Thank you for standing by, this is the conference operator. Welcome to the Ballard Power Systems Q2 2017 Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Guy McAree, Director, Investor Relations. Please go ahead.

Thanks very much, and good morning everyone. Today we are going to be discussing Ballard's second quarter 2017 financial and operating results. And with us today we've got Randy MacEwen, our President and CEO; and Tony Guglielmin, our Chief Financial Officer. We are 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 this call, Randy is going to discuss our strategic progress in Q2 and to-date for the 2017 followed by Tony's review of our financial results and then we'll open the call for Q&A. But before we start just a brief note regarding a couple of upcoming investor events. Tony and I are going to be attending the Rodmen & Renshaw 19th Annual Global Investment Conference in New York City on September 11 and 12, and our executive team is going to be hosting a Ballard Investor and Analyst Day on Thursday, September 14 in New York. During the event which is scheduled to begin at 10:00 A.M. Eastern Time, we're going to provide a comprehensive review of the company's strategic plan including key market opportunities, as well as progress and outlook across a number of important commercial technology and operational fronts. We're also really excited to announce that the planned agenda for that event includes guest speaker, Mr. Charles Liu, Founder and Chairman of [indiscernible] Motor Company, a key strategic partner for Ballard in China and our largest shareholder. Please also note that the Investor and Analyst Day event is going to be webcast, so for those wishing to join the webcast or listen to it later on replay further details will be posted in the investor section of our corporate website at ballard.com, a little later in August. Now I'm going to turn the call over to Randy for his remarks on our strategic progress before Tony reviews second quarter financial results.

Thanks Guy, and welcome everyone to our 2017 second quarter earnings conference call. Before I comment on our key strategic progress, I'm pleased to report that we continue to make measured improvement in our financial results. In Q2 we made strong progress against our 2017 financial performance objectives, including 50% year-on-year revenue growth, a six point improvement in gross margin and positive adjusted EBITDA. Indeed adjusted EBITDA for the trailing twelve month period was positive $600,000. Let me repeat that, for the trailing twelve month period we were positive adjusted EBITDA; this is an important milestone. We believe this is the first for a publicly listed companies in the fuel cell industry. And as we look to the second half and full year of 2017 results, we're very excited. We're well positioned to deliver a strong second half, we have a record order book and robust sales pipeline. Activity levels are very high, our improved financial results in the first half of 2017 along with our exciting set up for the second half of the year should be viewed in the context of our corporate strategy through which we focus on high growth, high gross margin end markets where our value proposition is strongest and barriers to adoption are lowest. I want to punctuate a major macro theme; we've previously commented on the heightened global interest in electrification of propulsion systems including systems for buses, trucks, rail, cars and drones. There is a growing market awareness of the compelling value proposition of the fuel cell electric vehicles or FCEVs are uniquely positioned to offer in a number of heavy duty motor applications. These are used cases where standalone battery electric vehicles are challenged to address the market requirements including range, recharging, weight and operational and real flexibility. This is driving…

Thanks Randy, and good morning everyone. As Randy referenced earlier, our strong Q2 results include year-on-year revenue growth at 50% to $26.5 million. Gross margin up six points to 35%. Adjusted EBITDA a positive $1.1 million, up 136% as well as continued strength in our balance sheet with cash sitting at $68.1 million and no debt. Through the first half of 2017 we've also delivered strong results including revenue of $49.2 million representing year-over-year growth of 45%, gross margin improvement of 13 points to 38% and adjusted EBITDA of positive $400,000, an improvement of 104%. In terms of top line revenue growth, Power Products was up 29% to $15.2 million driven by a 157% gain in heavy duty motive to $12.2 million, primarily related to deliveries into the China market including our first shipment of MEAs to our China stack assembly joint venture. Technology Solutions revenue is up 93% percent in Q2 to $11.3 million reflecting work done in support of key transactions in the China market. In addition to our stock strong top line revenue growth we also continue to generate improved gross margin. As a result of our ongoing focus on growing revenue from high margin businesses, in particularly heavy duty and technology solutions, we achieved a six point improvement in gross margin compared to last year to 35% in the quarter. We also continue to see the benefit of higher overhead absorption resulting from an increase in production volumes in particular liquid cooled FC velocity 9 SSL fuel cell stacks along with MEAs as we ramped up shipments of MEAs to the joint venture in China. For the full year we continue to expect an increase in gross margin compared to 2016 to an excess of 30% in line with our plan. Cash operating costs were up…

[Operator Instructions] The first question comes from Rob Brown from Lake Street Capital Markets. Please go ahead.

