Ballard Power Systems Inc. Q4 FY2025 earnings call

Key Focus Areas - Commercial terms: Strengthened commercial foundation with improved pricing structures and balanced terms, including protections against various risks, enhancing margin visibility and long-term partnerships. - Product cost reduction: Using negotiations, execution, and innovation, with initiatives like FCmove SC platform achieving part count reduction and Project Forge advancing for cost savings. - Enhanced fleet services offerings: Leveraging installed base with remote data units, providing performance data, and expanding recurring revenue through services like long-term agreements and parts supply. - Expanding in near-term markets: Entering materials handling and stationary power markets, with stationary power having over 100,000 hours of power deployment. - Unlocking broader access to hydrogen ecosystem: Innovating commercial and operating models to lower barriers to adoption, including extended warranties. ### Yearly Performance - 2025 delivered record engine shipments, over 75 megawatts of power, revenue of over $99 million, up 43% year over year. - Reduced cash operating costs in Q4 by 41% compared to same period last year, generated $11 million in cash flow from operating activities in Q4.

In 2025, Ballard delivered record engine shipments, approaching 800 engines and more than 75 megawatts of power, representing 38% growth in megawatts shipped compared to 2024. Full year revenue was over $99 million, up 43% year over year. Q4 revenue was approximately $34 million, up 37% year over year. Q4 gross margin was 17%, full year gross margin was positive 5%. The majority of shipments were into Europe and North America, with strong activity in Canada. Revenue contribution from engine shipments was significant, with the marine order and New Flyer agreement contributing to revenue growth.

2026 Outlook - Total operating expenses expected to range between $65 million and $75 million. - Capital expenditures expected to be between $5 million and $10 million. - Anticipate continuing to grow top line revenue, expand margins, and maintain financial health. - Aim to continue progress towards profitability targets with focus on expanding revenue and gross margins through various initiatives.

Q: Just on the restructuring side, as you alluded to in the prepared remarks, 2025 OpEx would have been around $86 million, and the midpoint of your guide would imply another $16 million of reduction relative to that. So would you say that the large items have been harvested? And just as a follow-up on that, what are the key drivers of the incremental cost contraction?

A: Thanks for the question, Baltic. So I think that if we are looking at the year-over-year changes, we do not anticipate any additional major restructuring that we saw in 2025 or 2024 to be in the cards for 2026. So I think that the midpoint of our guidance range is a reasonable expectation for our overall cost structure in 2026. And if you could just repeat and clarify the second part of your question, that would be helpful. Yes, I would say that they have been, and I would say that the key pieces that we are focusing on, I think that we have really right-sized our overall cost structure at an organizational level. And now it is continuing to drive cost out of our products through additional innovation initiatives, manufacturing efficiencies, and product scaling. So I think you are going to start to see cost reduction show up more on the product side relative to the overall OpEx side. I do not know if you have any other comments on that, Marty. I would just say that it is really a combination of looking for every penny structurally from the bottom up of the company. Essentially in 2025, kind of a zero-based budgeting approach and re-baseline everything we spend money on. And so that work is starting to pay off in our structural approach, specifically around some of the operating expenses that are variable in nature.

Q: Just with these magnitude of reductions, there are always trade-offs in scope prioritization or the pace for it. These actions materially altered your R&D roadmap or the timing of the mission of key initiatives just as you aim to accelerate now? Value from your bus vertical as evidenced with the announcement a few days back.

A: Materially, we have taken the approach that we are leveraging our product portfolio and prior investments to get as much out of them as we can. So you think about material handling, we had a very long history of material handling and we extended our know-how in that segment to create a new product that we are getting very good feedback that that extended durability product is going to be well received. A similar approach can be taken when you think about heavy-duty applications that can be used for stationary power, if you will. Some of our prior investments in heavy-duty applications can be transferred, if you will, from, let us say, a heavy-duty trucking environment, and the core technology is extensible to a stationary power application when packaging is done differently or configurations are done differently. So that is a way to say the R&D is more focused on how to extract as much value as possible from innovations that have already been materially realized and have been reduced to practice. The longer-term innovations is a different aspect, and I would put that as more in the three- to five-year kind of range of outlook before we need to do something significantly different in our approach. We have a good runway of product portfolio and existing innovations that we can commercialize, and we are getting really, really strong feedback that these products are going to hit the market well.

Q: Good morning. Just wanted to follow up on the New Flyer contract. Great news there. What is the sort of duration of that contract or potential? And how do you see that ramping?

A: The contract itself is for 500 units, and we are not discussing the duration of the contract. We are more focused on the actual megawatts and unit volumes. And then, of course, we have a long-standing partnership and relationship with New Flyer. It is not really predicated on a quarter here or a quarter there. We have flexibility to work strategically with them to realize their growth ambitions as well as our own, and that is the way we have characterized the relationship. Realize that also includes a long-term service tail that goes with everything we are doing. So that is part of the compounding set of assets. The bigger the New Flyer fleet gets, the more that service tail grows, and the deeper we get in the relationship with them, which is proving to be extraordinarily helpful and valuable for both of us.

Q: Hi. Thank you for taking my question. I just wanted to touch on one piece real quick. I wanted to dig in on stationary, if that is okay. Could you maybe talk a little bit more in terms of the opportunities, the timing that you are seeing, and also how does the XD and HD compare with other competing offerings that you are seeing or the conversations that you are having with your customers?

A: Yes. So let us see if we can unpack that a little bit. So the stationary power market—known to all on this call for sure—everyone understands the time-to-power mandate, if you will. So when you see constraints in the global landscape of where data centers are being promulgated, there is a very strong opportunity for us to have a ready-now product to address those needs for power now. So we are seeing more and more interest in that regard. And when I think of that, that is really supporting a thesis along the behind-the-meter side of things in stationary power for now. And then over time, as constraints ameliorate, you might see those transition from behind the meter to be grid-connected, but this is seven to ten years from now. So there is a very strong value proposition for our fuel cells to help solve that time to power if packaged and arrayed correctly. At the same time, our costs and the products were designed to go into largely heavy-duty trucking. So if you can compete at the engine level in heavy-duty trucking, it suggests a very strong capability on a cost-per-kilowatt basis relative to other solutions that are out there that are not PEM fuel cells, but maybe other kinds of fuel cells. And on a cost per kilowatt or a total installed cost of ownership, we feel like we have got a really good value proposition emerging, which will help significantly address the market.

Q: Thank you. Good morning. Kate, maybe for you. I saw that the year should be back-end loaded, but any hints on the first half versus the second half relative to the makeup of 2025, or sequentially how we should think about Q1 versus a year ago or the prior quarter?

A: I think, as we have discussed and we have seen historically, a 40/60 split H1/H2 is a reasonable expectation for 2026. And I think, as Marty commented in his remarks, we are also really looking into how we can further level-load and smooth out our quarter-over-quarter variability and seasonality across the board in terms of operations, our cost structure, etc. But I think a reasonable planning assumption for this year would be that 40/60 split.

Q: Thank you. Good morning. Maybe just one quick follow-up on that. Would the focus be on Europe and Canada, given greater availability of hydrogen as a fuel relative to natural gas? I am just trying to understand where the commercialization efforts would be placed.

A: Yes, that stands to reason. Those are our home markets. And the number of products or projects progressing to FID—I think the Hydrogen Council referenced some $35 billion in year-over-year projects advancing to FID. All of those projects cannot just feed the refinery business or the industrial application. They are keenly looking for offtake partners such as the kinds of partners that would be associated with integrating fuel cell power or others with data centers of all stripes.