Ballard Power Systems Inc.
Q4 2019 Earnings Call Transcript

Published: 5 Mar 2020

[Operator:]

Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems, Fourth Quarter and Full Year 2019 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 Guy McAree, the Director of Investor Relations. Please go ahead.

[Guy McAree:]

Thanks very much and good morning everyone. I’d like to welcome to Ballard's fourth quarter and full year 2019 financial and operating results conference call. So with us today we’ve got Randy MacEwen, our President and CEO; and Tony Guglielmin, our Chief Financial Officer.We are going to 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 a complete disclaimer and related information.On the call today, Randy’s going to provide his perspective on recent industry developments on Ballard's progress in 2019 and on our outlook for this year 2020. Tony is going to then review Q4 and full year 2019 financials, followed by a Q&A session.I’ll turn the call over to Randy now.

[Randy MacEwen:]

Thanks Guy, and welcome everyone to today's conference call. Our earnings call one year ago, we invited you to measure our performance over the following 12 to 24 months based on technology performance improvements, cost reductions, partnerships, market share, new contract wins and growth in our prospects. I'm pleased to report that Ballard’s making solid progress on all of these fronts.First, I want to provide some highlights on Q4 and full year 2019 results. Ballard delivered record revenue of $41.9 million in the last quarter of the year, with total 2019 revenue of $106.3 million, exceeding our 2019 outlook. 2019 gross margin was 21%, adjusted-EBITDA was negative $28.2 million, year-end cash reserves were strong at $147.8 million and we ended 2019 with a 12 month order book for delivery in 2020 of $110.3 million.Looking ahead to our 2020 outlook, we anticipate top line growth this year, underpinned by our order book and sales pipeline. Activity levels to start the year are very high and we expect consolidated 2020 revenue of approximately $130 million, led by Heavy-Duty Motive revenue, particularly from China and Europe.I would also like to provide some commentary on the potential impact of the coronavirus or COVID-19. Of course, our first concern is for our employees. We've implemented certain travel restrictions and other precautions to protect our employees, customers and partners.While it's still too early to accurately project the impact of COVID-19, given that the duration and scope of the outbreak is not yet known with certainty, at this time we're not expecting a material impact to our 2020 financial results.Our current view is based on the information we have available at this time, including regarding staffing and activity levels at Ballard China, at Weichai, at Weichai-Ballard joint venture, at the Synergy Ballard joint venture and at other key partners. We completed industry channel checks and supply line checks in China, Japan and other affected markets. We've also considered publicly available information.Neither our Weichai-Ballard joint venture facility in Shandong Province, nor the Synergy Ballard joint venture facility in Guangdong Province have experienced significant impacts to 2020 plans. They both have implemented extensive safety precautions. Activities of both joint ventures have now resumed and staffing levels are close to pre charted New Year levels.At this time we're not expecting material impacts on the time line for completion of construction of the Weichai-Ballard joint venture facility and commissioning of the stack and module assembly lines. While certain activities have been slightly delayed, we expect commissioning of the facility by mid-year 2020.During this challenging period, Weichai continues to prove every day they are a reliable, trusted and immensely capable partner with strong leadership from Chairman Tan. We’ll provide a further update on our COVID-19 exposure during our Q1, 2020 earnings call.Now recent developments in the Hydrogen and fuel cell industry, including here at Ballard have generated remarkable momentum and underpin our continuing high level of conviction that 2020 and future years offers significant opportunities for our company to create long term value for shareholders. Indeed we believe we are entering the hydrogen decade, where we will see scaled commercial adoption of hydrogen fuel cell vehicles.There are six important developments over the past year I'd like to highlight. I’ve discussed a number of these developments on prior earnings calls, as well as with investors over the past several months. I’m not going to repeat all of the examples and details regarding each development, although the slides accompanying this conference call do provide much of that detail and will as usual be available on our website following the call for reference purposes.So the first of these developments is a significant number of new government policy initiatives that support decarbonization of energy, mobility and industry using hydrogen and fuel cells. The broader context is that 66 countries have announced net zero emission targets for 2050.And 18 countries, 18 countries representing 70% of global GDP have now published hydrogen roadmaps. Governments are increasingly recognizing hydrogen's ability to decarbonize sectors that are otherwise difficult to abate. As specific examples, a number of Energy Ministers have agreed to a 10,10,10 target of 10 million fuel cell electric vehicles, 10,000 hydrogen refueling stations, within the next 10 years. Also as previously discussed, the EU has set landmark Class A truck emission reduction targets for 2025 and 2030.The second key industry development during 2019 was a range of investments in the hydrogen fuel cell sector made by Bluechip Corporations, including major mobility players. These investments indicate a new conviction level by corporations and the opportunity for hydrogen fuel cells as a zero emission electrification pathway for mobility.Indeed since the closing of Ballard’s strategic collaboration with Weichai in late 2018, the industry has seen a domino effect, with numerous follow-on strategic tie-ups, investments and announcements, including from companies like Bosch, Cummings, CNH International, Michelin, Faurecia, Hyundai and Daimler Trucks.In addition, the Hydrogen Council grew significantly in the past year. The council now has 81 members that collectively represent total revenue of over €18 trillion and close to 6 million jobs around the world.A third important development last year relates to the growing and industry consensus that earlier mass commercializing of fuel cell electric vehicles will occur in Medium and Heavy Duty Motive use cases, including bus, truck, train and marine applications, where there is a requirement for extended range, rapid refueling and heavy payload.Today these applications are responsible for a disproportionate amount of emissions. These are the mobility use cases where fuel cells offer the highest value proposition from a total cost of ownership perspective, including those used cases featuring returned to base duty cycles, where vehicles can be refueled at a centralized hydrogen refueling station, consistent with a current user experience with Legacy Diesel.The consolidated view in the industry on the relative value proposition for fuel cells in these use cases was recently punctuated in two important industry reports, both of which are available for download from the Ballard website.On January 20, the Hydrogen Council published a report prepared by McKinsey entitled “Path to Hydrogen Competitiveness

