Ballard Power Systems Q1 2026 Earnings Call - Positive Gross Margins for Third Straight Quarter as Fleet Services Strategy Takes Shape

Conference Operator, Conference Operator: Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems first quarter 2026 results conference call. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press Star, then one on your telephone keypad. Should you need assistance during the conference call, you may reach an operator by pressing Star, then zero. I would now like to turn the conference over to Sumit Kundu, Investor Relations. Please go ahead.

Sumit Kundu, Investor Relations, Ballard Power Systems: Thank you, operator. Good morning. Welcome to Ballard’s first quarter financial and operating results conference call. With us today on the call are Marty Neese, Ballard’s President and CEO, Kate Igbalode, Chief Financial Officer, and Ralph Robinett, Ballard’s new Chief Operating Officer. We will be making forward-looking statements based on management’s current expectations, beliefs, and assumptions concerning future events. Actual results could differ materially. Please refer to our most recent annual information form and other public filings for our complete disclaimer and related information. I’ll now turn the call over to Marty.

Marty Neese, President and Chief Executive Officer, Ballard Power Systems: Thank you, Sumit, and welcome everyone to today’s conference call. This morning, I will give an overview of our Q1 2026 performance and provide a commercial update. I will focus on the progress we are seeing in the bus market. We are also joined by our new Chief Operating Officer, Ralph Robinett. He will introduce himself and share updates on our operations. Kate will then review our financial results in more detail. We had a solid start to the year. Deliveries into the bus and rail markets drove revenue growth compared to last year. We also delivered another quarter of positive gross margins. This is our 3rd consecutive quarter of positive gross margin. It reflects disciplined cost and commercial management and marks an important step in our transformation toward becoming cash flow positive.

To build on this progress, we have set a few near-term focus areas, including deepening our partnerships with bus OEMs in key geographies, improving and expanding our Ballard Fleet Services capabilities and offerings, lowering costs through automation and intelligence. I’ll spend a few minutes on these and provide some additional color. Turning to buses. We have made several important announcements in the bus market this year. In North America, we signed a multi-year agreement with New Flyer, representing approximately 50 MW of fuel cell engine supply. This strengthens our position as fleets continue to scale in the U.S. bus market. In the U.K., Wrightbus selected Ballard to power its next-generation hydrogen bus platform using our newest FCmove-SC engine. In the EU, Solaris also selected Ballard as the fuel cell supplier for its next-generation hydrogen bus platform, including the FCmove-SC for its 12-meter bus.

These announcements matter for several reasons. First, these new agreements are multi-year partnerships with leading bus OEMs in major markets. They include both engine sales and long-term service support. This strengthens our position as fleets scale and as our fleet services business continues to grow. Our intelligent fuel cell engines help us deliver better service. They provide real-time performance data that allows us and our OEM partners to respond faster and keep buses on the road. Our remote operations center adds another layer of support by improving parts planning, logistics, and predictive insights. Combined with our industry-leading durability, these capabilities position our engines as a zero-emission solution that can match or even exceed battery, electric, and diesel alternatives on uptime and total cost of ownership. Ballard Fleet Services plays a key role in this strategy.

We are moving from being only a module supplier to becoming a proactive, data-driven fleet partner. Our approach is built on more than 300 million kilometers of real-world operating data. Using this experience, we created the industry-first uptime standard, which brings together predictive maintenance, training, service support, and parts assurance. These offerings are designed to deliver up to 98% fleet availability. This creates real value for OEMs by reducing after-sales friction and lowering risk. It also gives operators more predictable life cycle costs and stronger protection against budget swings. As our installed base grows, these services expand our recurring revenue and turn our fleet into a long-term strategic asset. Second, these long-term agreements support our product cost reduction goals. Both Wrightbus and Solaris have committed to our ninth generation FCmove-SC platform. This engine was designed to reduce cost and simplify installation and maintenance.

