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Q4 2019 Ballard Power Systems Inc Earnings Call Mar 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Ballard Power Systems Inc earnings conference call or presentation Thursday, March 5, 2020 at 4:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Anthony Robert Guglielmin Ballard Power Systems Inc. - CFO & VP * Guy McAree Ballard Power Systems Inc. - Director of Marketing & IR * R. Randall MacEwen Ballard Power Systems Inc. - CEO, President & Director ================================================================================ Conference Call Participants ================================================================================ * Amit Dayal H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst * Craig Edward Irwin Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst * Jeffrey David Osborne Cowen and Company, LLC, Research Division - MD & Senior Research Analyst * MacMurray Davidson Whale Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research * Robert Duncan Brown Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- 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. (Operator Instructions) I would now like to turn the conference over to Guy McAree, the Director of Investor Relations. Please go ahead. -------------------------------------------------------------------------------- Guy McAree, Ballard Power Systems Inc. - Director of Marketing & IR [2] -------------------------------------------------------------------------------- Thanks very much, and good morning, everyone. I'd like to welcome you 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're 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 our complete disclaimer and related information. On the call today, Randy is going to provide his perspective on recent industry developments, on Ballard's progress in 2019 and on our outlook for next year -- for this year, 2020. Tony is going to then review Q4 and full year 2019 financials followed -- following -- followed by a Q&A session. I'll turn the call over to Randy now. -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [3] -------------------------------------------------------------------------------- Thanks, Guy, and welcome, everyone, to today's conference call. On our earnings call 1 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 is 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 in other key partners. We've 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-China 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 facility by midyear 2020. During this challenging period, Weichai continues to improve every day. They're 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 fuel cell industry, including here at Ballard, have generated remarkable momentum and underpin our continuing high level of conviction that 2020 and future years offer significant opportunities for our company to create long-term value for shareholders. Indeed, we believe we're entering the hydrogen decade where we will see scaled commercial adoption of hydrogen fuel cell vehicles. There are 6 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, so 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 road maps. 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 8 truck emission reduction targets for 2025 and 2030. A second key industry development during 2019 was the range of investments in the hydrogen fuel cell sector made by blue chip 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, Cummins, 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 EUR 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 commercialization of fuel cell electric vehicles will occur in medium- and heavy-duty motive use cases including bus, truck, train and marine applications, where there's 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 use cases featuring return-to-base duty cycles, where vehicles can be refueled at a centralized hydrogen refueling station consistent with the 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 2 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: A Cost Perspective. The report studied 35 different use cases and show that in 22 of these, the total cost of ownership will reach parity with other low-carbon alternatives, typically battery electric, by 2030 and earlier in a number of cases. The report also found that in 9 of these 35 use cases, hydrogen solutions will be competitive with conventional options, typically internal combustion engine vehicles, by 2030. The 9 use cases are a direct bull's eye with respect to Ballard's strategic plan, including heavy- and medium-duty trucks, long-distance urban buses and regional trains. The report also notes that with smaller deployments, hydrogen infrastructure is still more costly, but as deployments scale, hydrogen infrastructure becomes lower cost per vehicle than battery recharging infrastructure. This is another major advantage for fuel cell electric vehicles in large fleets. The Hydrogen Council report is consistent with the white paper jointly prepared by Deloitte and Ballard that was published on January 8, entitled Fueling the Future of Mobility: Hydrogen and Fuel Cell Solutions for Transportation. The white paper demonstrates that in less than 10 years, it will become cheaper to run an FCEB than to run a battery electric vehicle or an internal combustion engine vehicle for certain commercial applications, results of the maturation of manufacturing technology, improved economies of scale, declining hydrogen fuel cost and further infrastructure development. Comprehensive TCO analysis of logistic trucks in Shanghai, drayage trucks in California and transit buses in London underscore a projection for the cost of commercial hydrogen vehicles to fall by more than 50% within the next 10 years and for fuel cell electric vehicles will be less expensive than BEVs and ICEV vehicles in all of the above scenarios by 2027 without the need for subsidies. A fourth important industry development last year relates to the growing number of orders and deployments of fuel cell electric vehicles in key geographies around the globe. Now to put the industry in perspective, our friends at Plug Power have been doing a great job in the fuel cell forklift market with over 28,000 units deployed, including at end customers like Walmart, Amazon and Home Depot. There are also about 18,000 fuel cell passenger cars in operation globally today, supported by about 400 hydrogen refueling stations, primarily in California, Japan, South Korea and Germany, with another 200 hydrogen fueling stations