Ballard Power Systems Inc. Aktie

Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems Announcement Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Kate Igbalode, Senior VP and Ballard's CFO. Please go ahead.

Thank you, operator, and good morning. My name is Kate Igbalode, CFO of Ballard. During today's call, 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.

Good morning, everyone, and thank you for joining us today. My name is Marty Neese, President and CEO of Ballard Power Systems, and I'm pleased to be here to discuss what I believe is a truly transformative day for Ballard.

This morning, we announced that Ballard has entered into a definitive agreement to acquire GeoPura, a leading provider of zero-emission hydrogen energy solutions based in the United Kingdom. This is a pivotal moment for our company, and I look forward to walking you through the strategic rationale, the details of the business and why we believe this combination creates significant long-term value for our shareholders. In addition to Kate, I'm also joined today by Andrew Cunningham, Founder and CEO of GeoPura.

Andrew has been a partner of Ballard since GeoPura's founding in 2019, and his leadership will be a tremendous addition to our team. Over the past several quarters, we have outlined a clear path to build a more profitable and scalable Ballard, grow revenue, expand margins and broaden our addressable markets while maintaining financial discipline. The acquisition of GeoPura accelerates that strategy by extending Ballard beyond fuel cell components and into delivered power solution provider. This transaction solves 3 critical challenges by removing adoption friction through seamless hydrogen access, providing a customer-ready cost-competitive stationary power solution and laying out a pathway to high revenue growth and margin expansion.

GeoPura has built capabilities across hydrogen production, logistics and stationary power delivery through its hydrogen power units or HPUs. By combining those capabilities with Ballard's fuel cell platform, we gain direct entry into stationary power, improve value capture, unlock growth and reduce a key barrier to adoption, access to hydrogen. Ballard has agreed to acquire GeoPura for GBP 275 million in upfront consideration and up to GBP 27.5 million in potential earn-outs. We've structured the transaction using a combination of stock and cash, enabling GeoPura shareholders to become Ballard shareholders while preserving our balance sheet strength.

The acquisition is subject to customary approvals and expected to close in the second half of 2026. We've partnered with GeoPura since 2019, and we're confident that the people, assets and technology adds significant strategic and economic value to Ballard. At a high level, this transaction strengthens Ballard in 4 ways: faster growth, greater value capture, a significantly larger addressable market and economics that already work today. We summarize that as 3, 5, 10, now. Three, GeoPura's high-growth business accelerates our combined trajectory with an expected 3x revenue growth rate. 5, by bundling the ecosystem, upstream and downstream of the core hydrogen fuel cell technology, we expand our dollar value per megawatt capture by 5x. 10, Ballard's total addressable market, currently focused on heavy-duty mobility markets is expected to grow by 10x.

Through GeoPura's technology, a proven one-for-one diesel genset replacement and hydrogen ecosystem capabilities, we open up the diesel genset market, the stationary and data center backup power market and hydrogen sales across our portfolio. Now GeoPura's HPUs have reached diesel parity today. By leveraging our synergies, vertically integrating and harnessing the hydrogen value chain, we win on pure economics. Too often, the options available to customers are either clean or economical. We achieved both by delivering operational, economic and environmental value to our customers. This is a critical unlock to displacing incumbent technology and driving growth.

In short, the combination improves our growth rate, expands our share of value across the offering, opens materially larger markets and does so with a solution that is already commercially viable. Let me now walk through the strategic logic for the combination. First, it improves our financial profile by adding a higher growth business with recurring revenue characteristics and a cleaner path to scale economics. Second, the combination moves Ballard closer to the customer by expanding our role from component supplier to solution provider with recurring touch points through equipment, fuel and service.

Third, it gives Ballard immediate exposure to stationary power through a proven product already operating in demanding customer environments across multiple countries. Fourth, it expands our addressable market meaningfully, especially in stationary applications where customer demand is increasing and regulatory support is improving. Finally, we know this business well. Our long-standing partnership with GeoPura gives us confidence in the team, the product and the execution plan.

With that, let me turn it over to Andrew to provide an overview of GeoPura and the business he and his team have built.

