Ballard Power Systems, Inc.

Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems second quarter 2023 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 Kate Charlton, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and good morning. Welcome to Ballard's second quarter 2023 Financial and Operating Results Conference Call. With us on today's call are Randy McKeown, Ballard's CEO, and Paul Dobson, Chief Financial Officer. In June, we hosted our 2023 Capital Markets Day. During the event, we provided an extensive update on the progress that Ballard has made, while also providing additional transparency on our expectations for our business. In case you missed the event, the webinar and presentation are available on the investor section of our website. Consequently, we have intentionally kept our remarks today brief for this quarter. 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.

Thank you, Kate, and welcome everyone to today's conference call. We're making important progress on our strategic priorities as communicated at our 2023 Capital Markets Day. During Q2, we grew our order book, invested in next-generation fuel cell products, and continue to drive our product cost reduction programs. We continue to see growing customer interest across our market verticals, which is reflected in $25.1 million of new orders in Q2 and a growing sales pipeline. Importantly, our power products backlog is now up over 140% compared to the prior year period. We are particularly excited about the growing customer engagement levels in the US and European markets. As a result of the increasingly constructive hydrogen policy landscape and increased market activity in the US and the EU. And given the continued hydrogen and fuel cell policy uncertainties and market delays in China, we are accelerating our work on our local for local global manufacturing plan and related future capital allocation plans. Specifically, we're reevaluating our previously announced MEA localization plan in China pending completion of a comparative analysis on manufacturing capacity expansion options and possible sequencing prioritization in the US and or EU markets. We expect to conclude this important work in early 2024. We continue to track to our full-year guidance ranges for operating and capital expenses. Our investments prioritize technology and product development programs, product cost reduction initiatives, customer platform wins, customer experience, and advanced manufacturing. We continue seeing growing customer engagement across our verticals. At Ballard, our strategy is to commercialize PEM fuel cell technology and products that can be applied across multiple market applications where our fuel cell technology provides the strongest value proposition and where barriers to hydrogen refueling infrastructure are lowest. These markets includes bus, truck, rail and marine, as well as select stationary power generation in certain off-road markets. We'll provide a brief update for each of these applications. In our bus vertical, the tendering activity for fuel cell buses has begun to translate into our order book and backlog. This was highlighted by the 96 engines ordered from Solaris from three European cities, including Gustra, Germany, which has ordered 52 fuel cell buses for deployment. We're also seeing exciting activity in the U.S. fuel cell bus market, as we recently received significant orders from our customer New Flyer during the quarter. Given the ongoing tendering activity for fuel cell buses, we expect material additional orders for our bus customers over the next 12 months. On the truck market, and as we've discussed before, the truck market is in the early innings of fuel cell adoption, with most truck OEMs and integrators focused on developing fuel cell truck platforms. In this regard, we're delighted that Ford Trucks, after a competitive process, has selected Ballard as their fuel cell partner, as they developed their hydrogen-powered Fmax platform with our engines inside. We see this partnership as indicative of our technology capabilities, and increasing OEM interest in fuel cells as they understand the value proposition of fuel cell electric powertrains. Our partnership will support Ford as part of the Europeans ZETI FES project to demonstrate zero emission long haul trucks in major freight corridors from now through 2027. As Ford's fuel cell Fmax truck platform matures, We anticipate this partnership to evolve into a long-term scale deployment level module orders and supply arrangement. Despite ongoing challenges in China for the fuel cell market, our partner Wisdom Motors recently signed a purchase order for almost 150 fuel cell powered refuse trucks for delivery to the Australian market. We invested in Wisdom last year to accelerate their efforts to build a portfolio of world-class fuel cell-powered heavy-duty vehicles, including buses and trucks, using engines exclusively supplied by the Weichai Ballard JV. The level of innovation at Wisdom is remarkable as they've announced this deployment scale order only five months after delivering an initial demonstration truck. Wisdom has also signed a cooperation agreement with their Australian customer to deliver 12,000 hydrogen-powered trucks over the next five years. In rail, we received a follow-on order from CPKC to deliver additional modules in 2024 as they expand their hydrogen locomotive project. For our marine vertical, we continue to see growing interest in short sea container ship, inland cargo, and barge applications, which we anticipate will result in order activity later in the year. The MF Hydra ferry vessel is now operated over 1,500 hours since it began sailing regularly in March. It continues to clock about 100 hours of operation per week, validating the performance and reliability of our fuel cells in a marine application. We're also pleased to report that our marine module has received type approval from Lloyd's, adding to the type approval we'd received from DNV in 2022. In our stationary power market, we received a $2 million order during the quarter for one of our systems to provide power to an EV charging site in Germany. Separately, after the quarter ended, we shipped our 1.5 megawatt ClearGen2 system to the Microsoft data center in Wyoming, having passed factory acceptance testing with Microsoft and Caterpillar representatives on site. The system will begin its demonstration in mid-September. and we expect to be another major proof point of the value proposition of our products in the data center market opportunity. We continue to see interest in our stationary products grow for EV charging, grid balancing, data centers, and mobile power solution applications. We experience solid backlog in our emerging market segments driven by orders from our customer first mode, who's deploying ultra-class mining haul trucks for use on Anglo-Americans mining sites. Our partner has now ordered close to 100 modules year to date, and we expect to realize revenues this year as we ship a portion of this backlog in the second half of 2023 and the remainder into 2024. As we look into the second half of 2023, our investors can look at three key milestones we're set to accomplish. First, we expect to sign material purchase orders for customers in our bus and marine verticals. Second, We plan to substantially complete our global manufacturing strategy. And third, we anticipate ending 2023 with a robust 12-month order book to provide a strong coverage ratio for revenue in 2024. We believe Ballard is set up for a strong second half of 2023 with sequential quarterly revenue growth and continued progress on our order book to support 2024 revenue. We also maintain our view that the revenue split between first and second half of 2023 will be roughly 30 to 70%. With that, I'll turn the call back over to the operator for questions.