Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems Fourth Quarter and Full Year 2018 Results and 2019 Outlook 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. [Operator Instructions] I would now like to turn the conference over to Tony Guglielmin, Chief Financial Officer. Please go ahead.

Thank you, and good morning, everybody. Welcome to Ballard's fourth quarter and full year 2018 financial and operating results. Joining me on the call today is Randy MacEwen, Ballard's President and CEO. We will 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 a complete disclaimer and related information. So on today's call, Randy is going to provide his perspective on the state of the industry and Ballard's positioning within it. I will then review Q4 and full year 2018 financials following, which we will open the call for Q&A. And just a brief note that Ballard will be attending the 31st Annual ROTH Conference in Dana Point California on March – on Monday, March 18, where we will meet with investors to discuss our strategic direction and operational highlights. I'll now turn the call over to Randy.

Thanks, Tony, and welcome everyone to today's conference call. We start 2018 with high conviction on the future opportunities for Ballard and the creation of long-term shareholder value. There is mounting evidence that the shift to zero-emission transportation is now underway and indeed accelerating. There is also mounting evidence that fuel cell electric vehicles or FCEVs will play an integral role. At Ballard, we're positioned at the center of this transition with highly disruptive fuel cell technology. 2018 was an important year for Ballard and for the entire hydrogen and fuel cell industry. As commented by E4tech in its 2018 report entitled Fuel Cell Industry Review, a lot of ground work was laid, serious players entered and money came into the sector. Megatrends that I have discussed before specifically climate change, air quality and electrification are global and converging. But I'd like to highlight a few important industry developments during 2018. Governments across the globe continue to prioritize the de-carbonization of transportation and energy. A number of fuel cell players successfully raised additional equity financing through strategic partnerships including major strategic equity investments by Weichai Power and Broad-Ocean in Ballard and Air Liquide's investment in hydrogenics. Bloom Energy completed its long anticipated IPO. And automotive OEMs in Tier 1 suppliers such as Audi and Hyundai, Weichai, Bosch, Cummins, Michelin and others took important steps to increase their investment in exposure in the fuel cell industry. In aggregate, industry developments in 2018 paint a clear picture. Transportation is undergoing fundamental change and major players now view FCEVs as a key part of the long-term solution. With this backdrop, Ballard achieved significant strategic progress during 2018. We advanced our stack and module products. We signed our landmark strategic collaboration with Weichai Power, the diesel engine giant who is now looking at zero-emission…

Thanks, Randy. The top line revenue in Q4 was $28.5 million, down 29% year-over-year and on a full year basis was $96.6 million, down 20% from 2017. For the full-year, Power Products revenue declined 27% and Technology Solutions revenue declined 9% and I'll provide a little bit more detail on both. Within Power Products, Heavy Duty Motive was down 38% to $39.5 million. Now this was due to a year-over-year decline in product shipments to customers principally in China, partially offset by increases in Portable Power/UAV, Material Handling as well as Backup Power. Now the decline in Technology Solutions to $39.6 million was due primarily to a year-over-year reduction in technology transfer revenue from China, partially offset by increased revenue from the Audi program and other important Technology Solutions programs. Gross margin was 25% for the quarter and 31% for the full year declines of six points and three points respectively. These declines were a result of the lower revenue contribution from both the higher margin Heavy Duty Motive products and Technology Solutions compared to the prior year. Cash operating costs in Q4 were flat at $11.2 million and for the full year increased 10% or $3.9 million to $43 million. This was due primarily to higher program development expenses including ongoing work on our next-generation LCS stack and LCS-based module both of which we expect to launch this year. Adjusted EBITDA in Q4 was negative $5.2 million, a decline of $7.3 million compared to the same quarter of the prior year and negative $13.5 million for the full-year, a decline of $16.8 million. Net loss in Q4 was negative $11.5 million compared to negative $2.9 million in Q4 last year and for the full year negative $27.3 million, a decline of $19.3 million. Earnings per share was negative $0.06…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Carter Driscoll of B Riley FBR.

Good morning, Randy, Tony. So maybe we could just talk about the puts and takes as you see the Weichai JV unfold. You've talked obviously about making investment. You just -- Tony, you just gave some guidelines on what the JV equity impact is going to be for this year. Maybe talk about ramp up in developing the facility? Maybe a time line for beginning to ship the new heavy duty stack and module? And then maybe, regionally, where do you expect to start to see some of these vehicle deploying. I'm assuming it'd be, if anything, late 2019 or probably more likely 2020 before you see material shipments for the JV just kind of probably understand the trajectory over the next four quarters plus?