Good morning and nice job on a good quarter. I know you gave a lot of detail on the China market developing but I'm just curious about - you've seen some initial orders even before you have production there; I guess what are your thoughts on the signs of demand? Is that unusual or what's your view on - I guess how that demand can increase as you get production in country?

Rob, thanks for the question. There is an extraordinary level of activity in China on the fuel cell file; whether you're talking to cities or provinces or companies there that are in heavy duty motive applications, particularly buses and commercial trucks. There is a very strong pivot underway with a number of bus OEMs, truck OEMs, and governments looking at the opportunity for FCEVs. And two years ago we saw a pretty significant pick-up in interest but I would say over the last six to nine months the interest levels has been unprecedented globally. So it's difficult to predict exactly what the demand cycle is going to look like twelve months from now and 24 months from now, we have a record order book and a big part of that is some pretty big contribution from China; and specifically, heavy duty motive applications where this value proposition for fuel cell electric vehicles is really resonating with end customers there. So I do think that demand is a function of the number of variables, there is still a lot of challenges in each of these markets but clearly in China, hydrogen refueling infrastructure is a pacing item. Bus certifications; I mentioned that we're currently active in somewhere around 12 to 13 different bus platforms right now, that's a huge accomplishment over the last 18 months, it positions us quite differently than others that are just starting to look at this market. Getting certification of these buses with a fuel cell engine can be a process that takes a significant amount of time; so there is a lot of work being done quietly by a number of bus OEMs and commercial truck companies, and many of them are looking at Ballard technology as a key part of their solution. So there is a number of pacing items and I think that there has been a lot of work, particularly with some of our partners on addressing the pacing items. But I do think that fueling infrastructure is one that could be a drag on the timeline, but it hasn't seen - it hasn't translated for us yet in terms of any slowdown in demand; so we continue to see accelerated demand, we continue to see a lot of interest in this market, and I think next year at this time we will be talking about volumes that are probably higher than we're currently looking at.

And then on the U.S. market you've got the [indiscernible] program sort of starting but what's your what's your thoughts on the U.S. market development probably not like China but what's the U.S. market interest in the heavy duty fuel?

So, when you look at market size and you look at where the strongest interest is and therefore the support levels and the value proposition strongest you know China I believe will be the lead market. Europe though very impressive what's going on in Europe in addition to the 291 some odd buses that we expect to see awarded over the coming few years. There could be another 2000 behind night in Europe so there's a lot of opportunity in the European theatre. The U.S. is slower, we will probably see in the range of maybe 30 fuel cell buses awarded in the U.S. this year, we expect Ballard win probably 30 this year so that's significant compared to where the U.S. was last year and the year before relative to these other markets, a little step behind. But there is important work going on as well, illustrated example we currently have two fuel cell buses going through testing at Altoona in Pennsylvania. These are very demanding testing environment so we expect to have the first ever two fuel cell buses that will have feature Ballard engines inside of them, they have gone through the most rigorous testing I think anywhere in the world. So there's a lot of other developments going on currently that have been reported on that I think position this market. Altoona testing is kind of a really important condition precedent for a number of trends and authorities to procure buses under some of the federal funding programs. So we're pretty excited about what's going on in California, we also see some interest in a couple of other markets, I think we've seen quite a strong interest in Ohio, expect to see some additional activity there but I do think the U.S. a little 20 years ago, and 10 years ago was one of the leading markets here, the U.S. is at risk of falling behind in terms of scale deployments.