[Tony Guglielmin:]

Thanks Randy and good morning everyone. As Randy mentioned, top line revenue in Q4, 2019 was a record $41.9 million, up 47% year-over-year and on a full year basis revenue was $106.3 million up 10% from 2018.Power products revenue did decline 13% for the full year, while technology solutions revenue increased 43%. Now within Power Products, heavy duty motive was down 10% to $35.4 million, due largely to a year-over-year decline in MEA shipments to Synergy JV China, partially offset by an increased shipments of a range of fuel cell products to customers in China and in Europe. The increase in technology solutions revenue to $56.6 million was due primarily to the technology transfer program with our Weichai-Ballard joint venture in China.Gross margin was 21% for the quarter and for the full year. Declines were 4 points and 10 points respectively. Now the Q4 and full year decline was largely the result of a shift in revenue and product mix, reflecting the lower MEA sales to the Synergy JV, as well as lower portable power and UAV revenues as a result of the disposition of the Protonex' Power Manager business in Q4 2018.During the year we also increased investment in MEA manufacturing capacity, which did add to our manufacturing overhead. Going into 2020 we do expect to see an improvement in gross margin through the year as product revenue increases.Cash operating costs increased 21% in Q4 to $13.6 million, primarily the result of higher program development and engineering expenses, including our European investments – investments in our European subsidiary to support marine applications. For the full year cash operating costs decreased 6% or $2.4 million to $40.6 million. This was due primarily to the disposition of the Power Manager business I mentioned and the associated personnel reduction in Q4 2018.Looking ahead into 2020, we do expect an increase in cash operating costs as we continue to invest in new product development activities, realize the full year impact of our extensive 2019 hiring and launch our marine center of excellence at the Hobro, Denmark facility.Adjusted EBITDA in Q4 was negative $7.4 million, a decline of $2.2 million compared to the same quarter the prior year, and negative $28.2 million for the full year, a decline of $14.7 million. For the full year the negative $28.2 million adjusted EBITDA did include Ballard's $11.1 million share of losses in joint venture investments in China, largely related to the Weichai-Ballard JV.Ballard’s net loss in Q4 was negative $10.3 million, compared to negative $11.5 million in Q4 last year, and for the full year negative $39.1 million compared to negative $27.3 million in 2018. Earnings per share was negative $0.04 in Q4 compared to negative $0.06 in 2018 and for the full year EPS was negative $0.17 compared to negative $0.15 for the prior year. Both the net lost and EPS numbers include Ballard share of losses from our China joint ventures.Cash provided by operating activities was $4.1 million in Q4 consisting of working capital inflows of $8 million, partially offset by cash operating losses of $3.9 million. For the full year cash used in operating activities was $14.2 million, an improvement of 55% from 2018, consisting of cash operating losses of $14.1 million and working capital outflows of $0.1 million. The year-over-year improvement was driven by a decline in working capital requirements, combined with a decrease in cash operating losses.In terms of liquidity, we ended 2019 with cash reserves of $147.8 million, down from $192.2 million at the end of 2018, and down slightly by $5.6 million from the end of Q3. As we look forward into 2020 and beyond, we anticipate significant growth, as well as significant – as strategic opportunities on the M&A front that could enable strengthening of the customer value proposition and further scaling of the business.To supplement our current strong balance sheet, we plan to launch a $75 million asset market or ATM program to provide further flexibility in the face of these opportunities. Now this ATM program would represent only about 3% of Ballard's current market cap, enabling us to efficiently add cash reserves with no price discount, relatively modest transaction fees, and limited dilution through existing shareholders.Finally, we ended 2019 with the total order backlog of $178.7 million. This was a decrease of $20.9 million over the order backlog at the end of Q3, reflecting strong deliveries in Q4. Our full year outlook for 2020 revenue of approximately $130 million is supported by our $110.3 million 12 month order book at the beginning of the year, together with a robust sales pipeline of qualified commercial sales opportunities.And with that, let me turn the call back over to the operator for questions.

[Operator:]

Thank you. [Operator Instructions] Our very first question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.

[Robert Brown:]

Hi, good morning.

[Randy MacEwen:]

Good morning Rob.