Yes. So, Carter, good morning. I'll make a few comments and Tony can supplement. First of all, this is a very significant investment strategically for Weichai in China that has a lot of visibility. So there are pretty significant resources that they're putting to work on this. In terms of the build out of the joint venture, construction of the facility is already underway and expect the facility as well as equipment to be substantially in place by the end of this year with the production starting early next year on the stack front. We do expect to see module assembly occurring in 2019 at the JV, but it's a very sizable operation. And in terms of the production output and square meters and all that, we'll have a formal announcement and unveiling of the facility with all the details at that time. In terms of production or supply of materials that you commented or questioned about, this year there will be some materials being supplied from Vancouver. And similarly to past experiences in China, we'll then see a migration to more localization throughout the year and into next year. So we'd expect to see MEA supply starting to take bite in 2020 as the stack production starts. And in terms of the time line for the actual launch of the stacks and modules, we do expect orders and deliveries of our new LCS and HD V8 or FCmove in China and in Europe in 2019.

Okay. All right. So for Weichai, it's -- the balance of 2019 is largely ramping up for a big push into 2020. Is that a fair characterization?

Yes. And of course there are 2,000 fuel cell buses that are on the table here in the first couple of years that we're working against. There'll be a fairly modest number that'll go out this year associated with that and that will increase in 2020.

Just a reminder where the facility is located?

Yes. So the facility is located in Weifang, Shandong province where Weichai is located.

Okay. Could you -- maybe just shifting gears a little bit. Could you talk about any update to the Synergy JV? I know that you backed out that from expectations into this year. Is there any potential repurpose or restart shipping MEAs into that JV in 2019?

So there are no material developments there to comment on at this time. The Synergy-Ballard JV, we had a recent meeting with Synergy and what I can say is that, the outlook seemed a little bit more constructive than it was a few months ago. But I think the prudent thing to do and taking them out of the order book and backlog was the right thing at the time and there's no information we have to suggest that wasn't correct at the time. So I think there's still a lot of work going on there to secure additional orders, move out some of the existing inventory they have, which, as that occurs, would potentially enable a restart for MEA supply. But at this point we're not expecting that in the 2019 plan, so that would be upside if that came in. And they're also pursuing equity financing activities as well. So there's a lot going on there at Synergy, both on the commercial side as well as on the corporate side.

Maybe just one more for me. Just talk about maybe some of the different geographies within Europe that you see potentially contributing? I know you've shipped partially against new orders in Germany. It sounds like U.K. was maybe developing a little bit more slowly in terms of formulating a purchase order. Can you talk about a couple of other geographies and give us an update regionally for the expectations in 2019 from the different drive programs?

Yes. On that front, Carter, I apologize, I'd like to push that one to the end of Q1 if I could, because there will be developments in the coming months and I don't want to get ahead of some partner announcements on that. But the jurisdictions or the regions where you'd expect to see activity consistent with our prior messaging would -- no changes from that. Certainly, the U.K. cluster is kind of next on the table.

Okay, okay. I'll take the rest offline. Thanks guys.

Thanks very much.

Our next question comes from Rob Brown of Lake Street Capital Markets.

Good morning, Rob.

Good morning, Rob.

Just wondering if you could give a little further color on the China market. You said there was some additional activity in the station development area, as well as vehicle deployments, but maybe some end-market kind of development color would be great?

Yes. In terms of end-market development, there are a number of cities that continue to look at fuel cells as a viable option compared to battery electric buses, particularly in some of the markets where grid-ability is an issue and cold weather conditions are an issue and where the grids are primarily fossil fuel-based. So there is a lot of intrigue now about looking at different solutions. But there are of course pacing items. Every time you look at a new deployment, you got to make sure your vehicles are certified and they've gone through the appropriate MIIT certifications. You have to ensure that you have the appropriate refueling infrastructure. And a lot of cities are going through for the first time understanding of codes and standards and setbacks and fueling dispenser and pressurized hydrogen gas. So there is a lot of work going on in a number of jurisdictions. A couple that I'm particularly excited about is Shandong province of course where Weichai is based. And Shandong province has announced a hydrogen and fuel cell valley or community effectively. And we expect to see a lot of activity in three cities in Shandong province including Laoshan and Jinan and Weifang. And I think when I look at the deployment in larger scale for fuel cell buses I believe Shandong province will lead the charge here over the next number of years. Of course Guangdong province has invested significantly in the hydrogen fuel cell space as well with a number of different fueling stations. Shenzhen is starting to see increased penetration. Foshan and Yunfu, obviously, have fueling station infrastructure and there's more to come including on the rail side not just on the bus side. And then there are other markets as well Shanghai, Beijing and the usual markets that look at promotion of new energy vehicles. Wuhan is a final market. So I believe there'll be a number of new developments in 2019 that indicate adoption of fuel cell electric buses beyond one or two demonstrators to a little more scale in the demonstration fleets. But I would still characterize 2019 very much as a demonstration year.