planned for 2020. There's also been significant growth in deployment in heavy-duty motive markets. We understand that in China during 2019, 3,000 fuel cell electric vehicles were produced for buses and trucks, bringing the total number of FCEBs produced in that country now to approximately 6,300. We also estimate that Ballard technology is inside over 3,000 fuel cell electric buses and commercial trucks currently licensed or deployed in China, representing close to 50% market share. In addition, China's making progress in deployment of hydrogen fueling stations with 44 now in operation and another 41 currently under construction. Phase 1 of the Gaoming Tram line in Foshan City, which is 6.5 kilometers long with 10 stations, also went into revenue service late last year, with 5 trams powered by Ballard FCveloCity modules. In Europe during 2019, 20 new fuel cell electric buses were deployed with Ballard technology now powering 56 fuel cell electric buses operating in countries like the U.K., Germany, the Netherlands, Norway and France. These 56 buses include 8 ExquiCity tram buses built by Van Hool that went into revenue service in the city of Pau in December last year. Ballard received orders in 2019 for 67 additional modules to support fuel cell buses planned for deployment in London, Aberdeen, Bolzano, Italy and Groningen, The Netherlands. And we also announced exciting H2Bus Consortium in 2019, with the goal of deploying 1,000 fuel cell electric buses and related infrastructure in European cities at commercially competitive rates by 2023. In 2019, the marine sector in Europe also began showing emerging interest and demand for fuel cell powertrains. We announced a number of orders and agreements during the year for modules to power river push boats in Germany and France and a car ferry in Norway. As a result of the market interest, we began construction of Ballard's Marine Center of Excellence at our facility in Hobro, Denmark to enable a local focus on activities in the emerging European marine segment. We anticipate the Marine Center of Excellence being completed and operational on the first half of 2020, with production capacity to build up to 200 fuel cell marine modules per year. And finally, in California, Ballard is currently powering 36 fuel cell electric buses plus 8 more in other U.S. states. During 2019, New Flyer's Xcelsior buses powered by Ballard successfully completed testing at the Altoona facility in Pennsylvania. As a result, both New Flyer and Eldorado now have commercially available FCEBs that have passed Altoona testing and are therefore eligible for FTA funding. We're also continuing our important work on demonstration programs with the UPS delivery van and a Kenworth drayage truck in California. Globally, including just our fuel cell buses and commercial trucks, Ballard fuel cell technology and products have to date powered fuel cell electric vehicles in commercial, heavy and medium-duty motive applications for an industry-leading cumulative total of more than 30 million kilometers, equivalent to traveling the globe about 750 times. So with technology readiness now proven, market discussions are focused on integration, packaging, industrialization, scaling and cost reduction. It was a fitting transition to the fifth key industry development, which is extended fuel cell technology advancement and cost reduction. At Ballard, we've improved product performance significantly while also reducing product cost by 65% during the past decade without the benefit of commercial volumes. In mid-2019, we commercially launched our industry-leading LCS liquid-cooled fuel cell stack, an eighth-generation fuel cell module, the FCmove product. This next-generation module represents a 35% reduction in total life cycle cost from the prior generation while at the same time delivering technology advancements that deepen our product value proposition. Looking forward over the next 2 to 3 years, we anticipate significant additional product cost reductions at the module, stack and MEA levels, driven by continued design improvements, manufacturing scale, supply chain activities and advanced manufacturing initiatives. We'll provide further details on these plans later this year. The sixth and final key industry development I wanted to highlight today is increasing investor interest in environmental, social and governance or ESG issues. We're seeing a strong shift on the importance and impact of sustainability, including the impact of climate change. Investment risks presented by climate change are set to drive a profound reassessment of risk and asset values likely driving a significant reallocation of capital. We believe this will have a material impact on the pricing and risk of assets around the world and will accelerate corporate behavior to sustainable businesses, which in turn will prove to be a strong catalyst for the adoption of hydrogen and fuel cell technologies for companies that are looking to reduce their carbon intensity and corporate risks presented by climate change. Now our own 2019 management proxy circular and annual report will include an expanded ESG section that reflects the priority we're placing on this important aspect and represents a key step for Ballard toward moving comprehensive ESG reporting going forward. In terms of important developments during 2019 and early this year, I'd also like to note that Ballard has experienced early momentum in several market applications I've not yet touched on. An example of a compelling market opportunity that also presents our customers with real value in their ESG strategy comes from the mining industry. In October, we announced an order from Anglo American Platinum's business for modules to power a 290-ton ultra-class mining truck. So for this mining application, fuel cells offer a strong value proposition to replace high-cost and dirty diesel, which represents about 30% of the operating cost of the mining operation. Hydrogen fuel cells represent an attractive value proposition for these mining sites that will be able to take advantage of low-cost solar energy production at the site, with surplus solar energy being used to produce green hydrogen through electrolysis. This hydrogen is then used to provide energy resilience to microgrid while also providing zero-emission fuel for these ultra-class mining trucks. As a result, assuming success of a demonstration, Anglo plans to deploy heavy trucks with megawatt scale fuel cell power solutions at other mining operations around the globe. Ballard also signed a product development agreement with Hydrogène de France in 2019 for