Thank you, Marty. I'm delighted to be here today and to be joining the Ballard team. We founded GeoPura in 2019 with a clear mission to provide zero-emission power that can be deployed wherever and whenever it's needed. We design, manufacture and operate HPUs that convert hydrogen into clean electricity with proven responsiveness. We're vertically integrated across the hydrogen value chain from molecule to megawatt.

To date, we've delivered over 300 tonnes of green hydrogen using the largest hydrogen distribution fleet in the U.K. This feeds more than 60 HPUs, which are deployed directly to customers under a recurring revenue model. In partnership with Siemens Energy, we manufacture HPUs, which are powered by Ballard fuel cells. These HPUs serve customers across a large and growing addressable market in various industries, including construction, film and television, events and data centers, where they have accumulated over 24 years' worth of operating hours. I want to spend a moment on where our HPUs are deployed today because this is not a pilot stage technology. We have amassed over 200,000 hours of in-service operation with blue-chip customers across demanding real-world environments.

We powered the filming of over 70 major film and television productions, supplied hydrogen to the Lower Thames Crossing, Europe's largest construction project and delivered live broadcast power to the BMW PGA Championship on a number of occasions. These are customers who require consistent, reliable performance, and we've delivered. This track record spans industries facing distinct but complementary tailwinds. In construction and events, regulatory pressure is creating immediate demand for diesel alternatives. In film and television, noise levels, air quality and uninterrupted reliability are nonnegotiable. Transportation and EV charging require supplementary on-site generation. Health care facilities need permanent backup power for new builds constrained by grid availability and defense applications benefit from hydrogen's operational resilience.

And lastly, data centers represent a transformative opportunity. Grid constraints require on-site backup and peak power. HPUs present the right solution for all of the above. While the decarbonization benefits of HPUs are real, our customers are also choosing us for the performance, logistics and energy resilience advantages over diesel with economics that make sense. They're buying a better product, not just a cleaner one. And that's what gives me confidence in the pace of adoption as we scale together with Ballard. In total, we are projecting approximately GBP 38 million in revenue for calendar year 2026. What excites me most is the ability to scale what we've already built together faster and into markets neither of us could address as effectively alone.

Ballard and GeoPura's offerings, while rooted in the same leading fuel cell technology, tackle different use cases. Where Ballard has created a replacement for a diesel engine across heavy-duty mobility, GeoPura's HPUs function as drop-in diesel genset substitutes requiring no change to how customers procure power. GeoPura's product suite spans the full operating range from the new Agile-H, a compact and highly portable 80-kilowatt unit suited to smaller scale deployments to the HPU1, the original 250-kilowatt system that proved the model through to the HPU2, the primary growth driver with over 500 kilowatts per unit scalable to 50 megawatts for temporary and permanent mission-critical power.

These products capture over 70% of the genset market today. The customer value proposition is clear. Zero emissions meeting the most stringent regulations, significantly lower noise, six nines of uptime for mission-critical confidence, simple refueling, modular scalability and frictionless implementation as a drop-in genset replacement. HPUs already achieve a long-term cost advantage in the U.K. versus diesel, with total weekly operating costs equivalent or below an equivalent diesel Stage 5 generator when accounting for fuel, carbon and emissions charges.

And with that, I'll turn it over to Kate.

Thanks, Andrew. Let me now explain where the broader hydrogen value chain matters to our growth. Historically, Ballard has participated primarily at the fuel cell levels. With GeoPura, we add capabilities on either side of that core technology. Upstream, we gained capabilities in hydrogen production. GeoPura currently produces 15 megawatts of hydrogen at HyMarnham and additional volume at other U.K. sites. This ensures a reliable and cost competitive source of hydrogen for customers. This is also supported by the strong regulatory structure of the U.K. HAR program.

There is significant capital-efficient expansion potential up to 930 megawatts at HyMarnham, along with other sites currently being contracted. Midstream to maintain uninterruptible performance, GeoPura manages the U.K.'s largest hydrogen logistics fleet for compressed hydrogen refueling, which supports seamless HPU operation across the U.K. and Ireland. Downstream, hydrogen is converted into power through the HPU portfolio. The hydrogen is produced and delivered to the same integrated platform, all of which is supported by GeoPura's aftersales teams and 24/7 remote operating centers. Each step of this value chain generates revenue and margin and delivers a highly reliable bundled power offering to customers. This matters because the lack of hydrogen availability and a competitive delivery cost remains an adoption constraint in the market today.

