locomotive market still early weeks back continued progress in twenty twenty three further illustrating the strong value proposition and technology advantages of ballard fuel cell engines in the marine market we made important progress in twenty twenty two into for we saw almost forty percent quarter over quarter backs la rose after receiving an initial order for fc wave models modules from amici and your order for container ship application
spk_2: is also an important milestone elite twenty twenty two as nor ledge and that hydra the world's first hundred with our ferry is now on water and expected be put his service later this year
spk_3: the regulatory environment continues on ago a change for marine emissions the current imo target is the cut maritime c o two emissions by at least forty percent by twenty thirty and in november the european c o two emissions trading scheme was extended to apply to the shipping sector covering all vessels go reagan and five thousand times starting from twenty twenty five
spk_2: moving to the stationary power generation market well this market for fuel cells continues to be early stage receive a t new customer wind from crosswind in the quarter validating our product for fuel cell power generation from excess wind capacity
spk_3: early and twenty twenty three we received a follow on order from a stationary power customer there's a multi year relationship with ballard and we expect to lead to higher volume orders
spk_2: would consider see interest from customers and tv charging backup power for data centers teaching and ensure power applications in the mining sector we recently else in order for first mode for modules totaling three megawatts to power several hybrid hydrogen and battery ultra class mining called trucks which we classify under are emerging markets vertical in january this year first mode entered into a global supply agree with anglo american to retrofit over four hundred or two class all trucks with are style huge and solution including a one point two megawatts of fuel cells coach trucks the ballard fuel cells will be integrated the next several power plant built by first moment look forward to a long term relationships you help drive decarbonization and it's difficult to a beat sector
spk_3: as noted earlier order backlog at the end of the quarter suited one hundred and thirty three million of this close to one hundred million or power products orders which now represents over seventy percent of the tone back loss
spk_2: the route twenty twenty two we've seen a steady climb in our power pots order backlog which is more than doubled since the end of twenty twenty one and illustrates a success helping customers begin to point fuel cells at greater numbers
spk_3: this growth has been masked by the plan and expected backlog decrease in technology solutions
spk_2: brent y twenty two we also highlighted are increased customer in revenue diversification demonstrating value of our regional and applications go to market strategy
spk_3: as compared to queue for twenty twenty one which see a twenty percent increase in customers with orders of over a million dollars now looking at our t geographic markets in europe is a steady flow of news around continue policy support indeed just yesterday the you publish a raft with new policy supporting hydrogen fuel cells including the net zero industry act the european commission is also recently read our definitions of renewable hydrogen that we expect would translate into higher levels of confidence for developers of hydrogen production facilities and notably over seventy percent of our twenty twenty two order intake was attributed to europe to to the us which spec continued demand growth for technology in the us has previously announced policies such as the ira which is really game changing materialize over the next twelve to thirty six months typically is that hydrogen hubs and hydrogen production tax credit programs begin to transmit
spk_2: late into increased availability of low cost low carbon hydrogen for end users concurrently we've seen customer interest mortar in cheek and revenue generation all increase from north american customers in the past twelve months in north america accounted for nearly a quarter of the twenty twenty two total corporate water intake
spk_4: we made significant progress on that build out of our previous previously else facility oregon over the past number of months and we expect to support the assembly of fuel cell engines for the us market operational in the coming months
spk_3: they're moving to china we continue to be disappointed with the delayed adoption in the china market and with low activity levels at the wage i belive gb which weighed on or twenty twenty two results that working closely with are we tried ballard easy to unlock road in the china fuel cell bus and trust markets and indeed were encouraged with some exciting opportunities in the jd sales pipeline for fuel cell buses and trucks twenty twenty two revenues from trying to represent what the smallest proportions of total revenues in recent years driven by the subdued transport activity resulting from colbert policies and a slow roll out of fc these subsidies despite the short term pressures we maintain our expectation that china will be the largest market for the adoption of hydrogen and for fuel cell vehicles in the mid to long term there are expectations are posted by the government's prioritization of energy security in it's in the twentieth congress development it's expected to drive additional support for new balls and green hydrogen it's twenty twenty two china registered approximately five thousand new hundred five thousand and new hydrogen fuel cell electric vehicles predominantly located in the initial demonstration clusters of staging including it's of for the twenty twenty two olympics and shanghai bringing the total number of fuel cell vehicles on road in china
