Ballard Reports Q3 2018 Results
-- Revenue of $21.6M, 30% Gross Margin and ($3.6)M Adjusted EBITDA
-- Full-year 2018 Outlook revised to revenue of $90-95M
-- Announcement of strategic collaboration with Weichai Power
VANCOUVER, Oct. 31, 2018 /PRNewswire/ - Ballard Power Systems (NASDAQ: BLDP; TSX: BLDP) today announced consolidated financial results for the third quarter ended September 30, 2018. All amounts are in U.S. dollars unless otherwise noted and have been prepared in accordance with International Financial Reporting Standards (IFRS).
Randy MacEwen, President and CEO said, "Ballard delivered Q3 revenue of $21.6 million, gross margin of 30% and Adjusted EBITDA of ($3.6) million. Financial results disappointed in Q3, primarily due to a slower-than-expected ramp-up in China, while the Company's long-term value and growth potential improved in the quarter. Near-term headwinds in China resulted in a material reduction in MEA sales to the Guangdong Synergy-Ballard joint venture in Q3 and in our outlook. Slower growth in market demand has been primarily the result of the relatively modest pace of hydrogen fueling station roll-out, along with evolving government subsidy rules and delays in Fuel Cell Electric Vehicle, or FCEV, certifications. During the quarter, however, we also announced a strategic collaboration with Weichai Power, announced the divestiture of our Power Manager business, and unveiled our next-generation fuel cell stack. We continue to position Ballard as the leading fuel cell technology provider in the FCEV market for Heavy Duty Motive applications - a market poised for attractive long-term growth in key global geographies."
Mr. MacEwen continued, "Our strategic collaboration with Weichai Power, which we anticipate closing by year-end, is expected to be a positive long-term catalyst for our business. Weichai is a leading Chinese automotive and equipment manufacturer with a strategic focus on China's new energy business segment. This strategic collaboration is validation of the FCEV value proposition in Heavy Duty Motive applications and Ballard's technology leadership position in the PEM fuel cell industry. This transaction will strengthen our balance sheet through equity investments of approximately $183 million, including a further investment of approximately $20 million from Zhongshan Broad-Ocean Motor. Over the next 3 years, we also expect to deliver against our $90 million Technology Solutions program related to a next-generation technology transfer to the planned Weichai-Ballard joint venture."
Given the uncertainties regarding Synergy-Ballard joint venture's ability to meet its "take or pay" commitment under its contract with Ballard, the Company is taking the prudent step of removing the remaining value of this contract from the Order Backlog and 12-month Order Book. With this adjustment, the Order Backlog and 12-month Order Book at the end of Q3 were $122.7 million and $59.6 million, respectively. Ballard is working with the joint venture and other partners to address current issues and future opportunities.
This adjustment, combined with the recent sale of the Power Manager business - which closed in October 2018 - and the associated absence of Power Manager revenue in Q4 2018, results in expected full-year 2018 revenue of approximately $90-95 million.
Q3 2018 Financial Highlights
(all comparisons are to Q3 2017 unless otherwise noted)
-- Revenue was $21.6 million, a year-over-year decline of 32% due primarily
to lower Heavy Duty Motive product shipments and lack of one-time
revenue from China that was generated in 2017.
-- The Power Products platform generated revenue of $11.2 million, a
decrease of 47%:
-- Heavy Duty Motive revenue was $6.3 million, a decrease of 65%
primarily related to lower shipments of products to China, including
MEAs for the Guangdong Synergy-Ballard joint venture;
-- The Portable Power business generated revenue of $1.9 million, an
increase of 124% due to Power Manager shipments to complete an order
for the U.S. Army;
-- Material Handling revenue was $2.7 million, an increase of 31%
primarily due to a shift in product mix; and
-- Telecom Backup Power revenue was $0.3 million, a decrease of $0.3
million resulting primarily from reduced hydrogen-based product
shipments to Europe and Japan.
-- The Technology Solutions platform generated revenue of $10.4 million, a
decrease of $0.2 million.