The ability to have a greater control of the supply and logistics allows us to offer customers a more complete and dependable solution. The result is a business that participates in more of the value chain and can serve customers with a more integrated offering. All said, we expect our addressable market to grow by a factor of 10. We estimate the annual data center backup power opportunity in our target markets at USD 4 billion based on today's diesel pricing. Annual new backup demand is expected to grow at 18%, reaching approximately 24 gigawatts by 2030.

Grid constraints limit when new facilities come online, and there are also increasingly stringent regulatory hurdles to overcome and major operators have made decarbonization commitments requiring diesel alternatives. HPUs meet these challenges and are able to serve the full backup spectrum, short duration instant on through extended outages, plus dynamic grid services during peak demand. GeoPura has completed successful pilots with industry leaders, including Equinix and Microsoft, with whom GeoPura has enjoyed a fruitful partnership thus far.

On Friday last week, GeoPura and Equinix announced the successful completion of their 12-week HPU pilot at their DB3 data center outside of Dublin, Ireland. The HPUs also fueled by GeoPura powered critical systems in a live environment, a first for Equinix globally. The HPUs provide a direct alternative to traditional diesel or gas generators with uninterruptible power supply and real-time response to grid capacity changes. Moving to the genset market. We estimate the annual revenue opportunity for HPU penetration in diesel genset replacement at approximately USD 16 billion in our target markets, excluding data centers. Up to 105,000 new genset units on an installed base of over 30 million units are anticipated every year through 2030.

Lastly, the third vector of TAM growth is hydrogen supply. We estimate the market for green hydrogen across mobility and stationary applications to be an additional approximately $20 billion annually in the U.K., Europe and North America. As we've highlighted already, an important outcome of this acquisition is that Ballard will be able to capture a larger share of each deployed megawatt. As a stand-alone fuel cell supplier, we participate in only one piece of the economics. With GeoPura, we add exposure to hydrogen supply, logistics and direct-to-consumer equipment capabilities. Broader participation creates more revenue opportunities while also improving our ability to lower delivered costs for our customers. It also gives us more levers to improve margins over time through scale, product optimization and vertical integration.

We expect these opportunities to result in approximately USD 25 million of annual EBITDA synergies by 2028. From hydrogen production expansion to higher HPU deployment volumes to internal fuel cell demand, each link of this chain can reinforce the others as the business scales. We also see opportunities to extend this model geographically, particularly in North America and Western Europe and to apply hydrogen capabilities more broadly across our portfolio. In short, greater value chain participation supports both stronger economics for Ballard and a more competitive total cost proposition for our customers.

With that, lastly, this transaction also changes the shape of Ballard's revenue mix by adding recurring streams from HPU leasing, hydrogen supply and service alongside equipment sales. That shift matters for 3 reasons: First, it broadens and stabilizes our growth profile. Second, it supports better margin potential as the installed base grows. Third, it improves earnings quality by increasing the proportion of revenue that repeats over time. Taken together, this gives Ballard a more resilient business model with stronger visibility as we scale.

I'll hand it back to Marty to wrap things up.

Thanks, Kate. To conclude, this acquisition strengthens Ballard strategically and financially. It adds a proven stationary power platform, increases recurring revenue exposure, expands our market opportunity, unlocks the hydrogen ecosystem and is structured to preserve balance sheet flexibility. Just as importantly, we are moving forward with a business we know well and with a strong cultural alignment.

As we integrate our teams, we are excited to welcome Andrew into Ballard as a President, working alongside me as CEO. Andrew will play a critical role in converting our joint technology into enterprise growth. Additionally, Ballard will be appointing Andrew and Lord Richard Harrington to its Board of Directors upon transaction closing. Their specialized skill sets will support our company through its next phase of transformation. Our history with GeoPura gives us confidence in the team, the technology and the execution path ahead.

With that, I'll turn the call over to the operator for questions.