spk_2: over twelve thousand this illustrates the relatively modest by china standards but continued growth of hydrogen adoption
spk_3: as at the end of the year there are now over two hundred hydrogen refueling stations in operation in china with an additional seventy under construction to succeed in china will require a local presents a point we spoke at length about in our two three earnings call where we provided detail on our plan to make a significant investment to qualify as a local manufacture of emmys in china by setting up an emmy a manufacturing facility and already innovation center in shanghai tipping to our financials in the quarter in you for valor delivered twenty point five million a rather that approximately seventy percent of our revenue coming from heavy duty mode of applications this is an increase of roughly ten points from the prior quarter and demonstrates again the continue progress in our plan devolution into a technology products company over the past year has been increasing shift and change in our revenue mix by geographic markets as compared to twenty twenty one as we discuss on to three call continue gross margin pressures was partly affected by our pricing strategy to secure customer platform wins the further downward pressure and gross margins in queue for was driven by a combination of a shift in revenue mix fire fixed overhead costs and inventory adjustments we expect challenging gross margin dynamic to persist in a twenty twenty four a or volumes ramp and our production cost reduction initiatives move into real production
spk_2: now or into for we recognized post acquisition we restructuring charges and costs related to our bms acquisitions and are too high value activities for dns going forward that i wanted to highlight source were using dns hydrogen fuel cell power trade integration experience in it used to help our customers typically vehicle away and integrate solid fuel cell engines into their heavy duty platforms by providing engineers support for application engineering our train integration and even in some cases vehicle integration we're also using the vms capabilities this fuel cell power training and integration experience to design a fuel cell controller that will enable optimize hydrogen powered train solutions with a battery feel self hybrid architecture for improved performance considering safety with liability durability was looking at improve fuel efficiency helping overall customer tcl
spk_5: consistent with our announced guidance on costs for twenty twenty two total operating expense was one hundred and forty six million in total topics expense
spk_3: thirty five million
spk_2: we're now up to your guidance or total operating expense and catholic senators for twenty twenty three we anticipate total operating expense be between one hundred and thirty five and one hundred fifty five million and for catholics ventures be between forty million and sixty million
spk_3: given a macro economic outlook in the context of our twenty twenty three annual operating plan we can sure if you are spend carefully to ensure were properly investing in our growth strategy for maintaining a strong balance sheet we ended twenty twenty two with nine hundred and fourteen lane and cash and no death we're making strong progress against our product cost reduction targets including our targets to reduce our fuel cells sack caused by seventy percent by twenty twenty four were tracking well against us plan despite inflationary pressures are also coffin our team's ability to cheat even further cost reader options over the coming few years ballard is well positioned with a growing product order backlog industry leading fuel cell technology far market applications to partnerships and customers across our target markets industry leading deployment experience and a strong balance sheet acosta we can deliver long term shareholder value for making a meaningful impact by providing zero missions yourself power for sustainable planet
spk_0: what's that alternate call back over the operator for questions thank you we will now begin the question and answer session and join the question to me press star and seven one on your telephone keypad and will hear a tone acknowledging your request if you were using a speaker phone please pick up your handset before pressing and it's nice to it's dry your question please press star and to the request all questionnaires to kindly ask one question and one follow up on me pause for a moment as collars join the queue
spk_6: the first question comes from airing mcneil td talent
spk_7: go ahead
spk_8: the morning all thanks
spk_9: my question
spk_10: the backlog appreciate split by power products
spk_11: technology
spk_12: provide guidance
spk_9: given that the balance can we towards product sales
spk_12: be helpful to give us all a refresher
spk_13: typical timeline
spk_9: to wrap recognition
spk_14: on the technology side
spk_15: that
spk_3: trending over the next couple quarters or years yeah i think sharon and certainly on the order in take it and then the delivery time or does vary by market segment but overall i would characterize it as between three months and eighteen months and then he turns with technology solutions i think what will see this year is again a he a lower portion of revenue of percentage wise and absolute dollar terms this year for a t as business and part of that of course is the lt projects and stuff stage the completed in twenty twenty two and done you know we're in the process really of of
spk_16: really put putting more of our resources into our a product development activities or as is reflected in our qa structure as well
spk_15: that all
spk_9: after hundred and thirty five hundred sixty five dollar operating expense
