Thank you for standing by. This is the conference operator and welcome to the Ballard Power Systems 2015 Second Quarter Conference Call and Webcast. 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. [Operator Instructions] At this time, I would like to turn the conference over to Guy McAree, Director of Investor Relations. Please go ahead, sir.

Thanks very much and good morning everyone. The purpose of today’s call is to discuss Ballard’s second quarter 2015 financial and operating results. And today, we’ve got with us Randy MacEwen, our President and CEO; Tony Guglielmin, our Chief Financial Officer; as well as Paul Osenar, our President and CEO of Protonex Technology Corporation. We’re going to 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. Please refer to our most recent annual information form and other public filings for our complete disclaimer and related information. On today’s call Randy is going to provide his perspective on our year-to-date progress including the strategic rationale behind our Protonex acquisition. Paul will then provide an overview of the Protonex’s business and finally Tony will discuss Q2 performance across key financial metrics. Then we will open the call up for questions and answers. So let me turn the call over to Randy.

Thanks Guy and welcome everyone to our second quarter 2015 earnings conference call. Our financial and operating results in Q2 were consistent with our messaging earlier this year and our pre-announcement on July 1. Consistent with prior messaging, we expect 2015 results to be heavily weighted to the second half of the year. Tony will review our second quarter results as part of this call. When we started the year, we articulated our plan to deliver long-term shareholder value by making further foundational steps in 2015 on our journey to achieve a sustainable business model premised on high growth, scaling and profitability. In Q2, we made significant progress on this journey. First, we announced our proposed acquisition of Protonex; and second, we announced new and important partnerships for fuel cell bus and tram opportunities in China. Before we review the details of our exciting transaction with Protonex, let me first provide you with an update on our rapid progress in China. As you’ll recall, we previously identified the Chinese heavy duty motive segment including bus and tram as a key strategic market for us this year. The macro drivers in China are well known including growing urban populations, a growing need for urban mass transit and a highly political will to address air quality and climate change. These macro drivers informed China’s new energy program. One of the programs specific goals is to deploy more than 1,000 clean energy buses in each of the 48 participating cities. Our China urban mass transit strategy is to collaborate with strong local partners that have market access along with leading manufacturers of new energy buses, leading manufacturers of trains and trams and progressive cities committed to clean urban mass transportation. Our plan is to embed near-term, mid-term and long-term value streams in our…

Thanks Randy and good morning everyone. Let me start by expressing our excitement on Protonex with this prospective working on the Ballard team to drive positive results for the consolidated business. We expect to make a meaningful contribution to those results. What I would like to do today is to provide you with some background of Protonex, a private company that most of you will not be familiar with including our history, target markets, product portfolio, financials, and growth prospects. I’ll begin with a very brief review of history of Protonex and our funding. I co-founded this business in 2000. And through the first number of years funding came from founders and friends as well as commercial and government contracts. We also completed venture capital realms in 2004 and 2005, totaling about $14.5 million. In 2006, we completed an IPO on the AIM exchange in London, and also completed a secondary offering in 2007, raising a total of about $44 million. Our investors following this last equity financing included Parker Hannafin, Goldman Sachs, and Conduit Ventures. In 2010, I became – the company de-listed from the AIM exchange and I became the CEO. The company currently has an ownership structure with approximately 15% of shares held by both current and former employees. 60% held by strategic partners and institutional investors and the remaining 25% held by retail shareholders. Today, we operate out of a leased office in manufacturing facility in Southborough, Massachusetts with 53 employees. The facility includes 17,000 square feet of space dedicated to product development, state-of-the-art testing capabilities and lean manufacturing. Through our 15 year history, Protonex is focused on the development of a suite of power management and power generation products that are among the smallest, lightest, and most capable systems for extreme applications. This has made…