the development and integration of a multi-megawatt scale fuel cell system into its Renewstable power plant designed for stationary power applications. And in early 2020, we signed ESAs with adKor and SFC Energy for 500 air-cooled stacks to provide Jupiter backup power systems for deployment at radio tower sites in Germany through the end of 2021. We see this as the first tranche of deployments in what could ultimately include 1,500 radio tower sites in Germany. Each of these application areas provides an opportunity to cost-effectively leverage our core technology and products across a growing range of market opportunities. In the near term, we will expect to enjoy annual high growth rates and strong market share, followed by very sharp growth curves between 2023 and 2030 in many of our market applications, including bus, truck, rail and marine. We believe Ballard has a strong position in our chosen markets and are working hard to ensure attractive market share in the future to support high growth, improving financials and shareholder value creation. Our enduring vision is to deliver fuel cell power for a sustainable planet. This vision gets all of us at Ballard fired up every morning to serve our customers and make the company better every day. With the current momentum in our industry and the progress we're making at Ballard, we're moving closer to our vision. And with that, I'll turn the floor over to Tony to briefly review the financials. -------------------------------------------------------------------------------- Anthony Robert Guglielmin, Ballard Power Systems Inc. - CFO & VP [4] -------------------------------------------------------------------------------- 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 the Synergy JV in China, partially offset by 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 of 4 points and 10 points, respectively. Now the Q4 and full year decline was largely 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 -- our 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 loss and EPS numbers include Ballard's 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 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 at-the-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 to existing shareholders. Finally, we ended 2019 with a 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. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our very first question comes from Rob Brown with Lake Street Capital Markets. -------------------------------------------------------------------------------- Robert Duncan Brown, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [2] -------------------------------------------------------------------------------- First question is on the pipeline. You talked kind of a robust pipeline. Could you give us some color on how that's developing and what pieces need to fall in place to kind of hit that guidance or that outlook for 2020? -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [3] -------------------------------------------------------------------------------- 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 lens here in 2019. And a key driver of that, of course, is heavy-duty and medium-duty motive 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 -- 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 $120 million -- $110 million order book as we start the year. -------------------------------------------------------------------------------- Robert Duncan Brown, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [4] -------------------------------------------------------------------------------- Okay. That's great color. And then in terms of the China JV, you said sort of midyear ramping. How is your sort of view into that at this point in terms of starting to ship MEAs and how that turns on throughout the year and into next year? -------------------------------------------------------------------------------- Anthony Robert Guglielmin, Ballard Power Systems Inc. - CFO & VP [5] -------------------------------------------------------------------------------- Yes, it's Tony here. Yes. So the -- as we talk -- 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 of kits, so those continue in Q1 and are being shipped, and we accept -- and will be assembled and we expect delivered through the year. The MEAs, we announced a purchase order in late 2019, yes, '19, for about $19 million. Those MEAs 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 in our -- 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 each quarter on that, but at the moment, we're continuing to ship as expected. -------------------------------------------------------------------------------- Robert Duncan Brown, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [6] -------------------------------------------------------------------------------- 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 marketplace is throwing around a lot of numbers. But what's sort of your view on how the ramp rate happens? And is it really -- you talked about it going up in 2025. But what are some of the drivers there? How long should it take to get product on the road? And how do you see the penetration rates developing maybe longer term? -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [7] -------------------------------------------------------------------------------- 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 things like reliability and service infrastructure. And so there, it's really not about technical readiness levels. It's really about driving cost down and showing value proposition. So I would say you'll -- 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 there 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. Expect a lot more on the demonstration side in Europe and in North America. We're already seeing 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 2,000 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 for regional trains, outcompeting electric catenary trains already where there's -- 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 a short downtime so you got to turn quickly to return. And so there isn't a lot of time for opportunity recharging. So 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 tram line 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 and 2021. That is a relatively smaller 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 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 there are 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. Just looking at the different market segments there, there are segments where the only way, the only way to decarbonize will be hydrogen fuel cells, given the use cases and the attributes that you see in the duty cycles. So we're excited about all 4 of those markets. I think as you look at the passenger car market, there's 18,000 cars out there today. That's a lot more than there were 3 years ago, of course, but relative modest market share in the global car park. So what we do see though is longer term, particularly as hydrogen is deployed on the heavy-duty motive use cases and used to decarbonize industrial applications and the cost 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 9 applications where fuel cells outperformed not just battery electric but internal combustion engines, they included taxis and large SUVs. 