spk_17: realized how much is earmarked for aren't
spk_15: would you characterize
spk_18: elevated in the near term
spk_11: final push towards
spk_15: cost reduction initiatives or should be viewed as more representative of us
spk_19: from a longer term the iron i'd say the the what we've seen in terms of our indian what we see in a lacrosse all of our our backs going forward
spk_20: broadly in line with what haven't twenty twenty two so looking to you know can capitalize on the investments that we've made on and see in old most of our spending enjoy the key in the production and and he
spk_19: technology investments when passing and our products
spk_3: you know go on was so broadly in line with what we've seen and twenty twenty two press release all of our catacombs yeah era maybe just a supplement and you know i wouldn't characterize this is a a final push sure what i would say this is gonna be a sustained investment software period of time because not only away improving performance and driving down costs we're we're working on next generation technology as well one of the keys of course is that was the designing developing stacks include the any a some bipolar plates and modules
spk_18: to be used across multiple vertical so while it's a significant investment there's a significant leverage that comes with a business model that we as
spk_21: anderson shelter
spk_0: i think earth
spk_22: the next question comes from michael glenn's that the raymond james see it go ahead rack randy maybe just a start when we're thinking about the investment that you're going to be making in china one hundred and thirty nine dollar me a facility my when you thinking about allocating that capital given what's happening in europe given higher sales has shifted so much like is if you're not gonna be putting the money in europe is there a risk that
spk_23: you're going to potentially miss some revenue opportunity and is that coming in that market
spk_24: yeah so just to clarify
spk_3: or maybe can go on you michael white walls were on or just to clarify one thing is that some in a while we have any production plan for the rise in china it's not specific to the china market we have the ability of course to use that volumes globally i'd strongly that that's a part of our our strategy i think the real question is you know given geopolitics you know we do have a local for local strategy where we will have increased production capabilities in not just china but in europe as well as the us s marketplace and this a increasing support as as we saw yesterday in europe and we saw recently in us to support companies who are looking at localizing hydrogen fuel cell related production activities in these markets so i think the question is will we see some restrictions in those markets that require in country you know domestic production and he'll fight fight is take for example or your the announcement you yesterday where the announced a your strict eight strategic net zero technologies and
spk_2: a part of their policy was to look at manufacturing capacity to cover over forty forty percent of their annual deployment needs for hydrogen fuel cell so there's an indicator of have the potential need were you know production capacity in the european market as well
spk_3: so we did scale the any production facility phase one there are designed for the china market we have the ability to use
spk_22: that capacity for global markets or but if we see a need and market demand that justifies investment in other markets will certainly be looking outside very carefully and twenty twenty three okay
spk_3: and then just on the i i believe he said it was in china this year there were five thousand nuclear fuel cell vehicles put on the road
spk_23: are you but indicates they are what's hear what your market share his with those additions i mean where are those who who supplying fuel cells into that market
spk_3: yeah so and you know you may recall there were two different churches of cluster regions announced and the first tranche include included the beijing and shanghai in guangdong province so mostly adoption in twenty twenty two happened in those initial clusters specifically in beijing and shanghai into a day catalyst for that was the beijing olympics so we we are not situated in in beijing and guangdong province than any material wait this time so it's not a unsurprising that we don't have high volume of market share in those markets but of course there were the second tranche or announcement in terms of additional clusters or and then of course localizing in shanghai specifically enjoy doing which has exposure just for that districts are to the five cluster regions now
spk_0: and then of course i wave fun where away try is located in our which i have allergies he is also included in a cluster region now as well
spk_25: so i would say was more pacing of the initial cluster regions and i think see the beijing olympics was a strong catalysts for can be clear we had very very modest market share in twenty twenty two
spk_26: that you're welcome the next question becomes a mac whale the choir marked security
spk_27: the go ahead
spk_26: i rarely morning when you look at said
spk_3: the outlook for increasing your of year sales given that the higher backlog is that is gross margin sort of hit a low point at this point like is their contribution margin that we should expect some higher revenue or teacher service says been a bigger headcount and production capacity served at way that yeah you know i think for on twenty twenty two east we saw three leaf signs of that with somebody it's investment we've made in production capacity where the volume hasn't caught up with that investment yet we're going to see that through twenty twenty three as well or and into twenty twenty four but i do you think when we look at the order was sacked blog activity and and the sales pipeline which is really swelling with a lot of great opportunities and and are some scale and some of these opportunities we do see the opportunity to move from contribution margin a gross margin without sixty overhead costs structure gets observe