Thanks Paul and good morning everyone. I’ll start by taking you through Ballard’s key financial metrics starting with revenue. As Randy mentioned, revenue in Q2 was $11.2 million, down 39% from the same period last year. Looking first at our power products platform, overall for power products we generated revenue of $6.3 million in Q2, down 15% year-over-year. In Telecom Backup Power, revenue in the quarter was $3 million, an increase of 15% year-over-year driven by the shipment of 100 ElectraGen systems to RJIL in India. In addition, we also shipped systems to customers in South Africa and Europe during the quarter. In material handling, revenue was down 34% to $2.7 million and this was despite – and this despite Plug Power projecting strong revenue growth for the year. Plus has built up inventory of our fuel cell stacks in previous quarters for use in its GenDrive systems. And as such we do expect an increase in material handling revenue through the second half of the year. In development stage markets, revenue decreased by 13% to $0.1 million year-over-year to $0.6 million with one HD6 module shipped in the quarter to the Stark Area Regional Transit Authority for deployments in Ohio. And despite a soft Q2 in bus, we do expect significant growth in the second half of the year. In addition to the opportunities in China, that Randy discussed earlier, we expect to deliver an additional 10 modules in the U.S. through the FTA’s LoNo program this year, five additional modules for Stark Area Regional Transit Authority and another five modules for SunLine Transit Agency. Also during the quarter, we signed a five-year extension to the maintenance contract for the 8-bus fleet for transport for London in the UK that will generate approximately $650,000 per year over the term…

Thank you. We will now begin the question-and-answer session. [Operator Instruction] The first question is from Matt Koranda with Roth Capital Group. Please go ahead.

Good morning everybody and thanks for taking my questions.

Hi, Matt.

Good morning, Matt.

So just want to start with the Protonex acquisition and the growth outlook there. What gives you guy’s confidence in the growth outlook is there a backlog that you could potentially speak to or maybe a pipeline of high probability opportunities that underpin this assumptions. May be some of the new product introductions that Protonex is working on that gives you guys more confidence that you got good visibility into the good performance over the next year to two years?

Yes, so this is Paul. The military we’ve been working with army in particular over the past several years and the introduction of the 622 and going to various field trailing stages and have relatively consistent order year-on-year from that as we find new markets for that. And we don’t have orders outstanding for all of that product to-date but we have high confidence in the pipeline that we developed.

Okay, got it. And then in terms of just the approval process, will this triggers this year’s approval and any challenge is expected during that process. Did you derisk it with them ahead of the transaction? If you could just comment a little bit on kind of what you need to do to close the transaction within the quarter here?

Yes, hi Matt its Tony here. We of course we looked at all of these issues with none were identified so there are no particular issues that we’re – that is standing between now and closing in ALD [ph] U.S. military otherwise. The regulatory closed in the U.S.

Okay, got it. And then Randy I know you been quite active in China. May be you could just help us understand the current quotation in business development activity levels there have they changed it all over the last couple of months. Just help bringing the opportunity here in the context of some of the macro weakness in the data points, we have seen that at China recently?

Yes, I would say, I’ve seen a disconnect between capital markets erosion in the last say, two months in China compared to the customer engagement in interest level. So the customer engagement interest level today is higher than it’s ever been and we’ve seen things accelerating in the last 60 days not slowing down. So we expect to, all the announcements we made in June, we expect to have similar scale type announcements later this year.

Okay, got it. Great. May be one more from me here. You guys touched on it briefly in the prepared remarks but if you could just put a little color into the material handling piece of the business. What do you think, maybe driving some of the lower shipments there aside from inventory building plug I mean are they indicated you that they are doing more with their in-house stack, is that kind of coming in greater than expected or if you could try to maybe put a little color into that for us that would be helpful.

Yes. Matt, the thing I would probably highlight. Obviously plug is a critically important customer to us and our job is to provide them with higher reliability, high quality stacks at the right price and make sure we are managing the customer experience. Well, I think we’ve done a – we’ve certainly done a good job at that over the last number of months typically last nine months since I’m joined the company. I don’t want to comment specifically on plug activities because we are publicly listed company and so I don’t want to comment on cadence or flow or what they might be doing internally. But I will say we expect to see our revenue with plug grow going forward.