[Robert Brown:]

First question is on the pipeline. You talked, kind of a robust pipeline. Can you give some color on how that’s developing and what pieces need to fall in place to kind of hit the guidance, that outlook for 2020?

[Randy MacEwen:]

Sure, thanks for the question Rob. We typically don't disclose the value of the pipeline, but what I would like to share is that the pipeline at the end of 2019 was up 88% compared to the end of 2018. So we've seen a very large opportunity set enter into the, you know lens here in 2019, and you know a key driver of that of course is heavy duty and medium duty mode of applications.So we're seeing opportunity in China, we're seeing opportunity in Europe, we're seeing opportunity in – smaller opportunity to be clear in North America compared to Europe and China, and one of the great things is we've had – you know our average opportunity win rate continues to be very high. So we're very pleased with the way the sales pipeline is shaping up to support you know $120 million -- $110 million order book as we start the year.

[Robert Brown:]

Okay, that's great color, thank you. And then in terms of the China JV, you said sort of mid-year ramping. How's your sort of view into that at this point in terms of starting to ship MEA’s and how that turns on throughout the year and into next year.

[Tony Guglielmin:]

Yeah, it’s Tony here. So as we talk and look at our China JV, you’ll recall we have been shipping and are shipping in the first quarter, the balance of those kits that we announced, the $44 million kits. So those continue in Q1 and are being shipped and we accept – and will be assembled and we expect delivered throughout the year.The MEA's, we announced a purchase order in late 2019 for about $19 million. Those MEA’s are likely to be shipped in the second half of the year and we do expect those to be shipped as planned at the moment. So we don't anticipate any change at this point in terms of our order deliveries and in terms of the JV's assembly and shipment. Obviously we'll have more to comment you know at each quarter on that, but at the moment we're continuing to ship as expected.

[Robert Brown:]

Okay, good. And then my last question is really more of a big picture question in terms of thoughts on how the penetration rate of fuel cell vehicles develops over time and I know it's a little hard to predict, but the market place is throwing around a lot of numbers. But what’s sort of your view on how the ramp rate happens and has it really – you talked about it going up in 2025, but what are some of the drivers there? How else do you take your product on the road and how do you see the penetration rates developing, maybe longer term?

[Randy MacEwen:]

So I think it's going to vary Rob by market segments. So we're further along in certain markets and earlier in some markets. So as an illustrative example, we've had demonstration projects on the bus side for many years and we've proven out you know things like reliability and service infrastructure, and so there it's really not about technical readiness levels. It's really about driving costs down and ensuring value proposition. So I would say you’ll – you know we had a pretty good order inflow in 2019 on the bus side. You'll see more of that in 2020. I think we’ll see very strong order intake on the bus side in 2020.On the commercial truck market, this is going to take a little bit longer, but those requirements to reduce emissions by 15% by 2025 and 30% by 2030, those are like tomorrow. Really when you look at the requirements to effectively establish platforms, validate packaging, do testing, so I think this will be a lot of work done over the next 12 to 24 months on the commercial vehicle side. We have some demonstration projects underway today. I expect a lot more on the demonstration side in Europe and in North America.We're already seeing you know volumes hit in China and we're pretty excited about some of the things we're seeing with the Weichai-Ballard joint venture in terms of opportunities beyond the 2000 fuel cell vehicle program, including on the – not just the bus market, but the truck market.As you move to rail, I believe the value proposition for rail today is in the money. Fuel cells are already a competitive solution you know for regional trains, you know out competing electric catenary trains already where there isn't an existing catenary line infrastructure. So I think trains, fuel cell trains are already best suited for the longer, relatively low frequency routes, and these routes typically have short downtime, so you got to turn quickly to return and so there isn’t a lot of time for opportunity recharging.So you know we’ve looked at a number of use cases in rail and we see lots of opportunity there and we’re very excited not just about the tramline that's come up as a very good validation point for us in China, but the work we're doing with Siemens, and I think you'll see some additional progress on the rail market in 2020 to 2021. You know that is a relatively small market compared to bus and truck, but I think it's going to be a market that surprises to the upside in terms of when that you know starts to see some scaling. I think 2023, 2024 you'll start to see a pretty significant penetration on the rail market, moving to perhaps 30%, 40% in Europe by 2030, so we're very excited about the rail market.And then like train, I expect ferries to surprise to the upside as well. The interest level in Marine applications, not just ferries, but marine applications has been surprising and you know a lot of activity underway that hasn't even hit the sales pipeline yet. So we're pretty excited about the opportunity longer term for marine. You know just looking at the different market segments there, there are segments where the only way, the only way to de-carbonize will be hydrogen and fuel cells given the use cases and the attributes that you see in the duty cycles.So we're excited about all four of those markets. I think as you look at the passenger car market, you know 18,000 cars out there today, that's a lot more than there were three years ago of course, but relative modest market share you know in the global car park. So what we do see though is longer term, particularly as hydrogen is deployed on the more heavy duty motive use cases, and used to de-carbonize industrial applications and the costs of hydrogen is coming down. At the same time those technology trends, the aces or case trends of autonomy connectivity electrification shared mobility will drive vehicles to higher utilization.I think what surprised many people in the McKinsey report was the fact that in those nine applications where fuel cells outperformed, not just battery electric, but internal combustion engines, they included taxies and large SUV's. So there’s a very clear value proposition in the long term, in the passenger vehicle market, and we think urban fleets that are focused on high utilization, hydrogen is going to play a very key opportunity there.I do think that penetration rate you know will take into the late 2020’s, into 2030 before we'll see the passenger market scale with you know any material market share that we've seen from say battery electric in the last year.

