Ballard Power Systems recently announced its consolidated financial results for the third quarter ended September 30, 2015. All amounts are in U.S. dollars unless otherwise noted and have been prepared in accordance with International Financial Reporting Standards (IFRS).“The quarter-over-quarter top line trajectory through Q3 is consistent with our previously stated expectation that full-year revenue will be heavily weighted towards the second half of 2015,” said Randy MacEwen, President and CEO. “In Q3, we announced two major deals in China for our Heavy Duty Motive market segment. First, we announced the largest-ever global deployment of fuel cell buses, which is planned to put 300 zero-emission fuel cell transit buses onto the streets of two major cities in China. This program has an initial estimated value to Ballard of $17 million through 2016. Second, we announced a $6 million program for the development of a 200 kilowatt fuel cell engine for integration into low floor trams manufactured by CRRC Sifang.”
Mr. MacEwen continued, “In addition, on October 1st, we announced the closing of our acquisition of Protonex. The acquisition of Protonex – just as Protonex is reaching an expected bend in its growth curve – coupled with our growing sales order book and pipeline in the Heavy Duty Motive market, are supporting a favorable foundation for 2016.”
Q3 2015 Metrics Summary
(all comparisons to Q3 2014 unless otherwise noted)
- Total revenue of $16.0 million, a decrease of 22% primarily due to declines in revenue from Telecom Backup Power and Technology Solutions.
- Gross margin of 25%, flat on a year-over-year basis, although up 15-points from Q2 2015 due to shipments of relatively high margin bus modules and parts in relation to a transaction in China announced in Q2.
- Cash operating costs2 of $6.7 million, an increase of 20%, due to higher research and product development costs as general and administrative costs and sales and marketing costs were relatively flat.
- Adjusted EBITDA2 of ($2.4) million, an increase in Adjusted EBITDA loss on a year-over-year basis, due to the decline in gross margin dollars resulting from the overall decline in revenue, combined with an increase in cash operating costs.
- Net income (loss) of ($4.1) million or ($0.03) per share, reductions in both metrics driven primarily by the increase in Adjusted EBITDA loss.
- Cash used by operating activities of ($4.1) million, a year-over-year increase of $1.2 million. This reflects a cash operating loss of ($3.4) million and a change in working capital of ($0.7) million.
- Cash reserves of $49.2 million at September 30, including the net proceeds of $13.3 million from an equity financing that closed on July 7.
Q3 2015 Market Performance
(all comparisons to Q3 2014 unless otherwise noted)
The Power Products platform – consisting of fuel cell products for the Telecom Backup Power market, the Material Handling market and Development Stage markets, primarily bus – generated revenue of $9.5 million in the quarter. This represents an 8% year-over-year decline primarily due to a reduction in system shipments for the Telecom Backup Power market, partially offset by an improvement in revenue from Development Stage markets.
Telecom Backup Power Market
- Revenue of $0.5 million, a decrease of 88%.
- Announced receipt of a purchase order for 50 ElectraGenTM-H2 direct hydrogen modules from Aditya Birla Group, for deployment in the Idea Cellular wireless telecom network in India.
Material Handling Market
- Revenue of $3.4 million, a year-over-year decrease of 5%, although an improvement over Q2 2015 resulting from increased fuel cell stack shipments to Plug Power.
Development Stage Markets
- Revenue of $5.6 million, an increase of 158%, primarily due to shipments of power modules and parts kits under the China bus transaction announced in Q2.
- Announced planned development and 2016 launch of two new configurations of the FCvelocity®-HD7 power module, to deliver 30 kilowatts (kW) and 60kW of power, respectively, for use in smaller buses and to provide range extension solutions.
- Announced a deal to power 300 buses in the Chinese cities of Foshan and Yunfu, the largest ever global deployment of fuel cell-powered buses. The transaction, valued at $17 million through 2016, with existing partner Guangdong Synergy Hydrogen Power Technology Co. Ltd., will include Ballard’s new 30kW and 60kW power modules in addition to Technology Solutions work. The transaction also includes a long-term supply and license agreement effective beyond 2016.
- Announced a joint supply and development agreement with CRRC Qingdao Sifang Company, Ltd. for a 200kW FCvelocity fuel cell engine to power low floor trams in China. The agreement, which includes 2016 delivery of 10 customized FCvelocity modules, has an initial value of $6 million.
The Technology Solutions platform – consisting of engineering services and intellectual property licensing – generated revenue of $6.5 million in the quarter, a year-over-year decline of 37%, primarily due to Q3 2014 revenue having included licensing contracts in China that Ballard subsequently terminated as well as the impact on revenue from the Volkswagen Group contract due to a lower Canadian dollar, relative to the U.S. dollar, as the Volkswagen Agreement is priced in Canadian dollars.
Close of Protonex Acquisition
Subsequent to the quarter, on October 1, Ballard announced the successful close of the acquisition of Protonex Technology Corporation (“Protonex”; www.protonex.com), a leading designer and manufacturer of advanced power management products and portable fuel cell solutions. As consideration for the transaction, Ballard assumed and paid certain of Protonex’s debt obligations and transaction costs on closing of approximately $4.0 million, and has issued approximately 11.4 million Ballard shares to Protonex shareholders.
Nisshinbo Strategic Investment in Ballard
On October 27, Ballard entered into a Subscription Agreement for a $5 million strategic investment by Nisshinbo Holdings Inc., a longtime supplier of carbon plates, through subscription and purchase of approximately 3.3 million Ballard common shares issued from treasury. The transaction is expected to close in early November 2015 and proceeds will be used for general corporate purposes, including M&A activities that may be identified in the future.