Okay, great. That’s helpful. And I’ll jump back in the queue here guys. Thank you.

Thank you, Matt.

The next question is from Rob Brown with Lake Street Capital Markets. Please go ahead.

Hi, good morning.

Good morning, Rob.

Just wanted to follow-up on the Protonex business. Its little more clarity there, are the power management products now sort of standard equipment in the military or these still in the development stage or they moving toward more of a broader rollout. Maybe you could help us kind of understand that the backdrop of what's driving demand in those products?

Right, I don’t know, if you are familiar with the process by which the military adopt new technology. But it’s a multi-year process and we’ve been engaged with them since 2011 in that process. So they are definitely rolling it out towards what I would call standard equipment but in the interim especially for the army, they are going to roll out a lot of volume prior to actually meeting what's call the program of record milestone. So we’ve been working with army partners for these last few years to get to that. And I would see good progress to that – we hope for discontinuity in volume with the army customers as we pass that program of record milestone.

Okay, and do you have sent someone that timing of that program of record milestone can happen or you – and start to predicting the future but you haven’t crossed it yet or when do you think it can happen?

Rob, I think we are looking at probably late 2016 but we can’t preach the post there.

Okay. So you guys know that, that’s a good thing. Good background, and then in the China bus market. I know you gave some timing in terms of the number of units the governments wants in the market but how do you sort of anticipate that showing up in your business, you’ve got the right partners in place when does it sort of convert to standard order flow and the ramping units in the China bus markets?

Yes, so again I think what we are trying to design in China is a strategy where we have near-term, mid-term, long-term cash flow streams to the sale initially of completed modules and kits. Mid-term with opportunity to cell stacks with localization and significant technology solution support to help localize production and longer term of recurring royalty stream, so the structures and deals we have been contemplating and negotiating in China, contemplate those different revenue and cash flow streams. We clearly expect to see additional opportunities signed up in 2015 that will have – I think material impact for us in 2016.

Okay, that’s good. Good color and then on the India telecom order, I know you delivered the first tranche, what’s sort of your thoughts on the timing and potentially the next tranche, it was another couple of hundred, or more units that might be in the pipeline, but what’s the timing look like there?

Yes, so Rob, we have delivered the first 100 units and those products have been received by our customer there RJIL. The expectation is that they will start to install those units and get some initial feedback on how the installations process and support goes as well as some initial field data, so we expect to see the next tranche of orders, the total is contemplated to be 500 and 100 initially we expect to see the next tranche up to 400 secured later this year, in terms of when those projects will hit I think we probably expect to see the materialize in revenue in 2016, but we do expect to get the order this year. I also want to identify to Rob that the as we mentioned at the start of the year, this backup power market does require kind of patients and investments and we are displacing and trenching combines and that can’t done overnight. But we’ve done it on the things in backup power market already this year, I think we will lend itself to longer term growth. So we’ve kind of worked on the value proposition, the value proposition based on kind of total cost of ownership rather with – frankly a higher initial CapEx, but lower total cost of ownership over time. And so we repositioned in kind of more strongly articulated our customer economic value proposition based on higher site reliability and availability in network carving, with more revenue to the customer and as I said lower total cost of ownership. There is a few other things kind of foundational things we have done so far in the first half of the year in backup power that are worth noting so we developed and implemented a new channel program. We have added now,…

Okay, that’s great review. Thank you, I will turn it over.

Next question is from Carter Driscoll with H C Wainwright. Please go ahead.

Good morning guys.

Good morning Carter.