[Robert Brown:]

Okay, great, thank you; that’s a great overview. I’ll pass it on.

[Randy MacEwen:]

Thank you.

[Operator:]

Our next question comes from Amit Dayal with H.C. Wainwright. Please go ahead.

[Amit Dayal:]

Thank you. Good morning everyone.

[Randy MacEwen:]

Good morning.

[Amit Dayal:]

Randy, in the pretext of you know the policy overview you provided and industries, sort of developments that are taking place, this 25% to 30% revenue growth annually, should we assume this would be a little bit on the lower end of what potentially could transpire for you over the next few years?

[Randy MacEwen:]

Yeah, I think that would be a very conservative estimate, what we would see in the next number of years. I do think that once you get past the 2023 timeframe, the growth rate is very steep. So we’ll see a lot of great, I think high relative to – you know relative to most industries, but also potentially relative to some of the peer group companies. So I think we're going to enjoy very high market share in the heavy duty motive use cases as they start to scale. You know we're seeing a lot of activity that suggests very high growth rates as we move to 2021, 2022 as well.

[Amit Dayal:]

Thank you for that. And then with respect to the facility coming up in China with Weichai, can you remind us, you know what level of production or revenues that facility could support at you know managed utilization levels of [inaudible].

[Randy MacEwen:]

Sure. So just to give you some context on where we are, substantially most of the construction has been completed already. There’s still some additional final work to be done. There have been as you'd expect some modest, you know a couple of weeks delay on some of that activity in China, but staffing levels have resumed there.When you look at what we see going forward, we see the joint venture module and stack assembly being commissioned. You know a lot of the equipment has arrived at the site, some of its still arriving. We'll continue to qualify that equipment, get it operational and start production.What we see is like you see in many China facilities, you know over capacity was built and contemplated at the start, so we will have production capacity capability of about 20,000 fuel cell modules, and you know that could be anywhere from 10,000 to 20,000 vehicles, depending on what type of vehicles we’re looking at.So I think we're going to see, as we move into 2021 and 2022, high utilization rates in that facility, but I think you can think about it as a 20,000 vehicle assembly operation, both for stacks and modules, and there's lots of opportunities to scale that, in terms of going to you know third shifts and going to you know increasing capacity that we already have built in.

[Amit Dayal:]

Yeah, that's impressive. And then just moving on to sort of the competitive environment, right, with all these positives taking place in the industry now, you know today there are only a handful of the ways to play or participate in the growth in this space, but I'm sure competition is coming. Could you give you know listeners some sense of you know how you are in a position to protect here more than you know maintain your market share with new competition potentially coming in.

[Randy MacEwen:]

Sure, yeah. You mentioned that capacity was impressive. Just keep in mind, Weichai doesn’t do anything small. They are a very impressive organization and the scale of their business, last year I think they had now over a million diesel engines in production, so a very large scale operation and they plan to do the same here.Yeah, I mean I think we're at a very strong position today in the heavy and medium duty motive use cases. When you look at you know the 30 million kilometers of in-revenue service in those markets already, enough to circle the globe 750 times, no one is close in terms of you know those types of metrics at this stage. You know we’re on our eighth generation of engine, our thirteenth generation of stack. So there's a lot of learning that's gone in you know on a experience from the field coming back into our product development and technology development aspects.You know our brand is very strong in the industry and when you look at the products and you look at the performance, whether it's you know durability, which now seeing in the field, units that are over 38,000 hours of durability, most of the competitors that we're just seeing and hearing, the heavy and medium duty motive market you know may have been in smaller applications or may have been looking at the passenger car market traditionally with a you know durability target of 5,000 hours.So we feel like we have a significant advantage on field experience and from a technology front, on durability. So we've done a lot of design work that's improved, the FC module in terms of reduction of component count, in terms of power density improvements, weights, volume, etcetera, and we feel like we're in a very good position.Now that being said, a lot of new entrants come into the market that have significant resources. You know you've got Toyota and Hyundai, Cummings as examples and a lot of new entrants’ start-ups as well that are moving into the market. So it's not surprising when you see a high growth market to see new players come to the market.We feel we're in a very good position and of course our job every day is to continue to offer value to the customers, improve our products, move down our cost and provide a very strong customer experience, which is something we're highly focused on, very – you know almost all of the customers that we work with, we keep. We're very good at making sure that the experience is a very lasting experience for the customer.So you know I think our current market share is very high in North America and in Europe, very strong in China as well, and I believe in going forward in China we're very well positioned with Weichai in terms of their design capabilities, their supply chain muscle and their end market relationships. So we feel very confident in our current positioning, and it's going to take sustained investment over the next couple of years to make sure we enjoy the high market share that we’re positioned to grab.