Okay great. Thank you. That was excellent review. And then in terms of the kind of the Weichai JV accounting you gave some numbers for 2019. But just sort of conceptually how will that accounting work? Is that starts to ramp just pretty quickly, what the profitability? I assume it’s non-cash, but just some color on how that JV accounting below the line works?

Sure thanks. It's Tony Rob. Yes, so we are picking up. I mentioned a number in my script. I said we're going to pick up something we expect something in the neighborhood of $15 million to $20 million of losses. What that reflects is our 49% share of the expected joint venture losses -- net income losses during 2019. And it is very much reflective of 2019 being a ramp-up year. So on the JV side of things, there's two significant items going on in the JV in 2019. One of course is the technology solutions program that Ballard -- for which Ballard is the customer of the JV. So there is -- recall it's a $90 million program over roughly three years. So the expenses that the JV is incurring on the technology solutions program that forms part of their P&L. And the other one of course is the ramping up of the people. So they are very aggressively hiring and building the facility. So in the aggregate, we expect as I say something in the neighborhood of $15 million to $20 million of which is the 49% share. And that will follow through the P&L as a one line item as our minority interest gains and losses. In terms of our funding requirements, we do have an obligation to fund capital over the term of the agreement. It's in our notes just to point a number out. We do have total capital contributions to make up approximately $64 million through 2019 and beyond. I mentioned the number of about $21 million of that will be made this year. We've already made $14 million of it, so there is another $7-odd million that will be made later in the year. And fundamentally that capital contribution, that cash going in is fundamentally to fund our proportion of the losses. So we've funded a little bit as well in December. So I would say look for that. That's kind of how 2019 looks. And then as we drift into 2020, Randy talked earlier about we'll start generating revenue there. We will be shipping some product later this year we anticipate and into 2020 so that -- their business plan and their losses should start to reduce going into 2020 offset by revenue in the year. And again we'll pick up our 49% of any gains and losses going forward.

Okay. And then just to clarify on the 40 unit share in order for the JIVE program and 15 you shipped, what's the thing -- should those all ship in 2019 rest of them?

Yes, yes, we would expect those to ship this year.

Okay, great. Thank you. I’ll turn it over.

Thanks Rob.

Our next question comes from Christopher Souther of Cowen and Company.

Thanks for taking my question. Just to kind of follow up on the Weichai. I was trying to get a sense of -- it seems like it's mostly going to be kind of Technology Solutions that kind of flow through your P&L in addition to the equity income losses. I was just trying to figure out like what percentage of your $69 million or like 12-month backlog is coming from Weichai?

Yes it's a good question. I don't have the number right in front of me. Let me grab it and I'll come back to that. But if I said around $20 million that would be a bit of a guess, but it's probably in that range. But let me -- if it's anything much different than that I'll -- we'll try to get that number in a minute.

Okay, got it. And then looking at -- just kind of shifting gears towards the Audi HyMotion projects, seems like there has been seen good progress there. I just want to get an idea of what steps you guys needed to kind of take -- to kind of get those to the next steps as far as the low volume vehicles that I believe you discussed as part of the extension? And then what are the additional steps from there to get to kind of a higher volume type vehicles?

Right. So this is a confidential program that Audi has and they don't disclose a lot of details on their program, including launch time and numbers. What I can tell you is that we've been at this now since 2013 initially. So it's been a long-term investment by Audi and a long-term collaboration with Audi. We do believe that their stack technology that we developed here at Ballard for Audi is industry leading. We believe that Audi's platform that they launch, which they've announced should be around the 2021 time frame 2021-2022 area that platform will be very attractive vehicle. It is a small series launch that they have described. They haven't given specifics on numbers nor have they provided publicly details on the subsequent volume launch after that. So what I can say is that the announcement earlier this week by the Audi Chair was a very significant indicator of the importance and prioritization for fuel cells. And it looks to me like the messaging there was about higher confidence increased investment and acceleration on the fuel cell program. And we feel very blessed to be partnered with such a strong capable company that sees the vision.