Just moving over – moving back to China, just for second if I may. I’m trying to understand obviously you have a nice agreement for the initial 33 buses. Trying to understand if the growth in those two particular cities requires a new order to go beyond 33 buses is kind of a first part. Second is as you grow into, how to address other 48 cities that China is pushing for the number of busses that they are targeting, you have to reengage different OEMs and the current OEMs engage other cities, just trying to get a sense of how long an engagement with the particular OEM typically takes and what your expectations are when you are trying to figure out beyond your current engagement? Or how you can scale in China.

Yes, so in China, the market is really local. Obviously there are some large OEMs that supply nationally there. But we do see that certain cities prefer in some cases local OEMs. So obviously that’s a factor we have to into account when we’re putting together effectively project syndicates. But what I would say is that in China the market moves a lot faster than we see in Europe and North America. And so the OEMs are able to come on a lot faster than what we’ve seen in terms of market adoption in those European and U.S. theaters. So that’s I think a key factor in terms of shortening the sales cycle and the education cycle. I think what’s really important is that the cities through a large extent drive what happens and its important to be linked with the progressive cities that view clean energy and clean air and climate change as key priorities and are focused on introducing clean energy, mass urban transit including clean energy busses. And so I think we have partners in China that know the right cities and have good relationships with the right cities, and we are starting to see scaling there. So the 33 that you mentioned is a start, we see larger opportunities in 2016 including in existing cities that we are partnering with as well as new opportunities.

Okay. maybe shifting gears in the Protonex, in terms of engaging the military obviously it’s a protected process, but the different branches, can you share what you have done maybe with the army with some of the other branches of the military to speed up the adoption process or each of the different branches kind of its own, let’s say island, for lack of a better term?

Yes, so our strategy with the military has been, long-term engagement strategy with the army because they represent the largest market, but clearly also the slowest moving on the markets there. And so in the interim we’ve actually had a pretty robust engagement strategy with our organic sales team at the special operations community, and other lead, users people like the bomb disposal force, special operators across all sorts of different applications. So we have actually traction across a wide range of customers in the U.S. already and actually some initial international customers in the soft community. We see the ability to expand not just internationally, but at other domestic markets outside just a Big Green army.

And I would assume, Paul that the international engagements are under the outline umbrella in terms of technology sharing?

They are, although I’d point out for those you who really kind of follow the military markets that, our power engine products actually have a [indiscernible] 99 designation, so we have very limited restrictions on our export, we basically can’t export to the bad actors on the list.

Okay. Maybe getting back to the Indian question, there are obviously other major [indiscernible] vendors out there, if you talk about the level of engagement there and then whether some of your new channel partners are specifically targeting, I’m assuming India has well, potential to move beyond GIL [ph]?

Yes, from the RJL engagement was really to ensure we have the right infrastructure to support large scale deployments in China, so we worked on fueling, and worked on service and have signed up a local service partner there. So we have other network operators in India that were advancing through our sales pipeline and hope to see those crystallize into firm orders in 2015 for 2016 deployment.

Are there any specific new channel partners you can share with us that might be recognized by names?

We haven’t announced they yet, so, I think, we need to wait on, making sure we’ve got approval from them to do that.

I think last question is at Paul. I think rather you had a fairly novel approach to stack assembly versus some other companies that. I guess some trying to get at not specifically, but other – it’s a level of technology sharing that you think can go on between Ballard and Protonex, whether that so I would see here is just obviously traditional within the marketplace. In terms of either redesigning or doing down in the cost curve for stack with modules itself.

Yes, so Protonex was founded at looking at PEM stack technology in particular, it have a pretty robust suite of patent around novel feeling and assembly process. It’s something that we work with other companies in terms of trying to leverage larger stack designs in our manufacturing process. And we do see some opportunities with the Ballard team to kind of cross-pollinate there. And we haven’t really guide into details in terms of what – how impactful that is to overall on stack resistance cost, but from everything we’ve seen it should be a positive impact and I think more broadly we are excited about collaborating with the Ballard technical team on full integration systems, power management, software, bring some of our existence capability to the Ballard team.