spk_28: the group of a larger book of business as can take some time to move through that i do you think your characterization of gross margin kind of he's kidding a trough for a low point here is probably directly accurate it so i do think we're going to see expansion as we move forward but seen i would look for the big lake up or in gross margins particularly as we look at twenty four with some of the backlog a translating to orders and some of our cost reduction initiatives translate into production
spk_29: okay
spk_28: that makes sense because see the difference in a twelve month or a book in the back lot as a difference
spk_3: year the offices lot of that and waiting here is that the weights the way to read that and and i'm wondering which he weeps just waiting we be accepting higher kinda individual order isis or more frequent he had really seem like a big city your hundred units sort of order or consistency and else what are your thoughts on order size yeah i do think as we know the bus market is the most picture of the markets that we're looking at and now we're seeing as i mentioned earlier which these three or four cities in europe and now the first in in the west planning to deploy one hundred fuel cell buses those are linear order backlog they're certainly in our sales pipeline it so that will it was a kind of look for twenty twenty four it to start seeing some of that translates to order book and started looking at that translates to revenue as well i do think we are looking at more tokyo murders going forward but also lot more small orders from a number of different customers across a different circles but sir only as we go from really demonstration programs to larger deployments the scale is going to be driven i'd also finally the number the vertical that we're focused on like rail like marine like stationary do have higher power output requirements
spk_30: to look at the off road market for a you know the hauling structures another example in some of these cases like a freight locomotives you're looking at one point two megawatts of power in he'd have actively kind of twelve fifteen buses to satisfy that type of power requirements so i you know as we get some of the
spk_0: the a larger orders and marine and stationary and off road i think this is really gonna see some lumpy orders as well
spk_31: thanks
spk_32: yeah and mackle to supplement yet you are you you also highlight a little bit of the are waiting of revenue and revenue occurs i would highlight you know we're in this cycle continued it to be in the cycle were traditionally we have a heavier waiting of revenue in the back half the year and a kind of think about something like
spk_33: seventy percent split in the back half of the year this year compared to the first stuff okay that's awful
spk_34: the next question comes from rob brown with and week street capital markets
spk_3: please go ahead hugs the morning what is going around the the that kind of the drivers for the bus market momentum is it is it really that market maturing or are there others for to drivers cause your undergrad i think it's a couple of thing is rob one is obviously we have pie you know demonstration programs that have been underway for a number of years in some cases and those customers have now seen at the technology first hand they they have confidence the up time and availability and reliability so that's translating to he'll cough and it's to move forward from save five three five ten buses ill to deployments have a much larger portion of their fleet so that that's very encouraging signs and in many cases those transit operators have been very loud proponents in the industry talking to other transit operators who frankly struggling with their zero mission strategies in of course as we know i use the us as an example we have got a requirements of fifty percent of all new transit buses required to be zero emission not low emission but zero mission starting and twenty twenty five and one hundred percent in twenty twenty nine and so they have to have plans a the looking at different technologies earning some of the a transit opera
spk_33: leaders have trailed battery electric buses as well as found in some cases that that technology has struggled to achieve the range and the performance are looking for depending on the duty cycle and climatic conditions of those transit operator experiences so i think there's a variety of factors that are leading the this split it's very clear it's a frankly taking a little slower than we would like but it's very clear to us that the scaling is occurring and i i i lay on top of this as you think about the progress that's going on on the policies side for a dream hydrogen production so this of
spk_3: they'll ago the of low carbon low cost hydrogen in the us or and in north in the european markets as you look help two three four five years from now this really seem changes the opportunity for the deployment of fuel cell vehicles because many these applications fuel is a very significant part of the overall total cost of ownership in some cases you know between thirty and sixty percent and so as that fuel becomes available and is is decarbonise and as low cost we think this you know fuel cell opportunity not just for buses but for all of these mobile applications are really going to see significant growth
spk_2: configure and then and i'm i'm going to the gross margin against pricing you talked about some strategic pricing activity