[Amit Dayal:]

Thank you, Randy. That's all I have. I’ll take my other questions offline. I appreciate it.

[Randy MacEwen:]

Thanks Amit.

[Operator:]

Our next question comes from Craig Irwin with ROTH Capital Partners. Please go ahead.

[Craig Irwin:]

Good morning, and thanks for taking my question. So Randy, just a clarification on the two delivery contracts with Weichai, right. Your $44 million where you were delivering parts kits and module, and then the $19 million, I guess mid-December you announced you’d be making 2020 deliveries. Can you confirm, the $44 million is delivered directly to Weichai and not to the joint venture or am I reading that wrong. And then I'm guessing that the MEA’s obviously are delivered to the joint venture. Thanks for the clarification.

[Tony Guglielmin:]

Hey Craig, its Tony here. Let me handle that one. So yeah, just again to remind that was a $44 million order that we announced last May. Those shipments, modules and kits are directly to the joint venture and then those will be assembled by the joint venture and on-sold largely to Weichai. So they are – you know Ballard is selling to the joint venture. They are being assembled and then ultimately sold to Weichai.And just as you will recall, on that we booked 51% of the revenue when we sell those to the joint venture and then the other 49% we recognize as the JV sales goes on to Weichai. As far as the MEA’s go, those are direct sales as you pointed out, those are direct sales to the Weichai-Ballard joint venture.

[Craig Irwin:]

Okay, excellent. Thank you for clarifying that. The second thing is, you know COVID-19 is a difficult subject, right. You know our hearts and prayers go out to the people of China as they deal with this and now we're all dealing with it globally. Can you maybe walk us through the logic of not including an impact in COVID-19 in the guidance? You know those of us that follow the Chinese market know that you know February auto sales were down 80% year-over-year. Is there anything that allows you the visibility where you're not going to see that kind of weight impact you over the next couple of months and also in Fembry [ph] as the Chinese are working through the challenges of this epidemic.

[Randy MacEwen:]

Craig, its Randy. Thanks for the question. So you know I think there's a couple of points to keep in mind. Is one is that where our joint venture is in its development right. So we're not actually in production. So production of the joint venture isn't being disrupted. Where we have had a couple of weeks delay or actually a two month delay really is in completing the construction, and so – but you know Weichai is in Shandong Province; the joint ventures is in Shandong Province. It's not had the same impact from an operational perspective. I’ll get to supply chain in a minute, as have had some other provinces like Hubei province obviously.So what we've seen is that, you know Weichai and the joint venture are actually at very high staffing levels and have been for a couple of weeks now. So from a joint venture perspective and a staffing perspective, you know I think activity levels have resumed. There's been you know temporary disruption as a result of COVID-19 activities in China.On the supply chain, we've done a very deep dive in the supply chain, not just with China, but with Japan as well. We’ve looked at all of our suppliers globally and then the sub suppliers where they might have exposure to in China as well, and there are a few components, some hoses, connectors, some electrical components where we have some exposure. We've got in some cases visibility that those suppliers in most cases are back up to 60%, you know 40%, 50%, 60% run rates currently.I understand what the lag times are for them to deliver components. We do have some inventory in some cases, but one thing that we don't do of course is provide quarterly guidance and we provided our outlook for the full year, and I think based on all the parameters we've seen, we should be able to complete the year very consistent with the expectations that we started with in January. I think without COVID-19 issues, perhaps we might have been a little even more aggressive in our outlook, but I think it's the prudent thing to do given some of the risk there.Now of course if this continues throughout 2020, we’ll have to come back and see if there's any impact on the supply chain and customers. We're not seeing that today though. So we’ll provide another update, likely once or twice during the year, but as we sit here today with very good information from channel checks and supply line checks and our partners in China, we feel fairly confident with the outlook we have at this time.

[Craig Irwin:]

That's very good to hear, that's great. Moving on to cash flow, you did indicate that you expect to still have a very healthy cash position exiting 2020. Obviously the $75 million ATM is a part of that expectation. But can you maybe update us on your CapEx assumptions, and the other major items like your, I guess $20 million you are going to pay into the Weichai JV this year that will impact that sort of puts and takes on the cash flow.

[Tony Guglielmin:]

Sure thanks. So just again, so we – just to kind of reset, so we ended the year with about $147 million of cash. So we’ve come into the year with $147 million. In terms of this year's cash burn of course and you alluded to one of them, we have two buckets.One is our investment that we're going to be making this year into the Weichai-Ballard JV and that will be about roughly $25 million or $20 million pardon me, roughly $20 million committed through 2020. And then in addition to that, on the core operating side of the business, yeah we probably, we would expect to, you know probably in the $20 million to $30 million range for cash burn in our core business this year.CapEx is probably in the range of maybe 10 -- $10 million of that would be CapEx, a little bit of working capital and then of course as we still have some operating losses. So think about in the aggregate, you know something in the $50 million to $60 million total burned this year. So that's off to $147 million.Now that doesn't include and you know obviously the $75 million of our success from the ATM would be additive to our cash balance that we started with. So I think hopefully that helps to answer the question.