Good. And then in Protonex, you mentioned milestone you see by the end of the year I guess. What sort of level of visibility there and is it just a matter of waiting for the customer or are there things you can do to change that timeline?

Yes, I think you know it's a fairly complex procurement process where frankly a company of our size does not have a lot of influence. So it's very much waiting for that procurement process to run the traps. We achieved a very significant milestone through that process about a month and half ago which indicates we are getting very close to our objective here. So I'm optimistic, cautiously optimistic that that will happen this calendar year and will position us for scale, volume and visibility on a go forward basis.

The next question comes from Amit Dayal from Rodman & Renshaw. Please go ahead.

You've indicated around 87 million in committed orders for 2017 delivery, does this include 18 million that you received in the June contract with [indiscernible]?

So that order book was as of that time, since then we have delivered obviously first half results and we have added a significant amount of new bookings to our order book in our backlog. So we're sitting today with a record order book and are very well positioned for the second half of the year.

Can you share what that number is Randy?

We will be sharing an update on the order book at the Analyst and Investor Conference call in September. We typically don't provide on a quarterly basis, we typically provide at the start of the year and something we will revisit though in terms of 2018 potentially doing it on a quarterly basis.

And just looking out a few quarters ahead, you know maybe into say the early 2018 period. You know once this initial volumes especially in the context of Broad Ocean, you know 600 fuel cell orders are delivered. It seems that these are more demonstration type units, you know in that context will there be potentially sort of a slowdown while these things are been put through their paces in terms of testing etcetera before you receive sort of the next phase of these orders from Broad-Ocean?

Yes, so all the indicators from Broad-Ocean is that things are accelerating not slowing down. So the activity they have going on the technology transfer side the relationships that they already enjoy long-standing relationships that they enjoy with business OEMs are really translating to very intriguing opportunities in key cities in China where volume and scale is already in place. So I don't see a slowdown coming from Broad-Ocean. We've already demonstrated the technology in a number of demonstration projects globally over the last 15 years. Our availability rate in those demonstration private programs is very high. As an illustrated example in, Europe we are currently running at about 96%, 97% of fuel cell availability this year for our demonstration programs there and our eight buses in London, a couple of fleet premier buses there will soon be clicking over 25,000 hours in operation which again really looking at industry benchmarks here.

Understood. And just one final one for me. On the material handling side, there is some weakness I guess give you know what's going on with [indiscernible]. How should we look at that segment of your overall business going forward?

Actually, [indiscernible] is tracking right to our plan this year. We're pretty pleased with the way that's coming in. Plug has done a phenomenal job with Amazon and Wal-Mart just to clear forward visibility. So great job by them, you know our view is that there are two streams of opportunity here, one is where you have kind of after-market [indiscernible] activity. Longer term we see an opportunity for purpose build forklift activity and we're very engaged on that front to make sure that we're positioned both for aftermarket systems integration component supply as well as long term potentially systems supply and other opportunities for the purpose built forklift OEM, I think you will see more from that us in the coming 12 months on that front. We're very encouraged by what we're seeing you know I think the forklift market with the activities there. If you look at the volume of units that Plug Power has in the fuel you know over 15000 forklifts, fuelling is happening every six minutes. So we've got I think an extraordinary industry particularly with Plug's leadership there. Extraordinary database that again indicates high reliability, high durability for these products in a very demanding application So we're right on plan where we are expected to be with Plug this year given there are you know dual sourcing strategy and primary sourcing internally. We're quite comfortable with how things are progressing.

The next question comes from Carter Driscoll of FBR Capital. Please go ahead.

First question is, so you've gotten some early production from the stack JV, is there anything you can share with us that you've learned or any of the process is going to be tweaked, could you comment on how synergy is handling what you have shown them in terms of putting the specs together, any tweaks to facility? Obviously really the timeframes don't align but anything you can share in that regard?