We cut the number of components by more than 40% while improving power density and durability. Each new bus we deploy also creates a long tail of service opportunities. Buses stay in service for 8, 12, and even 16 years. Our growing fleet gives us a multi-year runway for operations, maintenance, and training services. Through Ballard Academy, we continue to support operators and technicians with the skills they need to run these fleets effectively. Taken together, these agreements and deep relationships reinforce our long-term market position. Ballard holds a leading share of the fuel cell bus market in North America, the U.K., and Europe. Being selected for next generation platforms positions us to maintain that leadership as adoption accelerates and total cost of ownership continues to improve. Delivering industry-leading fleet services throughout the life of the bus is a major opportunity, and we are only getting started.

We will now move to operations, which are central to delivering scalable, cost-competitive, and commercially ready products. For that, I will hand it over to our new Chief Operating Officer, Ralph Robinett.

Ralph Robinett, Chief Operating Officer, Ballard Power Systems: Thank you, Marty. Good morning, everyone. I’m pleased to join Ballard at this pivotal stage in our transformation. By way of background, I bring more than 25 years of experience in operations, manufacturing, and supply chain across advanced technology and clean energy companies. My career has been defined by a focus on implementing the operational frameworks necessary to move advanced technologies from lab to high volume manufacturing, scaling production, launching new products, and using automation to improve productivity and reduce costs. Most recently, I served as Chief Operating Officer and a leader in the residential solar manufacturing and service space. I led manufacturing, supply chain, fulfillment, and factory expansion. This included the launch of an automated production facility built around a closed loop learning process where field performance data from tens of thousands of homes fed directly back into the product design and process improvement.

Proactively taking action to prevent performance issues further differentiated our products, services, and solutions in the eyes of the customers. In short, I bring a track record of scaling technology and building efficient, high-quality manufacturing and service systems. This aligns directly with Ballard’s goal of reducing costs as we move towards cash flow positivity. What excites me about Ballard is the combination of strong technology and a market that is now scaling. As Marty noted, this shift requires a sharp focus on execution. My team and I are prioritizing what matters most to our customers. Quality, cost reduction, improved throughput, consistent delivery at scale, and closed loop issue resolution. Relentless customer collaboration used to drive product and process improvements directly from customer field data and performance is critical. A key part of our process improvement work is Project Forge, our high volume automated bipolar plate manufacturing line.

At Ballard, we already use AI-assisted vision systems to detect defects in our MEAs. With Project Forge, we are deploying the same methodology to detect defects in our plates. By moving to higher volume with significantly more automation, we expect lower unit cost, reduced material waste, and improved quality, consistency, and scalability. We continue to expect Project Forge to enter full production in the second half of the year. Delivering that ramp successfully is a top priority. As mentioned, we are increasingly focused on optimizing the value of the intelligence of our engines. While the first order of business is to maximize uptime for our customers, there is even more we can do with these data-driven insights. As our deployed fleet continues to grow, we are increasingly leveraging the engine performance data from the field, creating insights to feed back to our manufacturing, supply chain, and product development teams.

Ultimately, this work is about serving our customers by driving efficiency, simplifying our processes, improving quality, lowering costs, and ensuring we can deliver high performance products at scale. Much of this happens behind the scenes, but I expect we will see the impact in product margin expansion and improved working capital management as these changes take hold. Marty, back to you.

Marty Neese, President and Chief Executive Officer, Ballard Power Systems: Thanks, Ralph. Before I turn the call over to Kate, I will close with a few brief thoughts. Across the business, we remain focused on balancing cost discipline with growth. We are reducing product costs, improving commercial structures, and expanding our service offerings. We are also moving into new applications where our technology provides a clear advantage. Today, we highlighted progress in commercial terms and product cost reductions through our work in the bus market and through our operational initiatives. We also have additional business development activities underway in rail, material handling, and stationary power. In stationary power specifically, we continue to see green shoots of opportunities to improve grid stability and energy resilience, including in defense applications with NATO nations. These collective efforts are important building blocks for long-term growth. We will continue to update you as these programs advance.