[Craig Irwin:]

That does, that does. And then last question for may, in the past you gave us a pretty good visibility about specific orders potentially out of Europe related to the JIVE opportunity. Are there any specific large orders that you can call out for us that could impact the order book over the next couple quarters that maybe help us with visibility on the European bus momentum continuing for Ballard?

[Randy MacEwen:]

Yes, stay tuned. I think you'll see some good order inflow in the next two quarters.

[Craig Irwin:]

Can you give us a little hint on geography or size?

[Randy MacEwen:]

I don’t want to do that at this time. You know Europe is the primarily the region we're talking about here but there's still final discussions underway and we don't want to distract from that.

[Craig Irwin:]

Great! Thank you. Thanks for taking my questions and congratulations on the progress.

[Randy MacEwen:]

Thanks Craig.

[Tony Guglielmin:]

Thanks Craig.

[Operator:]

Our next question comes from Mac Whale with Cormark Securities. Please go ahead.

[Mac Whale:]

Hey, good morning guys. A couple on the discussion earlier in your comments Randy about the various reports that were put out about total cost of ownership and adoption of hydrogen and that type of thing. And I’m wondering, can you benchmark where Ballard stands on say product pricing, relative to the total cost of ownership projection and where you think your positioned relative to the industry norm?

[Randy MacEwen:]

Yeah, I think when we look at kind of activity levels in the market and quoting levels, I think first of all our selling price is consistent with other companies in the market, and I think probably we have an advantage on cost structure for those in the commercial vehicle market.Our scale relative to others is important and you know I’ll call it the advancements we have on the manufacturing side compared to some others who are still very early in moving forward on more advanced manufacturing. I feel like, from a bill of materials perspectives and labor perspective, we're probably a leader in that area.In terms of the cost down targets that we see whether it's in the McKinsey report or Deloitte report, you know you're looking at you know 50% improvement on TCO in some areas, you're looking at some components where you'll see 50%, 60%,70% cost reduction. We understand those cost curves very well and we're aligned with those cost curves. We have significant cost reduction coming in the next 24 to 36 months and we’ll be providing pretty good visibility later this year on our cost down road map and I'm pretty excited particularly at the stack level, on the cost reduction we see, which I think will be industry leading.

[Mac Whale:]

Okay, so and all that's in context I suppose then of maintaining margins. So can you speak to how you saw margin in the last quarter and over the year versus previous years and what you just said?

[Randy MacEwen:]

Yeah, I think one of the things that we should understand about no gross margin in 2019 in particulars, as Tony mentioned we did add a lot of additional advanced manufacturing capacity capabilities last year and we’ll be finalizing that this year.Just on the MEA side, as an illustrative example, by the end of this year we’ll have a 5x production capacity expansion compared to say the end of 2018, and so there's a lot of investment that's gone in without the commensurate return on volume yet.And so, we do see opportunity for improvements as we see going forward from a production side, you know some of our tax times, some of our cost structures we're seeing are from production, let alone materials, I think we're going to see some very significant costs down. And I do think that as you look at gross margin targets, we are still, as we look at the longer term, looking at the 30% range as a longer term target for us and our cost reduction targets must exceed and I believe they will exceed our ASP reductions year-to-year.

[Mac Whale:]

Okay, that's helpful, and you know having worked in the industry we all know there’s games you can play on catalyst loading to his performance, but you'll be way off on cost. So presumably that's what you're really saying when you are talking about the competitive situation on your bill of materials.

[Randy MacEwen:]

Yeah, I think when we look at the bill of materials, when you look at all of the bill of materials, whether it’s catalyst, ionomers, membranes, GDL, you know at the MEA and then at the plates at stack level and then moving to balance of plant components, a lot of great work being done in all of these areas that, as we kind of reveal more of this later this year, I think people will be very excited about I think the good work we see going forward on this front.

[Mac Whale:]

Alright. When you talk about programs, some of them have been gone, going for a fair amount of time and while that's good in one sense because of all of the experience you gained from that. Sometimes from an investor point of view it looks a little disappointing because you don't get a ramp up in sales. So can you talk about your programming strategy and whether that has changed over the years so that you can actually put into practice and say if we hit A, B and C, we get an order. Can you speak to how the industry's changing about how you and what you're doing about programming structure.

[Randy MacEwen:]

Yeah, that's a great question Mac. You know what's happened historically, if you go back say even five years ago, maybe we're offering a fuel cell bus for a demonstration project at $1 million, right and so that’s not an attractive value proposition, but it is in the field, it is proving out technology readiness.We are in a quite different position today as costs have come down, not just on the fuel cell systems, but we now have power train you know for battery electric vehicles that's being used in these applications, and we now have opportunities for lower cost green hydrogen as well, and you know the cost of renewables have come down about 80% in the last decade. So I think that’s going to be a key driver moving forward.But the turnaround time whether it's a demonstration program or some testing is a lot shorter going forward than it has been historically, and that's a really more about packaging and integration that it is about validating technology performance and you know the discussions are more on volume and costs at volume rather than small deployments.So we are seeing a scaling. Its occurring in China, In my opinion we’re starting to see the first signs of that, and I do think we'll see that in the European theater in the next few years as well.