This has been an extraordinary learning process not just for our joint venture and synergy as our partner but for Ballard as well. This has been a fairly large comprehensive technology transfer done on a very short time period. Everything - this has been extraordinary outcome in my opinion when you look at the number of pieces of capital equipment that had to be specified, a lot of design work, suppliers qualify, products are very large piece of capital equipment delivered and commission in the operation. We've had no hick ups at all, it's gone extraordinary well, far better than I ever could have imagined and part of that was the extraordinary project management that both Ballard and Synergy have put on this and the teamwork that we have had. One of the interesting things is that the way the production line is set up there we have a number of beautiful images of that production line right now is that there are two lines, one line duplicates effectively what we have here at Ballard. The second with much higher scale, the second line is a far more automated line and that automated line, there is a lot of learnings that come out of that automated line, that little to bring back here to Ballard as we look at our opportunities for improvement. So we took an approach in terms of specifying equipment and looking at processes to find ways to have improvement compared to the processes and equipment that we have here at Ballard we're also mitigating risk and I've always found the right balance there make sure we end up with high quality, high reliability, high performing stacks at lower cost and very high capacity. So that joint venture is to say probably we expect to see that ramping up August, September, October timeframe. We expect initial production to be in the 6000 stacks per year that facility is designed to be around 20,000 stacks per year but based on the production volumes that we have here at Ballard as well as some of the early results there. It wouldn't surprise me if that production facility can actually exceed that number based on the improvements that have been implemented. So we're very excited. There has been a lot of positive learnings, it's gone far better than I ever could have imagined to be honest. Of course there is still a lot of work to do and with 91 employees there has been a lot of training as well and we're pretty excited the way the program is going. Tony do you have anything you want to add to that?

Yes, I was just going to add to that, I mentioned earlier when we started shipping fairly significantly our MBAs and the production facility has actually assembled a fair number of stacks already and put them through their paces including the factory acceptance testing and so we specified to them what the Ballard typically what our internal metrics are here with regard to yield and performance and everything they've done initially has met what we do here. So right out of the gate we're comfortable that they can actually meet our specifications or even you asked about hiccups and we're very confident that they're going to come out of the gate at a very high quality level. So a very good experience in addition to everything that Randy mentioned.

Yes, just last night Carter we received yet another email overnight with images of finished product and there's some really good lean and 5S implementation activity that's been done. So we're really pleased with the way things are going.

And maybe Randy at a high level I think there is some - maybe misunderstanding of the subsidy levels between electric only and fuel cell vehicles, commercial vehicles in China. Could you talk about the I don't want to say added value but the higher level of subsidies that are available to fuel cells in the current plan without dwelling too much into the details but I don't think a lot of investors understand how incentivized fuel cells all right now which is also helping drive the adoption process.

Sure. So you know effectively you've a RMB1 million subsidy that's available at the national and provincial levels and in Shanghai RMB1.1 million available for a fuel cell bus, not the fuel cell engine. So you're covering a very significant part in the range of 50% of the overall cost of the fuel cell bus with this subsidy. So much higher stronger subsidies that are available for battery electric buses, the subsidies for battery electric buses will reduce 20% at the end of last year and so the value proposition today the economics favor fuel cell electric buses. So we think now with an economics with the subsidies favor the deployment but also the use case is very challenged to have batteries you know stand-alone battery solutions for heavy buses and heavy commercial trucks with long range and need for - a long hour duty cycle. So we think the value proposition is very strong. We think the technology matches up with the use case with high alignment and the subsidy program is very favourable. So what we as an industry must do is scale and drive down costs while these subsidies are in place and as the subsidies start to relax and reduce at the end of 2020 the cost have come down so that we continue to have a very strong economic value proposition and we're leading the charge in trying with a consortium of partners to make this happen.

Two more quick ones if I may, I know you can't talk about outside of Toyota in Japan or in terms of the naming customers, can you talk about any applications or any demonstration projects you're doing? Any type of color you can give there without putting a time frame or a dollar amount around it or obviously naming a partner?