-- Gross margin was 30%, a 2-point decline reflecting the change in the mix
of products and service revenue.
-- Cash operating costs(2) were $10.6 million, an increase of 13% primarily
attributable to an increase in research and product development costs,
including work related to next-generation fuel cell stack and modules.
-- Adjusted EBITDA(2) was ($3.6) million, a decline of 512% or $4.5
million, primarily driven by decreased gross margin from lower revenues,
as well as increased cash operating costs.
-- Net loss was ($6.0) million, a decline of $5.0 million.
-- Net loss per share was ($0.03) compared to ($0.01) in Q3 2017.
-- Adjusted net loss(2) was ($6.0) million, a decline of $5.0 million.
-- Adjusted net loss per share(2) was ($0.03) compared to ($0.01) in Q3
2017.
-- Cash used by operating activities was ($7.7) million, flat compared to
Q3 2017, and reflecting cash operating loss of ($4.9) million and use in
working capital of ($2.8) million.
-- Cash reserves were $23.2 million at September 30, a decrease of 61% from
the end of Q3 2017 and a decrease of 34% from the end of the prior
quarter. Cash reserves were impacted in the quarter by the acquisition
of certain strategic assets of Automotive Fuel Cell Cooperation
Corporation for approximately $4 million, as well as a build-up of
inventory in advance of product demand. Subsequent to the quarter, $1.3
million in net cash was received at the closing of the divesture of the
Power Manager business.
Q3 2018 Highlights
Strategic Collaboration in China
Announced a
strategic
collaboration with
Weichai Power Co.,
Ltd. ("Weichai")
-- which includes:
i. Equity investment by Weichai in
Ballard of approximately $163
million, representing a 19.9%
interest in the company and
reflecting a price of $3.54 per share
which is a 15% premium to the 30-day
VWAP at the time of the announcement;
ii. Establishment of a joint venture with
Weichai in which Ballard will
initially have a 49% ownership
position;
iii.
$90 million technology transfer to the joint venture related to Ballard's next-generation LCS fuel cell stack and power modules for bus, commercial truck and forklift applications in China; and
iv. Commitment by Weichai to build and
supply at least 2,000 fuel cell
modules for commercial vehicles in
China using Ballard technology.
-- In addition,
Zhongshan Broad-
Ocean Motor Co.,
Ltd., a current
Ballard strategic
investor and
Chinese partner,
agreed to invest a
further
approximately $20
million at the
same $3.54 price
per share and 15%
premium as Weichai
to maintain its
9.9% ownership
position in
Ballard.
-- Use of proceeds are
expected to
include investment
in Ballard's core
fuel cell
business, equity
contributions to
the joint venture
to finance
Ballard's
ownership position
in the joint
venture's
operations, and
support of
potential M&A
transactions.
-- These transactions
are expected to
close in Q4 2018,
subject to
completion of
definitive
agreements,
regulatory
approvals and
other customary
closing
conditions.
Next-Generation Products
-- Unveiled a next-generation high performance
liquid-cooled fuel cell stack, the FCgen(R)-
LCS, which will be a core technology component
of Ballard's 8th-generation power module
portfolio for use in Heavy Duty Motive
applications - including buses, commercial
trucks and trains - planned for initial launch
in 2019, and other applications such as
forklifts.
-- Benefits of the FCgen(R)-LCS are expected to
include:
i.
40% reduction in total-cost-of-ownership;
ii.
Planned operating lifetime of more than 30,000 hours;
iii.
33% increase in power density;
iv.
Ability to start in cold temperatures from -25oC (-13oF);
v.
Tolerance to a widened range of operating conditions;
vi.
Simplified systems integration; and
vii.
Sustainability features.
Divestiture of Non-Core Assets
-- Announced a definitive agreement to divest certain non-core assets of
the company's subsidiary, Protonex, related to the Power Manager
business to Revision Military.
-- Subsequent to the quarter, on October 5, announced that the transaction
had closed and Ballard received an initial payment of approximately $4.1
million, paid in cash and note, with up to a further $11.25 million
payable based on achievement of specific sales objectives during a
12-month earn-out period.