Okay. That's helpful. And then just thinking about the Weichai JV, selling over the next two years or so 2,000 modules to Weichai who is going to build buses. I just want to figure out where Broad-Ocean fits into that picture? I know that they -- now they've made the additional equity investments there was a possibility of them also getting access to the liquid cooled stacks. So I wanted to figure out if there would be potential for incremental orders for next round of either stacks or modules coming through there?

Yeah. So Broad-Ocean was very active in the fuel cell market in 2017 and 2018 and I talked about the number of vehicles in the marketplace in China today and Broad-Ocean is a very significant contributor to that. You'll see that again in 2020. So for them, fuel cells are highly strategic. They have a very tight relationship with Ballard not just the equity investment but also their -- use of our technology including stacks. And so we expect to see Broad-Ocean to continue to progress in the fuel cell industry in 2020. We have discussed with Broad-Ocean potentially them joining as an equity investor the Weichai-Ballard joint venture, so those discussions continue. We expect those to conclude in the coming quarter or two. And we'll see whether or not they join the joint venture, which they are invited to do. So they're just going through the due diligence process they'll make a decision. It's really about how they want to shape their strategy going forward and where they want to put their investments.

Perfect. Congrats on a progress. Thanks, guys.

Thank you.

Hey, Chris, Tony here. Just wanted to confirm. That's about 20 -- pardon me about $22 million of backlog associated with the Weichai JV, which is the order of -- pardon me, that's the 2019 order of about $22 million and that's all related to the Technology Solutions program.

Okay, perfect. Thank you.

[Operator Instructions] Our next question comes from Amit Dayal of H.C. Wainwright.

Good morning, Randy and Tony.

Good morning, Amit.

The background on the fuel cell space was very helpful. Thank you for that in your prepared remarks. Just going back to Weichai again, could you specify maybe some of the key milestones the JV hopes to accomplish this year? I know you've made the initial capital contribution that probably sets the stage for everything to start knocking through the roof, but what do you expect to specifically achieve this year? If you could outline that it would be very helpful. Thank you.

Sure. So there are a number of JV I'll call it technical and operational milestones that we expect to see accomplished in 2019. The JV has been incorporated. Their staffing occurring, funding has occurred, facility is under construction there, very impressive facilities incidentally. I think when it's all done hopefully people will have an opportunity to come and visit because it's going to be exceptional in my opinion. But in terms of actual what will the JV be doing operationally in 2019, we do expect to see module assembly start to occur. We do expect to see significant progress made against fleet assembly and significant progress made against stack assembly in 2019. So those will be key milestones to look for. Of course that is preceded by technology transfer. And so as we look to do a technology transfer on the next-generation modules and the next-generation stack there is a number of milestones that will occur. They get reflected through the technology solutions payments throughout the year. I think the other thing is that commercially Weichai is already very active in the marketplace. And the 2000 fuel cell buses are the initial launch of fuel cell buses. That will not be the end of that of course. And there is a lot of work going on to position much higher volumes sustained over a long period of time because the production capacity we're looking at for the JV is significant. Those are the key in my opinion. The technology transfer, obviously, staffing and management decisions have been made already and -- so the stack assembly, module assembly, technology transfer, localization of some components, these are all things we expect to see happen. And we've had extraordinary transparency and collaboration between the Weichai and Ballard organizations.

Just to add just if I could Tony here just to add to the ramp up, it is quite extraordinary. So the work that's going on literally today is the construction of the facility. Obviously, having to invest in capital to acquire the assembly equipment, the test stands all of that is occurring. And as Randy said the expectation is that they will be ready in the second half of the year perhaps moving into late Q3 and Q4 to do preliminary assembly work. So it's happening at quite a remarkable pace, which is very much consistent with the level of our capital contribution that's taking place. Both us and Weichai are very much front-end loaded.