[Operator Instructions]

The first question comes from Rob Brown with Lake Street Capital Markets.

Congratulations on a nice acquisition. Just wanted to follow up a little bit more on kind of the revenue model. Is it 100% kind of recurring revenue? And how are the contracts structured in terms of duration? If you could give some color on kind of the business model would be helpful.

Yes. So maybe I can start and then Andrew can jump in and say a little bit more about how GeoPura has handled things on their end. So as you know, traditionally, Ballard has been a CapEx sales business model. So that means we would sell an engine directly to GeoPura. GeoPura would pay us for the CapEx, integrate the engine and then they would use the fuel cell for various purposes.

Once those modules or engines are integrated into an HPU, GeoPura has a number of pathways to turn that revenue into either recurring revenue from both fuel and power or as equipment sales.

And maybe with that, Andy, you can talk a little bit about some of the different alternatives you've taken so far.

Sure. Thank you, Marty. Yes. So the primary way that we obtain revenue is rental, which is something the market is very used to. So we charge a rental rate or a lease rate, and then we charge a fuel on top of that, which is, I think, a traditional approach in the market. But that doesn't mean that we don't sell units. It's a smaller proportion of what we do. But occasionally, that suits a particular customer's way of operating. So one particular customer, ESB in Ireland, they're the national generator, their grid operator, they have bought units outright from GeoPura for their operations. So both work for us. The recurring revenue is an excellent model.

And I would add that there are additional capabilities in some cases, to do multiyear contracts for long-term supply of both power and fuel or fuel independently. And those have all been promulgated by GeoPura successfully to date.

Okay. And then just on the geographic expansion potential, is I right to assume it's mostly a U.K.-based business at this point and you can expand globally or maybe just a sense of the geographic footprint today and the opportunity?

Yes. So the majority of the relationships are directly in the U.K. and in the EU. So GeoPura has a footprint in Denmark as does Ballard. And so between the U.K. and the EU, those are the principal go-to-market approaches today. There is clearly an opportunity to do more in North America and supplement the U.K. and EU markets.

The next question comes from Michael Glen with Raymond James.

So just a few questions. So can you indicate what the last year revenue was for GeoPura and build maybe a bit of a bridge as to how you get from the last year revenue run rate to the GBP 38 million of revenue being projected this year?

Thanks, Michael, for the question. Kate, do you want to take a shot at that?

Sure. So we aren't at this point in time, providing historical revenue details, but we will be as part of our required financial filings and regulatory processes between now and closing and post close.

Okay. But looking at the GBP 38 million of revenue, can you give a breakdown as to what that would be for energy as a service versus project sales?

The overwhelming majority would be a mixture of HPU leasing and rental as well as fuel sales. And as Andy pointed out, it's a pretty small proportion of the overall revenue mix that is actual equipment sales.

Okay. And then how do we sort of model this -- in the presentation, you talked about 6 tons per day of hydrogen production capacity. How do we model that? Like do we just assume like a rate per kilogram for hydrogen? Is that kind of the best way to think about that?

Yes. I think why don't we take that offline because of is more detailed modeling questions.

Okay. And then maybe my last question is, Marty, when you talked about the long-term accretion, can you just maybe shed some light on the determination of the multiple paid for the acquisition?

Sorry, Michael, I didn't get the last part of that. The termination of, say the last part of the question again?

Yes, you're paying a touch below 8x projected sales. I'm just interested in having some insights into how we assess the long-term earnings accretion from the acquisition and when you would expect the company to be, say, EBITDA positive?

Yes. So I think we can safely say that we're going to see like the 3, 5,10, now model illuminates, we expect to see accelerated growth of 3x what Ballard has historically done. And then we're sticking with the same commitment that we've been putting out there for the last several quarters around getting to profitability by 2028.

This concludes the question-and-answer session. I would like to turn the conference back over to Marty Neese for any closing remarks. Please go ahead.

Thank you. At its core, this transaction is about accelerating hydrogen adoption by delivering a complete solution for customers. By combining Ballard's fuel cell leadership with GeoPura's hydrogen ecosystem capabilities, we're creating a stronger company with broader growth opportunities and a clear pathway to profitability.

