Ballard Power Systems Inc. (BLDP) Earnings Call Transcript & Summary

Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems Second Quarter 2026 Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Sumit Kundu, Investor Relations. Please go ahead.

Thank you, operator, and good morning. Welcome to Ballard Power Systems Second Quarter 2026 Financial and Operating Results Conference Call. With us on today's call are Marty Neese, Ballard's President and Chief Executive Officer; and Kate Igbalode, Chief Financial Officer. Before we begin, I would like to remind listeners that certain statements made during this call may be forward-looking in nature and are based on management's current expectations, assumptions and beliefs. Actual results could differ materially. Please refer to our public filings for a complete discussion of risk factors and forward-looking statements. Additionally, we will be making statements about our definitive agreement to acquire GeoPura. Completion of the GeoPura acquisition remains subject to customary closing conditions and applicable regulatory approvals with close anticipated sometime in the second half of the year. I will now turn the call over to Marty.

Thank you, Sumit, and good morning, everyone. This morning, I will focus on what I believe is one of the most transformative milestones in Ballard's history, our definitive agreement to acquire GeoPura. I want to detail why this transaction makes compelling strategic and financial sense for both companies, how we value the underlying business and what lies ahead. This is a pivotal moment for Ballard, one that fundamentally expands our business model and accelerates our growth trajectory and underpins our path to profitability. Let me first place this acquisition within the context of our goal to become profitable by the end of 2027. We have made tremendous progress in reducing our product and corporate cost structures, delivering another quarter of positive and improving gross margins and lower year-over-year total operating expenses. Our attention now turns to revenue growth. As a fuel cell engine supplier, effectively one critical component in a large ecosystem, we focus on the technology and innovation levers within our control, namely developing new products for near-term markets, driving down product costs and creating higher margin recurring after-sales service offerings. Expansion beyond component supply and into the extended value chain creates opportunities to accelerate adoption and revenue growth. Through direct influence across the value chain, we can optimize hydrogen supply and total cost of ownership while capturing greater ecosystem value. This brings me to why we are so excited by the GeoPura Ballard combination. GeoPura was founded in 2019 with a clear mission, to provide zero emission power that can be deployed wherever and whenever it is needed. They design, manufacture and operate hydrogen power units, or HPUs, that convert hydrogen into clean electricity using Ballard fuel cell engines at their heart. GeoPura also produces and distributes compressed hydrogen made through electrolysis at their production sites. To date, they have delivered hundreds of tons of green hydrogen using the largest hydrogen distribution fleet in the U.K. They operate a growing fleet of more than 60 HPUs, which are rented directly to customers. Customers are provided a one-stop complete Energy-as-a-Service solution combining fuel supply and power generation equipment, all told they are integrated across the hydrogen value chain from molecule to megawatt. This acquisition is highly complementary for both companies to accelerate our mutual growth. Ballard overcomes the industry's classic hydrogen fuel supply bottleneck and gains immediate access to proven category-defining stationary power products, such as GeoPura's 100-kilowatt portable HPUs that can be towed by a pickup truck to their 500-kilowatt HPU 2 power blocks that can be numbered up to 50 megawatts. GeoPura also comes with established relationships with numerous blue-chip customers. Meanwhile, GeoPura gains the global scale, balance sheet strength, brand recognition and reach needed to expand leases and sales of its HPUs. Ballard provides greater access to heavy-duty mobility customers for hydrogen sales. Together, we expect to scale faster and at a lower cost, transforming Ballard into an Energy-as-a-Service provider capable of lowering total customer lowering total customer -- lowering customer TCO and capturing revenue across the entire value chain. Ballard's fuel cells have been central to GeoPura's products since the beginning, and now we are bringing the entire technology stack under one horizontally integrated solution. To illustrate the strategic power of this acquisition to Ballard, we look at it through a simple framework which we walked through on the deal announcement call. In short, we say 3, 5, 10, now. Three, 3x the growth rate. GeoPura's high-growth business model accelerates our combined trajectory, supporting an expected 3x revenue