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, that penetration rate will take into the later 2020s, into 2030 before we'll see the passenger market scale with any material market share that we've seen from, say, battery electric in the last year. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- Our next question comes from Amit Dayal with H.C. Wainwright. -------------------------------------------------------------------------------- Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [9] -------------------------------------------------------------------------------- Randy, in the context of the policy overview provided and industry 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 in the next few years? -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [10] -------------------------------------------------------------------------------- Yes. 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 time frame, the growth rate is very steep. So we'll see a lot of great, I think, high -- relative to most industries but also potentially relative to some of the peer group companies, I think we're going to enjoy very high market share in the heavy-duty motive use cases as they start to scale. We're seeing a lot of activity that suggests very high growth rates as we move to 2021, 2022 as well. -------------------------------------------------------------------------------- Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [11] -------------------------------------------------------------------------------- Okay. And then with respect to the facility coming up in China with Weichai, can you remind us what level of production or revenues that facility could support at managed utilization levels of the plant capacity? -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [12] -------------------------------------------------------------------------------- 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 -- couple of week 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. A lot of the equipment has arrived at the site, some of it's 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, overcapacity was built and contemplated at the start. So we will have production capacity capability of about 20,000 fuel cell modules, and 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 opportunity to scale that in terms of going to third shifts and going to increasing capacity that we already have built in. -------------------------------------------------------------------------------- Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [13] -------------------------------------------------------------------------------- Yes, 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. Today, there are only a handful of ways to play or participate in the growth in this space. But I'm sure competition is coming. Could you give listeners some sense of how you are in a position to protect your moat and maintain your market share with new competition potentially coming in? -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [14] -------------------------------------------------------------------------------- Sure. Yes. You mentioned that capacity was impressive. Just keep in mind, Weichai doesn't do anything small. They're a very impressive organization and the scale of their business -- last year, I think they had now over 1 million diesel engines in production, so very large-scale operation and plan to do the same here. Yes. I mean I think we're in a very strong position today in the heavy- and medium-duty motive use cases. When you look at 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 those type of metrics at this stage. We're on our eighth generation of engine, our 13th generation of stack, so there's a lot of learning that's gone in on the experience from the field coming back into our product development and technology development aspects. Our brand is very strong in the industry. And when you look at the products and you look at the performance, whether it's 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 entering the heavy- and medium-duty motive market may have been in smaller applications or may have been looking at the passenger car market traditionally with a 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 FCmove module in terms of reduction of component count, in terms of power density improvements, weights, volume, et cetera. And we feel like we're in a very good position. Now that being said, a lot of new entrants coming to the market that have significant resources. You've got Toyota and Hyundai, Cummins as examples and a lot of new entrants, startups 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. You very -- 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 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. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- Our next question comes from Craig Irwin with Roth Capital Partners. -------------------------------------------------------------------------------- Craig Edward Irwin, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [16] -------------------------------------------------------------------------------- So Randy, just a clarification on the 2 delivery contracts with Weichai, right? Your $44 million where you were delivering parts, kitchen modules and then the $19 million, I guess, mid-December, you announced you'd be making 2020 deliveries. Can you confirm that 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 MEAs obviously are delivered to the joint venture. -------------------------------------------------------------------------------- Anthony Robert Guglielmin, Ballard Power Systems Inc. - CFO & VP [17] -------------------------------------------------------------------------------- Craig, it's Tony here. Let me handle that one. So yes, just again to remind, that was a $44 million order that we announced last May. Those shipments of 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. Those are -- Ballard is selling to the joint venture. They're being assembled and then ultimately sold to Weichai. And just as you'll 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 sells those on to Weichai. As far as the MEAs go, those are direct sales -- as you pointed out, those are direct sales to the Weichai-Ballard joint venture. -------------------------------------------------------------------------------- Craig Edward Irwin, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [18] -------------------------------------------------------------------------------- Okay, excellent. The second thing is COVID-19 is a difficult subject, right? 