Sure. I mean we see opportunities in Japan that are across a variety of markets where fuel cells will play a big role. As you know Japan is a leader in terms of championing the hydrogen economy and so the heavy duty motive market applications, we see opportunity there. The forklift market we see opportunity there and even the backup power market we see opportunity there and so we've got a great technology development programs, great field trials underway, we think partnerships with the right partners in China and Japan and so this is a slow process unfortunately and as we get further along we will provide more details including the right time to counter parties we are working with and the applications that we're working to get.

And my last question if I may, on the UAV side you recently got your first commercial order. Can you talk about the military progress and potential pullthrough on that side and then maybe just kind of a broad range of potential ASP's between commercial and military?

Sure. So, a couple of things, first of all you know the drone market is broken down into three segments. So you've got military, commercial and then kind of a hobbiest market I refer to. We are very well positioned in the military and commercial segment. On the military side we have partnerships with two key drone OEM's that are leading suppliers of drones to the U.S. military and other military groups across the globe. We've announced one of them with Boeing Insitu and the ScanEagle platform. We completed flight testing with them, we completed flight testing with another major drone OEM in the aerospace market. So we're very pleased with the positioning we have on the military side and what I think is probably the two most important platforms and I think we're going to start to see some favorable results in 2018-19 timeframe on the military side. On the commercial side yes we announced our first opportunity with FlyH2 in South Africa. We also have another contract that we've secured in the commercial market that we can't comment on the counterparty yet, it's a confidential order but it's I think probably the most important party to be working with in the commercial packaged goods and delivery area and we're pretty thrilled with the opportunity to work with some of these companies. There's going to be a lot of progress on the commercial side in the coming 12 to 24 months as well. So we feel very well positioned. On the commercial side I also want to highlight there are a variety of applications, when you look at oil and gas and transmission distribution basically anything long, skinny pipes anywhere there's a real strong value proposition in terms of efficiency and cost savings by using fuel cell powered drones and what important understand is that for fuel power drones as compared to battery powered drones you are looking at a three to four x-range factor. So you get all the benefits of quiet, low thermal and zero emission but you also have the benefit of 3 to 4 x-range. So it's a very powerful solution that I think fuel cells is uniquely positioned to deliver both on the military side and on the commercial side.

The next question comes from Jeff Osborne of Cowen and Company. Please go ahead.

Most of them have been answered but just a couple quick ones, Randy I was wondering on Protonex, can you just talk about some of the dynamics for this program off record is there technical milestones that you're not hitting or is it just change in administration, they're just slow to run through batches of approvals. I'm just trying to understand what actually is going on?

Sure. Just to be clear on the product acceptance, this product is very well liked by the user community. So there are no technical hurdles here. The product is meeting requirements we've got 4000 to 5000 units in the field. This is really about a very complicated procuring process and I would say that that's been somewhat exacerbated or challenged by the change in administration. I think long term actually the change in the administration should be very positive but obviously when you have changes that impacts things, there were some needs for Pentagon approval. We gone through that hurdle and so now we're at the final approval stage so we feel confident we secured this year, it has nothing to do with milestones being achieved either technically or commercial or otherwise, this is really U.S. military procurement process and it's a process very difficult to entangle.

Got it. Thanks for the clarification there. I was also curious if just in general numbers if you can just give us a sense of what Ballard's potentially content per bus would be for an all fuel cell business in North America versus hybrid fuel cell battery bus that you're enthusiastic about as well as other kind of heavy duty application. I'm just trying to get a sense of what actually the size of the kilowatt fuel cell system itself would be on a like for like application, is it a 4x of it's all fuel cell versus the hybrid solution.

So you know with heavier longer buses and heavier commercial trucks you're likely to see in the range of 85 to a 150 kilowatts depending on use case and the size and the weight of the vehicle. For smaller buses and smaller commercial trucks I think you could see between 30 and 60 kilowatts in that range and there has been a lot of over the last 12 months in particular, a lot of new information coming from the market in terms of what the market requirements are we have technology that's very scalable and very applicable to these different size ranges. So I think we're very well-positioned. The other thing you commented seemed to kind of looking at the scope of content of Ballard engines in a typical business, one thing that's interesting I want to highlight if you looked at fuel cell buses say 10 years ago 30%, 40%, 50% of the cost of a fuel cell bus was in engine. Today you're looking at around 18% of the cost of a fuel cell business is the engine and we see a path way for that to be below 10%.