Stepping back, we are encouraged by the progress we are making. We are seeing stronger gross margins, better commercial agreements, and continued cost reduction. These are clear signs that our transformation is taking hold. There is more work ahead, but we believe we are building a stronger, more scalable business. As a final note, we will be hosting our capital markets day event, called the Ballard Forum, on October 22nd of this year. This will be an opportunity to get an up close look at our work and discuss in depth our path to profitability. With that, I will turn the call over to Kate.

Kate Igbalode, Chief Financial Officer, Ballard Power Systems: Thanks, Marty. As Marty mentioned earlier, we continue to make progress toward positive cash flow in Q1. These results reflect the early impact of the transformation initiatives underway across the business. Total revenue for the quarter was $19.4 million, which represents a 26% growth compared to last year and is driven by our rail and bus verticals. Gross margin improved to 14%. This is a 37 point increase compared to Q1 2025. It also marked our third straight quarter of positive growth margin. The improvement was driven by higher revenue and lower manufacturing overhead. Turning to operating expenses and cash. Our total operating expenses were $16.4 million, which is a 36% reduction compared to last year. The decrease reflects disciplined cost control across R&D, SG&A, and commercial activities.

It also reflects the benefit of restructuring actions completed in 2025. Cash used in operating activities was CAD 7.8 million. This compares to CAD 24.4 million in the prior year, a 65% improvement. The change reflects the impact of restructuring actions and stronger operating performance as the business continues to scale. Adjusted EBITDA improved to negative CAD 11.4 million compared to negative CAD 27.5 million in Q1 of 2025. The improvement was driven by stronger margins and lower operating expenses. We ended the quarter with CAD 516.8 million in cash and cash equivalents. This is a decrease of about 2% from the prior quarter, and we have no bank debt and no near or midterm financing needs.

This strong balance sheet gives us the flexibility to deploy capital in support of our goal of becoming cash flow positive. Consistent with past practice and given the early stage of the hydrogen fuel cell market, we are not providing specific revenue or net income guidance for 2026. We do expect revenue to be weighted towards the second half of the year. Our 2026 guidance ranges are as follows: total operating expense of CAD 65 million-CAD 75 million and capital expenditures of CAD 5 million-CAD 10 million. With that, I’ll turn the call over to the operator for questions.

Conference Operator, Conference Operator: Thank you. We will now begin the question-and-answer session. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. We ask callers to kindly limit themselves to one question and one supplemental. We will pause for a moment as callers join the queue. The first question today comes from Baltej Sidhu with National Bank. Please go ahead.

Baltej Sidhu, Analyst, National Bank: Good morning. Could you elaborate on the drivers behind the strong growth in stationary revenues? Specifically, how much was supported by one-time deliveries and the extent to which demand is coming from data center customers versus traditional verticals?

Marty Neese, President and Chief Executive Officer, Ballard Power Systems: I’ll start. The stationary power business that we’re seeing growth in year over year is largely diesel gen set replacement business, not necessarily tied to data centers. The data center opportunity is an area of deep exploration for the company, and we expect that to materially change as we go forward. Right now, the increase that you’re seeing is more what I would call diesel gen set replacement business in the stationary power market.

Baltej Sidhu, Analyst, National Bank: All right. That’s great. Just on the bus segment, what were the key drivers of the decline this quarter? Was it largely delivery timing related, or are there any changes in customer ordering patterns or funding dynamics that we should be aware of?

Marty Neese, President and Chief Executive Officer, Ballard Power Systems: Sorry, what was the first part of the question?

Baltej Sidhu, Analyst, National Bank: Just on the bus segment, the key drivers of the decline this quarter for the year-on-year.

Marty Neese, President and Chief Executive Officer, Ballard Power Systems: It’s just timing. More than anything else, it’s the amount of inventory they have in the channels already and their build out, if you will. Additionally, in the EU, there was some slowness in some of the funding support, and that translated into year-over-year changes in the demand flow. We expect that to change going forward as the friction is reduced. More importantly, though, is the Wrightbus and Solaris announcements are huge wins for the company. Those are major design wins for next generation buses.

No matter of the lumpiness of the 2025 to 2026 epoch, if you will, we see that as being really strong indications of the value of our new product, and that will translate materially into significant demand in our order book over the protracted period of multi-year agreements, if you will.