spk_3: how does that work is that time based in overtime prices come down or to customers have to buy search volume levels yet to be questioned robbed is a couple elements chair one is that i think we need to understand that the early adopters
spk_35: don't have a an economic value proposition you know that's really strong today there are adopting and lower volumes and demonstration projects where the economics or challenge
spk_2: and we're we're in low volume and not offer and not able to release support the type of economics that drives the higher adoptions and so these customers are taking on risks they're taking on a as early adopters making investments in this technology and so were effectively and and other partners only illegal in the value chain ecosystem are all
spk_3: for doing is taking on some of the investment and sharing some of the risk as well and so what we've done is be very selective on which partners we see large volume in the future with and how to me as support the success of each early deployments to validate the technology for them for that applications
spk_33: and to validate the longer term tcl including based on the hydrogen fuel assumptions
spk_36: so we we the making those strategic decisions it's translating ah to you know relationships that we think have a lot of sticking is going forward but is also reflected in the financial results including a you know that the strain gross margin
spk_0: so you know i think
spk_37: in terms of how they're structured you know the way out characterize and not so much time based but more volume they so specific projects and programs i know also cases we have cheered structures were of customers no purchase x number of the units they get a certain price and if they want to be more aggressive in their early adoption work with there to help them and we can give them a more attractive price and so we do see tiered pricing as well based on volume
spk_3: pretty good for the coral turner i think you're up the next question comes from just strong scotiabank see still ahead hi that's hipster are taken my towards quick question to yeah so as your arm catholics profile and timeline for the upcoming shanghai and dustin changed at all recently and ah that's not what he sees the biggest risk to these plans
spk_2: yeah justin first of all welcome and thanks for the question
spk_37: yeah yeah so you know from i do political perspective and also i you know wanting to see more progress in the china market were really pc our investment in that market to differ spend in the china market as long as possible so you know we have pushed back some of the spending so summoning spending that we would have originally expected to materialize and twenty twenty three we pushed into twenty twenty fourth it to be prudent and and that's something that we're tracking literally every quarter on whether or not we cut checks and if so for what what purpose whether it's a the order of equipment or you know land acquisition costs and permitting so we are piecing our investments to get as much information as possible before additional or spend a curse
spk_3: great and then maybe to sack come i guess be mentioned dad geopolitical rest comes to do you think that would be the result so som i guess trade or terrorist bomb changes or what do you think a drives us yeah what what i've learned is that it's very difficult to guests are speculate on these type of things you know there's a lot of variables and we've seen that in twenty twenty two with the cool invasion of ukraine as an illustrated example so you know we have a number of variables that we have in our risk register that we track what i would say is that right now was what i've seen in over the last number of months is a geopolitical tensions continued it to be strained and are are trending and interrupting in the wrong direction i think what's important is to understand it china market
spk_37: is a large market so largest market for busters largest market for trucks largest market for trains largest market for marine vessels it's it is today the largest user of of hydrogen and their policies are effectively designed to promote companies sooner moping multinational companies
spk_0: to locate starts to the fuel cell value chain i entered the china market and so each me just highlight you know a number of others we've seen cummings
spk_38: it as an example we've seen you look core we've seen johnson massey i and recently plastic omnium all and now seeing their investments in china and in some cases including in the same jotting district as as were localizing in in a hydrogen fuel cell cluster
spk_39: the investment are making in their parts of the value chain in china so are there are a number of companies that are i tracking to the same path that were on to localize the value chain in china to make sure you have access to that large market not just for the china market but of course the ability to were used up to real the problem
spk_3: that's great thanks to the color if they keep the next question temazepam men as cooked up with u p s c go ahead
spk_2: i tell my class christians years
spk_3: have hi ira apostles you know last year and again treasury department says listen to the king and but you know biden that has had his administration is is spending a lot of money or didn't have a lot of money for the development of hydrogen in us unsigned on the sand from your perspective have you started seeing the teens happen the to need to building the necessary infrastructure so hydrogen can penetrate the mobility the market on a go forward basis
spk_2: yeah minot great question it so last week i was in houston attending that sarah we conference and you could feel at that conference which i think it's a large as energy conference in the world the privacy of the discussions are at the conference on hydrogen and specifically the opportunity sats that's presented with a very compelling three dollar ttc production tax credit for green hydrogen and so what i would say is that infrastructure