And if you look Amit, at the complexity and the diversification and vertical integration within the Weichai organization, there are assets in that group that are -- they own a bus OEM. They own a key percentage of forklift OEMs. They have effectively control over a truck OEM. So, there's lots of opportunity as they start moving initially to, I'll call it, captive customer base for initial deployments and plans. But there are other markets that are highly interested in. We focused on the bus, commercial truck and forklift market. They have significant assets in the off-road market as well longer term that they are interested in exploring. But this will be a significant year of investment. And this has high, high strategic visibility and importance at Weichai, including with Chairman Tan who personally is very involved in this.

Our next question comes from Craig Irwin of Roth Capital Partners.

Hi. Good morning and thanks for taking my questions.

Good morning.

Good morning, Craig.

So, the first thing that really jumps out to me is Audi seems to be increasing their overall level of activity. Some pretty nice press out there. Almost $9 million in revenue this quarter, quite a lot higher than what we've seen looking backwards. Would you expect the tempo of activity at Audi to remain similar to what you saw in the fourth quarter? And maybe you can share with us what the backlog is from Audi or the 12-month backlog contribution is from Audi at this point?

Yeah. Sure, Craig. It's Tony here. So, yes, Q4 was a little bit higher than the run rate, but not much. So, we're looking for a pretty active year through 2019. So, I would expect that the total level of revenue will be something approaching $25 million to $30 million for the full year.

Okay. Excellent. Next thing I want to ask about is the gross margins. Can you maybe bridge for us sequentially what happened on the gross margin side? And when we look at 2019, are we looking more something consistent with sort of what you saw in the first nine months of 2018 and maybe over the last couple of years on average, or will we see something more consistent with what was delivered in the fourth quarter?

Yeah, so just to pick up on a couple of key issues that occurred later in the year that will impact us going into next year. A couple of things. Number one is the disposition of the Power Manager business, that was a high margin -- albeit, substantial amount of revenue was relatively high margin revenue. Of course, that isn't repeating this year. And the MEA sales to the Synergy JV were relatively high margin as well. So, going into 2019, we have a bit of a gap associated with those two items. I would say as well that just looking at our product mix this year, we do have a reasonably large number or at least the mix is probably tilting a little bit to some lower margin business than we experienced in 2017 and in 2018. So, when you put all -- and then, of course, offset by the technology transfer with Weichai. So, I'd say, as you put all that back together this year, based on our outlook for relatively flat revenue, we would be looking for some compression in gross margin, Craig, to be honest. So, I think we'll likely dip down below the 30% for the full year. But we would expect that to start to pick up again as we move into the latter part of the year. So, I would to be very honest, I think we'll look for some -- something that looks a bit more in the mid to high 20s would probably be a more reasonable estimate based on the lack of the Power Manager and MEA. And as Randy said earlier to the extent that Synergy does put some orders and that will be upside to both revenue and margin.

Yeah -- and Craig, I'll just add to that. One of the things that we saw about 18 months ago was the fact that some of the bus sales were starting to be transacted at lower pricing and there needed to be price compression to the value chain. And that was a pretty significant catalyst for us obviously to continue on the next-generation module development program. And so that's why there was a heavy emphasis on cost reduction in the module program you know, 40% in that range for FC Move. And as that starts to see higher shipments in 2020 and 2021, even though selling prices will continue to compress as well, we expect to see some better contribution that we're seeing from HDV7 modules this year.

Yeah, that's a great point, Randy. I should have mentioned. Thanks for taking it up. As we talked about the LCS, Randy, we talked about that last year the introduction of the LCS stack and LCS module. We do anticipate starting to bring that product into the new -- into our existing product portfolio, but that will be taking place much -- towards the end of the year. So, we are being -- we are seeing some compression on our margins, because we're still shipping our current version, but we're being very aggressive on our selling prices. But as the LCS modules and the LCS stack get into our core portfolio which really we're talking about into 2020 with the significant cost reduction we're seeing in the LCS, we would expect to see some improvement in margins. That's what I was referring to earlier by going into 2020.

Yeah, I mean, this is going to be a significant priority in 2019 and moving forward is continued cost reduction. And for the first time with Weichai in China, we start to see the volumes that can really help here and the supply chain strength that can really help here. So, we're pretty excited about the cost down related to design improvements. And when you're taking 50% components out into module, you'd expect to see pretty significant cost reduction. But we're also interested to see the opportunity that's going to come with the supply chain strength from Weichai, as well as the volume pickup as their orders start to bite.

Great. Thanks again for taking my questions.

Thanks, Craig.

Thanks, Craig.

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 speaking with you again in early May when we'll discuss first quarter 2019 results. Thanks again.

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