-- Ballard has retained certain assets related to fuel cell propulsion
systems for commercial unmanned vehicles.
U.S. Bus Market
-- Announced that El Dorado National's 40-foot Axess fuel cell bus, powered
by Ballard's FCveloCity(®)-HD module, successfully completed testing at
The Altoona Bus Research and Testing Center in Pennsylvania under a
program established by the Federal Transit Administration (FTA), making
them ready for large-scale deployments under FTA funding.
Other
-- Acquired certain strategic assets of Automotive Fuel Cell Cooperation
Corporation (AFCC), a private company owned by Daimler AG and Ford Motor
Company, enabling Ballard to efficiently and rapidly accelerate
production growth objectives.
-- Subsequent to the quarter, announced two Heavy Duty Motive projects for
which the California Air Resources Board has identified preliminary
funding and for which Ballard will provide fuel cell modules to power
FCEVs planned for 2020 deployment:
-- 2 terminal fuel cell hybrid electric yard trucks to be operated by
TraPac at the Port of Los Angeles, California; and
-- 4 Class-6 fuel cell hybrid electric delivery trucks to be operated
by UPS from its Ontario, California Customer Center.
Q3 2018 Financial Summary
(Millions of U.S. dollars) Three months ended Sept. 30, Nine months ended Sept. 30,
2018 2017
% Change 2018 2017
% Change
GROWTH
Fuel Cell Products &
Services Revenue:(1)
Heavy Duty Motive $6.3 $17.8 -65% $28.9 $37.1 -22%
Portable Power $1.9 $0.9 124% $6.7 $3.0 128%
Material Handling $2.7 $2.0 31% $4.8 $6.2 -23%
Backup Power $0.3 $0.6 -40% $1.0 $1.2 -13%
Sub-Total $11.2 $21.3 -47% $41.4 $47.5 -13%
Technology Solutions $10.4 $10.6 -2% $26.7 $33.5 -20%
---
Total Fuel Cell Products &
Services Revenue $21.6 $31.9 -32% $68.1 $81.0 -16%
---
PROFITABILITY
---
Gross Margin $
$6.4 $10.2 -37% $22.5 $29.0 -22%
---
Gross Margin % 30% 32%
-2-point 33% 36%
-3-points
---
Operating Expenses $11.8 $11.1 6% $37.0 $33.3 11%
---
Cash Operating Costs(2) $10.6 $9.4 13% $31.8 $27.8 14%
---
Adjusted EBITDA(2) ($3.6) $0.9 -512% ($8.3) $1.2 -768%
---
Net Income (Loss) ($6.0) ($1.0) -486% ($15.9) ($5.2) -207%
---
Earnings Per Share ($0.03) ($0.01) -475% ($0.09) ($0.03) -202%
---
Adjusted Net Income
(Loss)(2) ($6.0) ($1.0) -509% ($15.9) ($4.3) -271%
---
Adjusted Net Loss Per
Share(2) ($0.03) ($0.01) -475% ($0.09) ($0.02) -264%
---
CASH
Cash Provided (Used) by
Operating Activities:
Cash Operating Income
(Loss) ($4.9) $0.6 -977% ($9.4) $0.8 -1,302%
Working Capital Changes ($2.8) ($8.3) 66% ($22.5) ($9.8) -129%
---
Cash Provided (Used) By
Operating ($7.7) ($7.7) 1% ($31.9) ($9.0) -253%
Activities
---
Cash Reserves $23.2 $60.1 -61%
---
For a more detailed discussion of Ballard Power Systems' third quarter 2018 results, please see the company's financial statements and management's discussion & analysis, which are available at www.ballard.com/investors, www.sedar.com and www.sec.gov/edgar.shtml.