Conference Operator, Conference Operator: The next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.

Rob Brown, Analyst, Lake Street Capital Markets: Hi, good morning. First question’s on the fleet services business model that you’re developing. How do you see that playing out? Do the new sales kind of come with a service contract element as well? What’s your sort of vision on how the service business develops?

Marty Neese, President and Chief Executive Officer, Ballard Power Systems: Yeah. That’s a great question, Rob. Yes, for sure, each new sale does come with a service level agreement accompanying it. That’s a matter of basic warranty, extended warranty, parts packages, training. We have just an entire suite of value-added activities and services that we’ve been complementing our initial CapEx sales with. What that translates into with the long asset life is an extended service tail. You could think of that as like you get the one-time sale of the CapEx, but then you get an annuity of the service for the duration of the extended asset.

Rob Brown, Analyst, Lake Street Capital Markets: Thank you. Then on the rail business was strong in the quarter, and I think you have some kind of contracts you’re delivering, but how’s the rail business sort of play out over the next few years? Is it or a few quarters, I should say. Is it delivering your current contracts or just a sense of how the cadence of that flows?

Marty Neese, President and Chief Executive Officer, Ballard Power Systems: We’re expecting that the prior work done in the rail business is now opening up future opportunities for us. What I mean by that, to be more specific, is we did very large-scale deployments with rail customers, and they’ve had the products in their hands for some period of time. As they’re starting to see the value proposition come into starker relief and getting more and more comfortable and familiar with a fuel cell locomotive, if you will, they’re starting to be more bullish on their future, which bodes well for us. We think that could be a really exciting piece of business for us.

It could end up being one of those kind of annuity type accounts, where every year there’s a capability to replace diesel engines with fuel cells and do that year after year after year until they materially decarbonize fleets. That’s early days for us, but the product is performing well, the team is happy, the customers are happy, and we expect that there will be further advancements in that market over time.

Conference Operator, Conference Operator: The next question comes from Michael Glen with Raymond James. Please go ahead.

Michael Glen, Analyst, Raymond James: Hey, good morning. Can you maybe just discuss how has the infrastructure and hydrogen availability changed? Do you see any meaningful investments taking place behind the scenes to improve hydrogen availability or distribution of hydrogen?

Marty Neese, President and Chief Executive Officer, Ballard Power Systems: We have been seeing meaningful progress in the availability of molecules. The supply is reasonable. The unit economics is what needs to continue to improve, and that’s starting to also gain a bit more momentum. When you start being able to provide molecule suppliers with stronger and more predictable patterns of offtake, they can get more aggressive in their pricing depending on the tenor of the contracts that they are signing with different folks. Our job so far is to focus on creating the downstream demand and the offtake signal that allows the supply to keep being built and being consumed appropriately. So far, so good on that, and we’re starting to see more and more interest outside of, like, the large scale industrial use cases, and that bodes well for applications such as mobility and stationary power.

Michael Glen, Analyst, Raymond James: The Historically, I guess a lot of hydrogen has been generated from fossil fuel, like natural gas type sources. Have you seen any change to bring back renewables in terms of hydrogen generation or anything along those lines?

Marty Neese, President and Chief Executive Officer, Ballard Power Systems: Yeah. My prior comments were really focused more on green hydrogen. Green hydrogen is starting to see more and more penetration. The traditional gray hydrogen, methane-based gray hydrogen, is certainly going nowhere. It’s there, it’s incumbent. It is competing with other outlets for natural gas, if you will. Gray hydrogen has to have its own economic footing. But green hydrogen is starting to take more and more advantage of the penetration of renewables around the globe. The green hydrogen and to some degree blue hydrogen, will find their paths on an increasingly ambitious agenda, if you will, over the next few years.

Conference Operator, Conference Operator: This concludes our question and answer session. I would like to turn the conference back over to Marty Neese for any closing remarks.

Marty Neese, President and Chief Executive Officer, Ballard Power Systems: Thank you for joining us today. We look forward to speaking with you next quarter.

Conference Operator, Conference Operator: This brings to a close today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.