growth rate. To be clear, this 3x projection is a baseline grounded in their current operations and organic growth. It does not yet factor in major long-term upside opportunities such as expanding hydrogen production, significant cross-selling fuel to our heavy-duty mobility customers, data center opportunities or bringing HPU rentals and sales to North America. These represent highly attractive additive growth vectors. Five, 5x the value capture. By bundling the ecosystem, we expand our value capture per deployed megawatt by approximately 5x compared to selling stand-alone fuel cell engines. While engine sales remain a solid core business, they capture approximately 15% of the total value chain on a dollar per megawatt basis. As ecosystem fleet owners with a recurring equipment rental business combined with fuel, we would control over 75% of this value chain. This integration allows us to lower delivered power costs and guarantee fuel delivery for both stationary and mobility customers. Customers are willing to pay for a simplified solution providing 6 9s of reliable power without the complexity of managing hardware and fuel logistics separately. By offering a fully managed one-stop solution, we make our customers' lives easier, allowing us to accelerate adoption while simultaneously building more predictable, recurring, high-margin revenue streams. Ten, 10x the market. Our total addressable market expands tenfold. This acquisition extends our footprint beyond heavy-duty mobility into an estimated $300 billion installed base of diesel gen sets, with an annual replacement rate of approximately $16 billion per year. A rapidly growing $4 billion data center backup power market and a $20 billion hydrogen fuel supply market. This forms a highly complementary two-way bridge. Ballard gains immediate entry into high-growth stationary and fuel markets, while GeoPura leverages our global brand and deep industrial experience to expand into heavy-duty mobility in North American markets. Now, cost parity now. We are not waiting on future technology or other innovation milestones. We are focused on ready now markets with supportive policies such as the HAR program in the U.K. In such regions, GeoPura's HPUs achieved cost parity with incumbent diesel today. By unifying our organizations, we have the ability to drive further scale and efficiencies in engineering, supply chain optimization, component cost reductions and vertical integration benefits. By further lowering costs, we can expand the geographic markets where our solutions win on pure economics. Ultimately, customers can have both, clean energy and lower costs. Importantly, this acquisition supports and strengthens our path to becoming profitable by the end of 2027. We are acquiring a high-performing business already on a clear trajectory towards profitability with proven technology, operating model and enviable customer base. The underlying leasing model is straightforward. GeoPura's HPUs have an expected operating life of approximately 15 years with an expected capital payback period under 3 years due to high-margin rental revenue and fuel supply mix. As the fleet expands recurring hydrogen fuel cells from their hydrogen production sites grow in tandem, this creates a self-reinforcing, highly profitable growth engine with significant financing flexibility to fund sustainable growth. These strong economics underpin our agreement to acquire GeoPura for GBP 275 million in upfront consideration. This valuation is supported by GeoPura's highly defensible operational reliability advantage. Delivering 6 9s uptime of mission-critical power to customers require seamless orchestration across production, distribution, logistics and site operations. GeoPura has solved this operational puzzle, creating a significant competitive moat. This proven reliability is why their HPUs are already trusted to power live TV and film productions for major events like the PGA Tour, and to provide critical power for the U.K.'s largest multiyear construction project, the lower TMS Crossing. In addition to a portion of their expected GBP 38 million pounds or approximately USD 50 million of revenue in 2026, we also anticipate realizing approximately $25 million in annual run rate EBITDA synergies by 2028 through joint manufacturing, supply chain integration, cost reductions through vertical integration and commercial cross-selling. We are targeting a September close pending customary approvals. Our teams are deeply focused on integration planning, communications and day 1 execution readiness. This will ensure we have a successful launch and rapidly seize the numerous opportunities in front of us. Now before I turn the call over to Kate, I want to express my immense gratitude for the combined teams of Ballard and GeoPura. Our long-standing relationship has served us well over the past months as we execute this deal. Once we are closed, we can double down on providing great service and value to our combined customer base. With that, I will hand the call over to Kate.