Conference Call
Ballard will hold a conference call on Thursday, November 1, 2018 at 8:00 a.m. Pacific Time (11:00 a.m. Eastern Time) to review third quarter 2018 operating results. The live call can be accessed by dialing +1.604.638.5340. Slides related to the Company's financial results will be available during the call in the Earnings, Interviews & Presentations area of the Investors section of Ballard's website at www.ballard/investors. The audio webcast of the call will also be archived on this same page of Ballard's website.
About Ballard Power Systems
Ballard Power Systems (NASDAQ: BLDP; TSX: BLDP) provides clean energy products that reduce customer costs and risks, and helps customers solve difficult technical and business challenges in their fuel cell programs. To learn more about Ballard, please visit www.ballard.com.
Important Cautions Regarding Forward-Looking Statements
This release contains forward-looking statements concerning projected revenue growth, product shipments, gross margin, Adjusted EBITDA, cash operating expenses and product sales. These forward-looking statements reflect Ballard's current expectations as contemplated under section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Any such statements are based on Ballard's assumptions relating to its financial forecasts and expectations regarding its product development efforts, manufacturing capacity, and market demand. For a detailed discussion of the factors and assumptions that these statements are based upon, and factors that could cause our actual results or outcomes to differ materially, please refer to Ballard's most recent management discussion & analysis. Other risks and uncertainties that may cause Ballard's actual results to be materially different include general economic and regulatory changes, detrimental reliance on third parties, successfully achieving our business plans and achieving and sustaining profitability. For a detailed discussion of these and other risk factors that could affect Ballard's future performance, please refer to Ballard's most recent Annual Information Form. These forward-looking statements are provided to enable external stakeholders to understand Ballard's expectations as at the date of this release and may not be appropriate for other purposes. Readers should not place undue reliance on these statements and Ballard assumes no obligation to update or release any revisions to them, other than as required under applicable legislation.
Endnotes
:
---
1 We report our results in the
single operating segment of Fuel
Cell Products and Services. Our
Fuel Cell Products and Services
segment consists of the sale and
service of PEM fuel cell products
for our power product markets of
Heavy Duty Motive (consisting of
bus, truck, rail and marine
applications), Portable Power,
Material Handling and Backup Power,
as well as the delivery of
Technology Solutions, including
engineering services, technology
transfer and the license and sale
of our extensive intellectual
property portfolio and fundamental
knowledge for a variety of fuel
cell applications.
(2) Note that Cash Operating Costs,
EBITDA, Adjusted EBITDA and
Adjusted Net Income (Loss), are non
GAAP measures. Non GAAP measures do
not have any standardized meaning
prescribed by GAAP and therefore
are unlikely to be comparable to
similar measures presented by other
companies. Ballard believes that
Cash Operating Costs, EBITDA,
Adjusted EBITDA and Adjusted Net
Income (Loss) assist investors in
assessing Ballard's operating
performance. These measures should
be used in addition to, and not as
a substitute for, net income
(loss), cash flows and other
measures of financial performance
and liquidity reported in
accordance with GAAP. For a
reconciliation of Cash Operating
Costs, EBITDA, Adjusted EBITDA and
Adjusted Net Income (Loss) to the
Consolidated Financial Statements,
please refer to Ballard's
Management's Discussion & Analysis.
Cash Operating Costs measures
operating expenses excluding stock
based compensation expense,
depreciation and amortization,
impairment losses or recoveries on
trade receivables, restructuring
charges, unrealized gains or losses
on foreign exchange contracts,
acquisition costs and financing
charges. EBITDA measures net loss
attributable to Ballard Power
Systems Inc. excluding finance
expense, income taxes, depreciation
of property, plant and equipment,
and amortization of intangible
assets. Adjusted EBITDA adjusts
EBITDA for stock based compensation
expense, transactional gains and
losses, asset impairment charges,
unrealized gains or losses on
foreign exchange contracts, finance
and other income, and acquisition
costs. Adjusted Net Income (Loss)
measures net income (loss)
attributable to Ballard from
continuing operations, excluding
transactional gains and losses,
asset impairment charges, and
acquisition costs.
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SOURCE Ballard Power Systems Inc.