[Tony Guglielmin:]

Yeah Mac, its Tony, and just to pile on a little bit to Randy and I think Randy made a comment earlier. I think as we look at the next – the bus market is relatively speaking is the market that we've been investing in, long programs, long demonstration, Randy mentioned the truck and marine market as two of the next turn of opportunities.We see those advancing at a much faster pace and the other one was this ability to leverage the technology, because it's you know fundamentally the investment we've made in the FCMove LCS Technology, although packaging will be different.We are really leveraging the same technology platform so those longer lead times to focus on technology developer, are also shortening as well. So I think just a pile on to Randy’s comment about the pace the, clock speed and pace about wrapping up is going to be dramatically different and we're also able to, shall we say reduce our investment because we're leveraging technology rather than to have to build new technology.

[Randy MacEwen:]

We also, as you look at those demonstration projects that have occurred historically, they are really now great reference sites and so we have some real champions on the end market side that are providing valuable references for new customers.The other thing I wanted to comment on is the rail market and so we've actually been active for about three years now in the rail market in China, and we've learned a lot on codes and standards, on structural engineering, shock and vibration, the noise requirements, how to lighten the module for – to achieve some of the weight restrictions that they have.So a lot of learning that's been, I would say uniquely learned by Ballard over that period in China. We're also starting to see some of that learning of course with Siemens in the European market over the last 18 to 24 months in you know a very active development program where I think we are seeing very good progress with Siemens on that front.So the rail market, there's a lot of learnings that are behind the scenes, haven't been understood perhaps, but it does facilitate a much faster market adoption from a technology readiness perspective.

[Mac Whale:]

Thanks for that, and just the last question is about the passenger car space. Now you continue to work closely with the OEMs on that part of the market. Those of us who cover electric vehicles are sort of very excited by a lot of changes in lithiumion chemistry and packaging that are happening. I'm wondering if you could put into contact your view on the commerciality of that market that's performance and total cost of ownership this year state versus last year. Is there a change over the year to timeline of adoption and if so why?

[Randy MacEwen:]

Yeah, I think there's probably a number of organizations who last year would have highlighted passenger car, fuel cell market as a key opportunity for them. If you're talking to them this year, it's not that necessarily their enthusiasm for that market has waned, but what's happened is their interest in the heavy and medium duty market has picked up.Literally, I've been going to conferences in the industry for a very long time and companies that you would see traditionally talking about the past car market, are now front center of talking about the opportunity for commercial trucks and buses etcetera. Again, not because they don't see an opportunity in the passenger car market, but because there is now a consolidated view of the value proposition in the near term is where you have centralized depo refueling and where you have heavy payload in long range.So I do think the McKinsey report was a bit of a surprise to some people to see how strong fuel cells show up on the passenger car market, but as you look at high utilization, not one hour a day, you know not a 100 kilometers or miles per day, but say 20 hours per day in a taxi fleet or an Uber fleet, we could see easy market opportunity for fuel cells becoming more pronounced.I do think it's going to take more time in that market and this has been the challenge with that industry for a very long time, has been on the ecosystem in terms of hydrogen refueling, but now 400 fueling stations are out there, another 200 coming this year. We're starting to see areas whether sufficient fueling infrastructure for passenger car users to start to have no fueling anxiety.So it’s an early position still, and I think battery electric vehicles present a very compelling opportunity, even absent to some of the changes you're talking about in battery chemistry and for the very near term I think battery electric vehicles will win the dominant share in passenger car electrification.

[Mac Whale:]

Great! Congratulations on the quarter again. Thanks guys for taking my questions.

[Randy MacEwen:]

Thank you.

[Operator:]

Our next question comes from Jeff Osborne with Cowen and Company. Please go ahead.

[Jeff Osborne:]

Hey, good morning guys. I had a couple of questions on modeling. How should we think about cadence of revenue through the year? It's sounded like kits were going to be strong in Q1 and then the MEA is picking up the Q3. So is 2Q sequentially down? I’m just trying to get a sense of sort of the rhythm of revenue as it flows through the year relative to the $130 million of guidance.

[Tony Guglielmin:]

Yeah. Hi Jeff, Tony here. You know as many will recall, we typically have a sort of a 40/60 front end, back end split. I would say this year it won't be smooth, but it'll probably be a little bit more balance quarter-to-quarter and you're absolutely right, you know we are still continue to fulfill those orders to the Weichai JV in Q1.But then we start to see some of that deferred revenue if you recall again on that, the pick up on the 49% and then the MEA. So I would say at this point it's, it won’t be completely flat, but a little bit more balanced quarter-to-quarter throughout the year, that’s the way I would look at it.

[Jeff Osborne:]

Got it, that’s helpful. And then you gave the capacity of the JV and the status of the facility and what not, but is there a rough way to think about what that facility or joint venture in aggregate would need to be to be breakeven?

