Ballard Power Systems Management Discusses Q2 2012 Results - Earnings Call Transcript

Ballard Power Systems (BLDP)

Q2 2012 Earnings Call

August 14, 2012 11:00 am ET

Executives

Guy McAree

John William Sheridan - Chief Executive Officer, President, Director, Ex-Officio Member of Management Development, Nominating & Compensation Committee, Ex-Officio Member of Corporate Governance Committee and Ex-Officio Member of Audit Committee

Tony Guglielmin - Chief Financial Officer and Vice President

Analysts

Jeff Osborne - Stifel, Nicolaus & Co., Inc., Research Division

Michael Cikos - Sidoti & Company, LLC

Walter Nasdeo - Ardour Capital Investments, LLC, Research Division

Presentation

Operator

Hello, this is the conference operator. Welcome to Ballard Power Systems Second Quarter 2012 Conference Call and Webcast. [Operator Instructions]

I will now turn the conference over to Guy McAree, Director of Investor Relations.

Guy McAree

Thanks. So good morning, everybody. Today's call is for us to discuss Ballard's Second Quarter 2012 Operating Results. And with us today, we've got John Sheridan, our President and CEO; and Tony Guglielmin, our Chief Financial Officer.

We'll 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. For a detailed discussion of these statements and the assumptions used in generating them and the risks and uncertainties that could cause actual results to be materially different, please refer to our press release issued last night, our most recent annual information form and other filings.

You should note that Ballard reports financial results in accordance with IFRS. In addition, results are consolidated to include Dantherm Power, are also in U.S. dollars unless otherwise stated.

I'll turn it over to John Sheridan now.

John William Sheridan

Thanks, Guy, and good morning, everyone. Before we begin with our regular report out this morning, I'd like to take a moment to acknowledge what was a very sad event for all of us here at Ballard. Late last week, a long-standing member of our Board of Directors, David J. Smith passed away unexpectedly. David was a distinguished member of the legal profession, a commissioner at the BC Securities Commission, a very valued member of Ballard's Board of Directors and also a personal friend. So our thoughts and our prayers certainly go out to David's family.

Now moving on from that sobering note to the business at hand. As you saw in last night's press release, our Q2 revenues were significantly below expectations. This obviously put pressure on EBITDA and cash. But despite the low shipments and weak revenue, with our aggressive cost management and a pickup in sales booking activity, we posted a few positives in the quarter. The 12-months rolling order book at $54.4 million was up 32% from the end of Q1. Cash operating cost improved 28% and adjusted EBITDA improved 12%.

With those positive points aside, the headline story is obviously the disappointing revenue. So that's where I'll focus and address the obvious questions in terms of the weakness in the quarter, what that implies in both the second half of the year and what we need to do to deliver our guidance for the full year. Following that discussion on revenue, Tony will adjust our path to profitability, cash flow and liquidity.

So first, explaining the revenue weakness in Q2. Total revenue in the quarter was $10.3 million, down $8.8 million from last year. Part of the year-over-year reduction is the absence of the Daimler manufacturing contract. That contract concluded third quarter last year, you'll recall. And that provided $4.6 million in Q2 last year, so that's obviously significant to the year-over-year change.

As we have discussed, our plan had been to offset this loss revenue with strong growth in fuel cell products and moderate growth in material products. However, we did not deliver that plan in Q2. Material products in Q2 continued to be weak. Fuel cell products had limited shipments and backup power, and no shipments in the quarter in bus.

Drilling down in these 3 areas, material products revenue is weak at $3.5 million for the quarter. Two reasons for this, both of which are expected to recover in the second half: cover and friction material sales were negatively impacted by the timing of customer programs and inventory levels; and fuel cell GDL, gas diffusion layer material, shipment sale were down as well related to technical issues experienced by a third-party fuel cell customer. And again, both those factors are expected to turn around in the second half of the year.

Turning to bus modules. We didn't have any bus module shipments in Q2. We had discussed on our last couple of calls the challenges in advancing the Sao Paulo LOI into a contract. And then in June, of course, as you recall, we announced a reset of our full year guidance, reflecting the removal of forecast bus sales to Brazil this year. So we still see the potential. We still see the opportunity. We're still working on the opportunity, but we see that as a 2013 item, not 2012. And although there's activity in bus outside of Brazil, that slipped to the second half of the year. So no bus activity in Q2.

In backup power, we saw a decline in product shipments, which you noted in the press release, of 79% in Q2. And again, a pretty simple explanation, this was largely related to IdaTech and explained by the fact that IdaTech's principal shareholder had decided some months previously to exit the market. So as a result, IdaTech was not focused on sales and orders, and we had 0 shipments to IdaTech in Q2. Now that's changed, of course, with our recently announced acquisition of select IdaTech assets, so IdaTech becomes a key growth driver for us in terms of the methanol systems that we will now sell directly starting in Q3.

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