spk_3: you know this this policy these these are leavers haven't translated sybil that of infrastructure yet what we are seeing is a swelling pipeline of projects that are now bidding that are have been submitted for hydrogen hops and i think it's been publicly announced by the u s the a we that originally they thought their be maybe four or five hydrogen have sites maybe six or that number now is expected to be possibly seven or eight hydrogen hubs in the us we're seeing a lot of activity by major energy players by industrial gas companies
spk_39: by renewable energy companies as they all look to participate in what could be a very attractive market in the us i think this is game changing the ira and it will lead to again low cost low carbon hydrogen available for a number of decarbonization applications including industry energy and
spk_19: mobility so we do think that the mobility infrastructure likely will lag a little bit compared to decarbonizing industry applications ah but we're seeing a lot of discussion about how to build out hobbs that can support mobility applications as well as you know quarter were refueling
spk_40: opportunities in the us so addicted to somebody is going to take some time and off to rule out
spk_20: what is in my pin in a matter of time only
spk_19: perfect my think we've fallen off like it looks like there was some one time items because you're not in seen in north and expectations feel gross margin is generally better than that so helpless understand to sue line items so we can be sure that the got government did not want to be signed the fourth quarter and birth terminal that's not paul here so so there's a number of factors going in some of which have already talked about that
spk_41: you know taxing the gross margin including the pricing strategy
spk_3: which know lowered the
spk_42: contribution margin for for the power products five and seven points and then in our technology solutions business with the wind down and saw of the audi contracts the less activity with the joint venture technology
spk_19: that word on margins and some new customers coming on again with the pricing strategy at lower margins are lower price for t as tight as nice
spk_39: and then some a one time since you mentioned include him some inventory rhinoceros of obsolete
spk_0: ah equipment on for for discontinued products and then we also boxer and owners contract provision so having some customers with increasing quarters or repeat quarters or tipping into lower tiers and causing those contracts at the moment to to be owners and so undercounting rules we have to
spk_43: a book that provision are on dos and i was about to talk about a points of the difference and then find me to talked about earlier of with the lower amount of revenue not absorbing all of our maps text overheads for the manufacturing overheads not was about seven points of that that that is a has to thank you so much didn't my questions like you take him in office
spk_3: the next question the tenth grade last a cascade that whether research do you sell ahead eg more guys thanks for taking the questions and first i'm just thinking about the next twelve months here littered with primary objectives are ballard and obviously it's a pretty tough question because everything is so important obviously but between sales margins backlog china policy etcetera you name it if we we jump ahead one year from now look back randy what would be your your number one milestone that you'd like to see a cheap yeah we we say internally greg very often a top three or deliverables this the or order book order book and order books so that gives you an indication of where the focuses on you know what i would say is that i would expect at the under twenty twenty three it be very similar to the progress we've made in twenty twenty two in some ways a customer platform wins
spk_43: repeat business getting to larger orders and that backlog rolling so that we have better visibility not just for one quarter hour even the next four quarters but for subsequent used as well so that was is very important as getting those customers to longer term relationships were and were embedded in sticky with those customers
spk_44: and in the second thing that's really important as cost reduction area we have a significant organizational investment that goes on not only to improve product performance but you know really driving down you know any a played stack module cost reduction and this is a critical thing because we need
spk_3: need to in the future be able to ensure were offering that value proposition for customers to unlock the scaling effect but also to make sure that we're have a gross margins that that enables sustainable business so you know we we we think the gross margin line and your income statement is critically important it's something we're focused on for the long term
spk_43: and so those the be the to highlight solid i would say us order book and cost reduction
spk_0: down at school think thank you ready and then for follow the sunday charging political a bit more about that opportunity for hydrogen fuel cells as in that segment and a geographically where are you seeing the initial the man now and where do you expect to see pick up the demand for the application in
spk_45: the next year couple years
spk_46: good question so in a way with say is that as easy infrastructure or he be adoption posts from let's call it less than one percent side in some markets to five percent and ten percent it and much higher in in markets you really start to see the strain on a grid infrastructure and recharging capabilities and so we do see this opportunity initially in the us but this is not you know a phenomenon that you need to the u s there will be great infrastructure challenges in the us and in the european theater so expect to see lots of opportunity for these applications going forward