Thanks for the time. I’ll be back in queue.

Thanks, Carter.

[Operator Instruction] The next question is from Jeff Osborne with Cowen and Company. Please go ahead.

Hey, good morning Randy, and Tony, and Paul. Just a couple of question from my end. Maybe just starting with Protonex, if I heard you right, I think you said 45% of revenue in fiscal 2014 was service and 55% was product to equate to about a 40% gross margin. Can you just talk about the dispersion line of gross margins between services and development contracts relative to your product revenue?

Yes, so I mean similar to Ballard in the template you would see, our services revenue is typically higher margin than our product revenue. Ultimately in the product we expect to be able to command up 40% gross margin or better. As we have a mix of products out in the marketplace, obviously that at lower volumes in earlier introductions you may not be actually able to get that whole 40% gross margin. But ours is a pretty margin business owing to frankly with the length it takes to engage some of these customers.

Just for Tony from a modeling perspective, if probably safer to assume 30% gross margin on the 80% of revenue coming from products in 60%.

That’s a consolidated about the mid-term but a good way to go.

Okay, just want to double check. And then maybe for Randy or Tony or whoever wants to jump in, certainly softer as here for obvious reasons and Volkswagen that you talked about just the 10% gross margin and how should we think about the profile of the Indian Telecom in particular as the other 400 units are announced. Are these positive gross margin or barely positive and what can you do to improve that?

Yes, so solar backup power gross margins as we talked, but more generally have been somewhat lower largely to do with this, frankly I absorbed overhead, just given low units. So the fact that there are so many units growing through India will have the overall gross margin profile for backup more generally, but more specifically to the India deals, they are positive gross margin. There are the first units replace fairly aggressively, but still at that positive margin and we would expect to see improving margin as we more product through India. So positive now and helping the overall story as well.

Is there a cost out design story that maybe articulate more at the Analyst Day as part of that, as a volumes ramp up, or is this more just an absorbed overhead issue with aggressive pricing?

Yes, so the answer to the question – yes, we will be actually at the Analyst Day on October 1, we are going to actually spend a fair bit of time of laying out our cost reduction go-forward strategy including backup power, but just answer the question specifically yes, we are doing back up power, we later this year and going and then actually we are looking for specifically cost reduction both in the staff side as well as in the system side, we are inspecting the launch, a new version of E3 next year, that we will have a more common platform, module platform providing in, but that will see further cost. We will get more in the detail on that next year that will really help margins more so in 2016 than 2015.

Okay, good to hear. I will look forward to it. And then the last question I had just another kind of margin question is just on the China bus market. How should we think about the initial units in the China relative to the Stark and SunLine deals and some of the staffs you have done with Van Hool and other partners? And more western economies, is pricing pretty aggressive on these initial deals and as Randy articulated your early mid and late stage cycle, are you hoping to make it up in the mid and late stage as a royalties and other financial structures kick in at a higher margin profile to makeup for weakness up front? Are these more similar consistently priced with European and U.S. bus orders?

Yes. So they are consistently price and we will see similar gross margin as we see in the Europe and North America.

It’s good to hear. Thanks so much.

Great. Thank you, Jeff.

This concludes the question-and-answer session for today’s call. I’ll hand the call back over to Randy MacEwen for closing remarks.

Great. Thanks for joining us today and most if not all of you have received our recent save the date e-mail regarding Ballard’s Investor and Analyst Day being held in New York City on October 1. During that day, our executive team will be reviewing a number of key topics in detail and we’ll be engaging in discussions with attendees. The event will be webcast, so you have the opportunity to participate either on site or remotely. More details on this event will be available in the near future. We look forward to your participation. We also look forward to speaking with you again in October, when we discuss our third quarter results in 2015. Thank you again for joining us.

This concludes today’s conference call. You may disconnect your lines, thank you for participating. Have a pleasant day.