[Randy MacEwen:]

Yeah, so Weichai will be very sensitive about us talking about the finances of the joint venture, so I won’t go into detail on that. What I would say is that you know there's an expectation for that joint venture to be breakeven in a relatively early part of its development cycle.

[Tony Guglielmin:]

Yeah Jeff, I didn't mention it in the script, but it is mentioned in I believe the press release and the MD&A. We do expect for 2020 this year that we still will see losses from our China joint venture, the bulk of it coming from the from the JV, the Weichai-Ballard JV, pardon me. Probably in the $10 million to $15 million of EBITDA loss this year that's the one line, on our income statement contribution from minority interest. So we expect this year will continue to be an investment year as it ramps up and then as we think about 2021 and it starts to – you know starts to look closer to break even going into next year.

[Jeff Osborne:]

Got it, that’s helpful. And then, you know the backlog itself that you gave, either the total or the $110 million on the 12 month side, is there any context of flavor you can add in terms of geography or application? I assume it's largely China, you know more than half I think you’ve indicated in the past, but I just wasn't sure if there's any sort of context you can add about the backlog itself.

[Tony Guglielmin:]

Yes, I'd be happy to. And certainly, and you're absolutely correct. So for the 12 month order book particularly, I would say probably maybe about 70% maybe 60%, maybe 60% to 70% would be coming from China and that really is two things, one is both product deliveries I've mentioned a couple of times to the way Weichai-Ballard JV and then of course we're continuing to fulfill the multi-year technology solutions, technology transfer with the joint venture, so those would be the two largest ones.We have not, by the way included in our order book any MEA sales to the Synergy joint venture, I didn’t mention that earlier, but that's not in the order books. So that does present certainly some upside, not only did the order book, but to our revenue forecast for the year, but call it about 60% to 70% China and then the bulk of the rest of it is in Europe, both the Audi, the continuation in the Audi TS, but as well as some fairly material deliveries into the European bus market and particularly Randy had mentioned earlier some 60, 70 orders, 67 orders that we've taken, purchase orders last year. We start to see some of those be delivered – they are in the order book and we'll start to see some delivered. So I kind of split it that way by and large and it’s not that dissimilar in the backlog as well.Randy, did you want to supplement?

[Randy MacEwen:]

Yeah, as you move from the backlog and look at the sales pipeline Jeff, you actually see very interesting shift where there's a very high concentration or opportunity set in Europe. So I think the sales pipeline is approaching you know $0.5 billion at this point and we're seeing a very high portion coming from Europe.

[Jeff Osborne:]

That's good to hear. Maybe the last one for you Randy is, as you think about, you talked about the cadence of revenue. How should we think about things you can control like OpEx in particular and then the revenue mix and its resulting impacting on gross margins? You talked about the MEA underutilization. I assume that’s still the case for the bulk of the year, but do you envision sort of a mid-twenties gross margin capability this year or no?

[Tony Guglielmin:]

Yeah, Tony here. I would say the investment we made that I referred to in our capacity, and we are again continuing to invest this year just to complete the advanced manufacturing. We'll see a modest – you know with the outlook we have for revenue increase, the bulk of that's coming from product sales this year.So that'll start to – you'll start to see some absorption of that CapEx investment this year, but I would say our outlook for margin is I would say a modest uptick in gross margin in 2020. I think that will start – you’ll start to see that improved more significantly going into 2021 and 2022 as we continue to move more product on that and our CapEx will be fully invested, so I think that's how I would see margin.And then of course on top of that, you know capacity utilization of course is the implementation of the costs – significant cost reductions that we anticipate on the products side. Again Randy’s talked about a couple of times. Those will start to manifest themselves more meaningfully in 2021 and 2022. So modest uptick potentially this year, but I think I'd be thinking about 2022, 2023 we start to move back to those targets that we have talked about earlier.Just quickly on the OpEx side, we are looking forward, you know a reasonably significant bump-up in OpEx this year off of ’18, and again, a lot of that's the hiring we made through the year, the run rate issue. So I think we were a little – about $13 million in Q4. Perhaps not quite that high you run rate, but that starts to more probably approximate – kind of starts to look more in that – I’ll say you know roughly that run rate in 2020, maybe a little less than that, but think about that on the OpEx side. So that's how I would look at those two key items.

[Jeff Osborne:]

Last one I had is, just over several questions that you sort of indicated that you would have more details later this year. Are you planning an Analyst Day or are you waiting for some kind of technology validation or on cost in particular to open the kimono around cost reduction targets and systems? I was just unclear as you were sort of punting a few questions.

[Randy MacEwen:]

You are very patient. We are we are considering an Investor and Analyst Day in September.

[Jeff Osborne:]

Got it, that’s helpful. Thank you.

[Tony Guglielmin:]

Thanks Jeff.

[Randy MacEwen:]

Thanks Jeff.

[Operator:]

This concludes the question-and-answer session. I would like to turn the conference back over to Randy MacEwen, the CEO for any closing remarks.

[Randy MacEwen:]

Great! And thank you everyone for joining us today. We look forward to speaking with you again in early May when we’ll discuss results for Q1, 2020.

[Operator:]

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day!