spk_3: i going to the you guys are tentative
spk_2: that's right
spk_3: the next question comes from kashi harrison take this handler go ahead
spk_47: ah good morning and i think you for taking the questions or soap the first one for me just a quick clarification on the heavy duty chinese reckon using q or ah was the i was the softness fair mainly associated with covert or would that do to nuances surrounding the initial cost
spk_3: or been in beijing or the driven by are some other facts are factor yet so i wouldn't just characterize it as soft as into for candidly i would say was softness and twenty twenty two
spk_48: and it was a variety of factors certainly kobe it had pretty significant impact including
spk_2: he in key markets die in the first half of the year and twenty twenty two for sure
spk_3: and you know we didn't really see a lot and unlocking in china of until late twenty twenty two and of course travel resumes in early twenty twenty three but i think more fundamentally it's the complexity of how the policies in china has been adopted and how the application processes work and the it'll points point steam you know with the southern parts of the hydrogen fuel cell value chain it's a very complex policies mean that many
spk_46: many organizations are struggling to understand and importantly for capital to have certainty that if they invest in a in scale deployment that the subsidies that are available or actually paid out so to me that that's the bigger challenge is that the policies needed continued clarity
spk_3: i'm not people are commenting on this but on the i'm going to make a bold prediction here i do think they'll be more policy clarity in tony tony three or in part in response to what i view as a really emerging completed dynamic between the us europe and china it on providing fuel cell hydrogen fuel cell policies to support the adoption of hydrogen but also from economic development perspective so i think we're gonna see i continued progress on the you front of all three of these markets that will translate to our future value for ballot shareholders thanks for that our explanation there are and this is my follow question can you either reminders or perhaps provider framework of the help us understand the revenue for control of ah the business loans bad emmy a facility in china is operating at your target
spk_49: did utilization and then you know maybe part and parcel with that you know what level of utilization is necessary to have to get some positive gross margins and
spk_0: yeah excellent question so on i think it's important understand what we're looking at is really the ability to manufacture or emmys in that facility that supports the effectively twenty thousand fuel cell engines and so the way i think about the leavers there is obviously the revenue on
spk_25: and yeas selling nazi the way tie ballard g v
spk_50: it also the believe for us to use those any yeas globally for a variety of applications but then the next leg of that is for the g using those i you know domestically produced low cost high performing emmys for the sale of modules into that market still i see a leveraging effect that occurs by
spk_37: having this emmy a production facility there are in terms of emmy a we typically see when we sell em he used as a standalone material a very high gross margin on those sales so you know the tunnel utilization rate for that facility i don't have the exact number but i think even at fifty percent utilization rate there we would see very sick stuff
spk_2: school economic return
spk_3: and next question tantrum crag share with to see brothers please go ahead either for causing these are questions on work with the all the ah law thoughts and you opine on prospects for currently said and for technology solutions the moon certain points reason respectively the twenty twenty four am daughters was it's josh on the ball
spk_0: of sancho roads and of the was about this year on and how that could says anywhere from three eighteen months between what's the bill was but is it fair to say that ah the boss fuel cell orders from be on the on the quicker and about say through the six months
spk_31: desecrate taken the last question first the first of all on
spk_51: what it what we've learned about the bus market is it's very unpredictable when the transit operators will actually deploy their vehicles or and therefore i the ordering planning to the bus operator
spk_52: i can vary and even know when they do get the orders sometimes is delays and hydrogen refueling infrastructure so i think relative to the segments the boss one when we have the order in hand he can see our realization in the frida six months' time timeframe that's very reasonable or but sometimes that can take longer
spk_3: i just one one a flag that are and in some of these other markets to go we talk about larger applications are you know one megawatt type systems are typically takes longer for a not just for on production but for those customers to be ready for i did a vehicle or or side infrastructure requirements so that point and on the t s pride in a we don't provide kind of a quarterly cadence to can kind of think about it being relatively flat quarter to quarter
spk_51: for twenty twenty three with a reduce revenue as compared to twenty twenty two
spk_53: thank you
spk_0: thank you
spk_2: the next question tantrum pakistani like morningstar
spk_0: please go ahead yeah i just a question on longer term from sergeants should we expect gross margins by and segments or vertical to be pretty comparable or are there certain and segments that would be may be higher or lower

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