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 from COVID-19 in the guidance? Those of us that follow the Chinese market know that 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 February as the Chinese are working through the challenges of this epidemic? -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [19] -------------------------------------------------------------------------------- Craig, it's Randy. Thanks for the question. So 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 week delay or actually 2-month delay really is in completing the construction. And so -- but Weichai is in Shandong province. The joint venture is in Shandong province. It's not had the same impact from an operational perspective, we'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 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, I think activity levels have resumed. There's been 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% -- 40%, 50%, 60% run rates currently, 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 Edward Irwin, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [20] -------------------------------------------------------------------------------- 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're going to pay into the Weichai JV this year that will impact the sort of puts and takes on the cash flow? -------------------------------------------------------------------------------- Anthony Robert Guglielmin, Ballard Power Systems Inc. - CFO & VP [21] -------------------------------------------------------------------------------- Sure. Thanks. So just again to kind of reset, so we ended the year with about $147 million of cash, so we 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 2 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, yes, we -- we would expect to -- 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 million -- $10 million of that would be CapEx, a little bit of working capital, and then, of course, we -- as we still have some operating losses. So think about in the aggregate, something in the $50 million to $60 million total burn this year. So that's off the $147 million. Now that doesn't include -- obviously, the $75 million, if we're successful in the ATM, would be additive to our cash balance that we started with. So I think -- hopefully, that helps answer the question. -------------------------------------------------------------------------------- Craig Edward Irwin, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [22] -------------------------------------------------------------------------------- That does. That does. And then last question if I may. In the past, you gave us some 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 of quarters that maybe help us with visibility on the European bus momentum continuing for Ballard? -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [23] -------------------------------------------------------------------------------- Yes. Stay tuned. I think you'll see some good order inflow in the next 2 quarters. -------------------------------------------------------------------------------- Craig Edward Irwin, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [24] -------------------------------------------------------------------------------- Can you give us a little hint on geography or size? -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [25] -------------------------------------------------------------------------------- I don't want to do that at this time. Europe is the primary region we're talking about here, but there's still final discussions underway, and we don't want to distract from that. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- Our next question comes from Mac Whale with Cormark Securities. -------------------------------------------------------------------------------- MacMurray Davidson Whale, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [27] -------------------------------------------------------------------------------- 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, 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 you're positioned relative to the industry norm? -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [28] -------------------------------------------------------------------------------- Yes. 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 the -- it's -- 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 perspective 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're looking at a 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. -------------------------------------------------------------------------------- MacMurray Davidson Whale, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [29] -------------------------------------------------------------------------------- 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? -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [30] -------------------------------------------------------------------------------- Yes. I think one of the things that we should understand about gross margin in 2019, in particular, 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. Some of our takt times, some of our cost structures we're seeing from production, let alone materials, I think we're going to see some very significant cost 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. -------------------------------------------------------------------------------- MacMurray Davidson Whale, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [31] -------------------------------------------------------------------------------- Okay, that's helpful. And having worked in the industry, we all know there's games you can play on catalyst loading to hit performance but you'll be way off on costs. So presumably, that's