Thanks, Marty. I would like to briefly comment on our commercial and financial progress in the quarter. Order intake in the quarter exceeded $64 million, driven by order flow from our previously announced wins in the transit Best market, such as New Flyer, as well as a multiyear commitment for more than 150 fuel cell modules GeoPura. This stationary order further highlights the growth of the hydrogen gen set market and reinforces the immediate synergies of our acquisitions. Additionally, we saw positive and improving gross margins alongside a year-over-year increase in revenue and decreases in both operating expenses and cash usage. All of this continues our steady progression towards becoming profitable by the end of 2027, a trajectory that the GeoPura acquisition adds to and more. Total revenue for the quarter was $20.6 million, representing a 15% growth compared to Q2 2025. The growth is attributed to increases in bus, stationary and other markets, in particular, materials handling. Gross margin was 20% compared to negative 8% in the prior year period. This represents a 28-point improvement year-over-year. Gross margin improvement was largely driven by product cost reduction initiatives and lower manufacturing overhead costs and through adjustments to warranty and inventory provisions, which further lifted margins. It is worth noting that the warranty adjustments are as a result of our fuel cell engine demonstrating high reliability and field durability, allowing us to reverse warranty provisions we recorded in prior years. While these adjustments are onetime in nature, the performance improvements are expected to be reflected in our ongoing product costs and associated margin supporting our pathway to profitability and underscoring our technology capabilities. Total operating expenses were $20.9 million, representing a 34% reduction compared to prior year. And adjusted EBITDA was negative $9.8 million compared to negative $30.6 million in Q2 2025. Cash used in operating activities was $11.4 million compared to $20.3 million in the prior year, and we ended the quarter with over $502 million in cash and cash equivalents. We continue to maintain a strong balance sheet with significant liquidity and no near-term financing requirements. Looking ahead and consistent with prior practice, we are not providing specific revenues, net income or margin guidance given the early stage of market development. We continue to expect revenue to be roughly 60% back half weighted for the year. Total operating expenses are expected to be between $65 million and $75 million and capital expenditures are expected to be between $5 million and $10 million. We expect to update this guidance after Ballard closes the GeoPura acquisition, which we anticipate will be later this year. With that, I'll turn the call over to the operator for questions.

[Operator Instructions] The first question comes from Brad Bran with Capital Markets.

Just wanted to follow up on one of your comments on the GeoPura acquisition around some of the growth opportunities you see, specifically the North American APU market. What's the sort of the view there? What that can be or maybe how you enter that market or areas that you would look to address there?

Yes. So I think the starting point for Canada and the U.S., North American markets, we would replicate some of the early success that GeoPura has used to land and expand, if you will, HPU deployments in other markets. For example, some of the current customers that are part of GeoPura's portfolio are multinationals that have a presence in both Canada and the U.S. We would seek sponsorship from those customers and seek to grow their business outside the U.K. and EU and replicate the same sorts of deployments in Canada and the U.S. That includes largely market opportunities around film, TV, live productions and events. That's been a very good multinational platform, if you will, and also for construction. So there are large construction companies that have international operations, and they're looking to replicate the same sort of solutions that they've enjoyed in the U.K. and the EU outside of those environments and into Canada and the U.S.

Okay. Great. And then, I guess, do you see kind of the -- that business continuing to be a recurring revenue model where you're doing the fuel supply and the rental model together. Is that the sort of the vision sort of in the U.S. market or the North American market as well?

That's correct. Yes, we would look to replicate the model outside the U.K. and EU. And over time, if you look on an extended horizon, which we'll cover more in our Ballard Forum in October. We look to be a very good supplier of green hydrogen through both integrated capabilities as well as partnerships.

The next question comes from Ameet Thakkar with BMO Capital Markets.

Congrats on another quarter of progress. Just -- this might be a bit of a kind of a housekeeping or kind of an accounting question. But I know you guys mentioned as part of the orders this quarter that a portion of that is for GeoPura units. When that acquisition closes, will you be kind of -- will that kind of, I guess, be reduced as an intercompany elimination? And I've got 1 follow-up on GeoPura.