I think a typical transit bus would be about $750,000 to $800,000 would you agree with that number?

Yes, and you know the numbers vary from the U.S. to Europe to China pretty significantly but I think you're right on. We're looking at targeting a fuel cell business in the €400,000 range for the European market in 2020-22 timeframe.

And what pre-subsidies, what is a bus go for in China that's a market I haven't studied.

Yes. It's obviously denominated in RMB, you're in the range of RMB2 million currently.

Okay, so about half of it is paid for?

Right. Exactly.

And then lastly I just wanted to - I think there was some discussion potentially at the ACT Conference earlier this year about carb you know potentially shifting to a zero carbon transportation mandate for the ports and public fleets in the next five years or so, obviously that would have to be voted on and phased in. But I was just curious if the Kenworth Trial or Kenworth Deployment is leading to - A, would you agree with that and then B, does that variable have any impact in potential future trials or people kicking the tires so to speak?

Yes. There has been a long standing discussion with port authorities globally, not just in California on ways to reduce emissions and approve air quality. That discussion I think is kind of reaching a [indiscernible] right now. We have European ports, ports in the U.S. obviously and California leading the way and key ports in China that are all looking at air quality issues now and looking at ways to you improve air quality on the motive side. So they're looking at Class A [indiscernible] trucks, they're looking at forklifts, they are looking at marine applications. There is a number of applications that the port authorities are going to be looking at. So I think this should be a very strong demand particularly for fuel cell electric vehicles because a lot of these vehicles are experiencing high range requirements and I think they are going to be challenge for batteries alone to meet the use cases there, so we're very encouraged long term with these opportunities. I think it's still going to take some time for the thesis to translate to product down the road.

Makes sense. A last follow-up to that is just - is it your sense that these ports are the discussions would require renewable forms of hydrogen? Are you carbon neutral as opposed to dirty hydrogen?

I think that's a preferred solution. I think both are options. We recently had the largest port authority from China here on a Sunday from the 9:00 in the morning to 6:30 at night and they reported that they have 60,000 tons of excess hydrogen from industrial processes that can be made available for fuelling. So there is an example where it's not a renewable generated hydrogen but it's a stream of curving vending, so I think there's a number of opportunities in different ports obviously renewable based hydrogen would be preferred.

The next question comes from Craig Irwin of ROTH Capital Partners. Please go ahead.

So [Technical Difficulty] in Europe that you expect to be awarded [Technical Difficulty] can you share with us these buses that we should expect to be delivered mostly in '19 and possibly in '18 or just something that more immediately contributes?

You broke up quite a bit there, but I'm going to anticipate what your question was, it sounded like you were referring to the 291 fuel cell buses that are expected to be awarded in Europe and probably how does Ballard expect to participate and what's the timeline for participation in those opportunities? We expect to do very well against those 291 fuel cell buses. There are other opportunities in Europe as well and we feel very strongly positioned for it. In terms of procurement cycle we expect those to be - the funding is approved so now it's a matter of procurement and the cities and the coaster [ph] groups as well as the bus OEMs and technology providers like Ballard to work through the programs over the next 12 months or so. In terms of the deployment we do see this filling on our 2019 and 2020 order book for deployments in the European theatre, we're working very hard right now actually to continue to bulk up the order book for 2018. We want to make sure we have a great growth here in 2018. Some of these other opportunities are also starting to fill in 2019 and 2020 as well. I think Craig, looks like he has dropped off. So operator are there any other questions at this time?

There are no other questions at this time. This concludes the question and answer session. I would like to turn the conference back over to Randy MacEwen, CEO for any closing remarks.

Thank you for joining us today. We look forward to seeing many of you at our investor and analyst day on September 14, in New York City and we will also speak with all of you again in early November when we will discuss our results for the third quarter of 2017. Thanks again everyone.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.