what you're really saying when you're talking about the competitive situation on your bill of materials. -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [32] -------------------------------------------------------------------------------- Yes, I think when we look at the bill of materials, when you look at all of the bill of materials, whether it's catalysts, ionomers, membranes, GDL, 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. -------------------------------------------------------------------------------- MacMurray Davidson Whale, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [33] -------------------------------------------------------------------------------- Okay. When you talk about programs, some of them have been going -- ongoing for a fair amount of time. And while that's good in one sense because of the -- all the experience you gain 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 in specs that say, if we hit A, B and C, we get an order? Can you speak to how the industry is changing about how you -- and what you're doing about programming structure? -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [34] -------------------------------------------------------------------------------- Yes. That's a great question, Mac. What's happened historically, if you go back, say, even 5 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're in a quite a different position today as costs have come down, not just on the fuel cell systems, but we've now have powertrain for battery electric vehicles that's being used in these applications. And we now have opportunity for lower-cost green hydrogen as well. And 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 in -- whether it's a demonstration program or some testing is a lot shorter going forward than it has been historically. And that's really more about packaging and integration than it is about validating technology performance. And the discussions are more on volume and cost at volume rather than small deployments. So we are seeing a scaling. It's 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. -------------------------------------------------------------------------------- Anthony Robert Guglielmin, Ballard Power Systems Inc. - CFO & VP [35] -------------------------------------------------------------------------------- Yes. Mac, it's Tony. 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 2 of the next turn of opportunities. Yes. We see those advancing at a much faster pace. And the other one was this ability to leverage the technology because it's fundamentally the investment we've made in the FCmove LCS technology although packaging will be different. We're really leveraging the same technology platform. So those longer lead times to focus on technology, I mean, are also shortening as well. So I think just to pile on to Randy's comment about the pace, the clock, speed and pace about ramping 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 have to build new technology. -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [36] -------------------------------------------------------------------------------- We also -- as you look at those demonstration projects that have occurred historically, they're 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 want to comment on is the rail market. And so we've actually been active for about 3 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 -- achieve some of the weight restrictions that they have. And 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 a very active development program, where I think we're 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. -------------------------------------------------------------------------------- MacMurray Davidson Whale, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [37] -------------------------------------------------------------------------------- Okay. And just the last question is about the passenger car space. Now you continue to work closely with OEMs on that part of the market. Those of us who cover electric vehicles are sort of very excited by a lot of the changes in lithium-ion chemistry and packaging that are happening. I'm wondering, do -- if you could put into context your view on the commerciality of that market, that's performance, total cost of ownership this year, say, versus last year. Is there a change over the year to time line of adoption? And if so, why? -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [38] -------------------------------------------------------------------------------- Yes. 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. And literally, I've been going at conferences in the industry for a very long time. And companies that you would see traditionally talking about the pass car market are now, front and center, talking about the opportunity for commercial trucks and buses, et cetera, again, not because they don't see an opportunity in the passenger car market but because there's now a consolidated view that the value proposition in the nearer term is where you have centralized depot 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 1 hour a day, not 100 kilometers or miles per day but, say, 20 hours per day in a taxi fleet or an Uber fleet, we could see the 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 out there, another 200 coming this year, we're starting to see areas where there's 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 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. -------------------------------------------------------------------------------- Operator [39] -------------------------------------------------------------------------------- Our next question comes from Jeff Osborne with Cowen and Company. -------------------------------------------------------------------------------- Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [40] -------------------------------------------------------------------------------- I had a couple of questions on the -- on modeling. How should we think about cadence of revenue through the year? It sounded like kits were going to be strong in Q1 and then the MEAs picking up in Q3. So is 2Q sequentially down? I'm just trying to get a sense of sort of rhythm of revenue as it flows through, through the year relative to the $130 million of guidance. -------------------------------------------------------------------------------- Anthony Robert Guglielmin, Ballard Power Systems Inc. - CFO & VP [41] -------------------------------------------------------------------------------- Yes. Jeff, Tony here. Yes. 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 will probably be a little bit more balanced quarter-to-quarter. And you're absolutely right. We are still continuing 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 pickup on the 49% and then the MEA side, 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 as the way I would look at it. -------------------------------------------------------------------------------- Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [42] -------------------------------------------------------------------------------- Got it. That's helpful. And then you gave the capacity of the JV and the status of the facility and whatnot. But is there a rough way to think about what that facility or joint venture in aggregate would need to be to be breakeven? -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [43] -------------------------------------------------------------------------------- Yes. So the -- Weichai will be very sensitive about us talking about the financials of the joint venture so I won't go to detail on that. What I would say is that there's an expectation for that joint venture to be breakeven in a relatively early part of its development cycle. -------------------------------------------------------------------------------- Anthony Robert Guglielmin, Ballard Power Systems Inc. - CFO & VP [44] -------------------------------------------------------------------------------- Yes. Jeff, we had -- 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 JV, Ballard JV -- 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, it starts to look closer to breakeven going into next year. -------------------------------------------------------------------------------- Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [45] -------------------------------------------------------------------------------- Got it. That's helpful. And then the backlog itself that you gave, either the total or the $110 million on the 12-month side, is there any context or flavor you can add in terms of geography or application? I assume it's largely China, 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. -------------------------------------------------------------------------------- Anthony Robert Guglielmin, Ballard Power Systems Inc. - CFO & VP [46] -------------------------------------------------------------------------------- Yes, I'd be happy to it. And certainly -- and you're absolutely correct. So for the 12-month order book, particularly, I would say probably maybe about 70% -- maybe 60%, 60% maybe -- 60% to 70% would be coming from China and that really is 2 things: One is those product deliveries I've mentioned a couple of times to the Weichai-Ballard JV; and then, of course, we're continuing to fulfill the multiyear Technology Solutions technology transfer with the joint venture. So those would be the 2 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 book. So that does present certainly some upside not only to 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 on 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're in the order book, and we'll start to see some delivered. So I'd kind of split it that way by and large. And then it's not that dissimilar in the backlog as well. I don't know, Randy, did you want to supplement? -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [47] -------------------------------------------------------------------------------- Yes. I mean as you move from the backlog and look at the sales pipeline, Jeff, you actually see a very interesting shift where there's a very high concentration or opportunity set in Europe. So I think the sales pipeline is approaching $0.5 billion at this point, and we're seeing a very high portion coming from Europe. -------------------------------------------------------------------------------- Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [48] -------------------------------------------------------------------------------- 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 could control like OpEx, in particular, and then the revenue mix and its resulting impact 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-20s gross margin capability this year or no? -------------------------------------------------------------------------------- Anthony Robert Guglielmin, Ballard Power Systems Inc. - CFO & VP [49] -------------------------------------------------------------------------------- Yes. 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 -- 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'll say, a modest uptick in gross margin in 2020. I think that'll start -- you'll start to see that improve 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, capacity utilization, of course, is the implementation of the cost -- significant cost reductions that we anticipate on the product side that Randy has 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, '23, we start to move back to those targets that we have talked about earlier. Just quickly on the OpEx side, we are looking for 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 a run rate but that starts to -- probably approximates -- kind of starts to look more in that, I'll say -- roughly that run rate in 2020, maybe a little less than that but think about that on the OpEx side. So that's all I would look at those 2 key items. -------------------------------------------------------------------------------- Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [50] -------------------------------------------------------------------------------- Last one I had is just there were several questions that you sort of indicated that you would have more detail 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 a kimono around cost reduction targets and systems? It was just unclear as you were sort of punting on a few questions. -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [51] -------------------------------------------------------------------------------- You're very prescient. We are considering an Investor and Analyst Day in September. -------------------------------------------------------------------------------- Operator [52] -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- R. Randall MacEwen, Ballard Power Systems Inc. - CEO, President & Director [53] -------------------------------------------------------------------------------- Great. 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 [54] -------------------------------------------------------------------------------- This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.