Thank you to the teams of both companies and to our shareholders. We look forward to providing a deeper look at our combined strategy and outlook at the Ballard Forum on October 22, later this year. Thank you very much.

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

Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems' First Quarter 2026 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions]

I would like to turn the conference over to Sumit Kundu, Investor Relations. Please go ahead.

Thank you, operator, and 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 to complete -- for our complete disclaimer and related information.

I'll now turn the call over to Marty.

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, who 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 third consecutive quarter of positive gross margin. It reflects disciplined cost and commercial management and marks an important step in our transformation towards 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 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 multiyear agreement with New Flyer, representing approximately 50 megawatts 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 multiyear 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's 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 aftersales 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 multiyear 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.

Thank you, Marty, and 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 framework 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 on our plates. By moving to higher volume with significantly more automation, we expect lower unit cost, reduced material waste and improve 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 and feedback 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.

Thanks, Rob. 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, and 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 22 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.

Thanks, Marty. As Marty mentioned earlier, we continue to make progress toward cash flow -- towards 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 marks our third straight quarter of positive gross 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 $7.8 million. This compares to $24.4 million in the prior year, a 65% (sic) [ 68% ] improvement. The change reflects the impact of restructuring actions and stronger operating performance as the business continues to scale.

Adjusted EBITDA improved to negative $11.4 million compared to negative $27.5 million in Q1 of 2025. The improvement was driven by stronger margins and lower operating expenses. We ended the quarter with $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 $65 million to $75 million and capital expenditures of $5 million to $10 million. And with that, I'll turn the call over to the operator for questions.

[Operator Instructions] The first question today comes from Baltej Sidhu with National Bank.

Could you elaborate on the drivers behind the strong growth in stationary revenues? Specifically, how much was supported by onetime deliveries and the extent to which demand is coming from data center customers versus traditional verticals?

Yes, I'll start. The stationary power business that we're seeing growth in year-over-year is largely diesel genset 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. But right now, the increase that you're seeing is more what I would call diesel genset replacement business in the stationary power market.

All right. That's great. And then 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?

Sorry, what was the first part of the question?

Just on the bus segment, the key drivers of the decline this quarter for the year-on-year.

Yes. 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 and no matter 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 multiyear agreements, if you will.

The next question comes from Rob Brown with Lake Street Capital Markets.

First question is 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? Or what's your sort of vision on how the service business develops?

Yes. That's a great question, Rob. And yes, for sure, each new sale does come with a service level agreement accompanying it. And so 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. And what that translates into with the long asset life is an extended service tail. So you could think of that as like you get the onetime sale of the CapEx, but then you get an annuity of the service for the duration of the extended asset.

Okay. And then the rail business was strong in the quarter, and I think you have some kind of contracts you're delivering. But how is 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?

We're expecting that the prior work done in the rail business is now opening up future opportunities for us. And 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. And as they're starting to see the value proposition come into stark 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. But 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.

The next question comes from Michael Glen with Raymond James.

Can you maybe just discuss how has the infrastructure and hydrogen availability changed? Or do you see any meaningful investments taking place behind the scenes to improve hydrogen availability or distribution of hydrogen?

Yes. 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.

And 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?

Yes. So my prior comments were really focused more on green hydrogen. So 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. So 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. And so 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.

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

Thank you for joining us today. We look forward to speaking with you next quarter.

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

Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions]

I would now like to turn the conference over to Sumit Kundu, Investor Relations. Please go ahead.

Thank you, operator, and good morning. Welcome to Ballard's fourth quarter and full year financial and operating results conference call. With us on today's call are Marty Neese, Ballard's CEO; and Kate Igbalode, Chief Financial Officer.

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 annual information form and other public filings for our complete disclaimer and related information.

I'll now turn the call over to Marty.

Thank you, Sumit, and good morning, everyone. Today, I'll review fourth quarter and full year results. Additionally, I'd like to walk you through the structural changes underway at Ballard and the foundations we are laying in building towards sustained positive cash flow over the next 2 years.

Let me begin with last year's performance. I'm pleased with our results in Q4 and across the full year. In 2025, we delivered record engine shipments, approaching 800 engines and more than 75 megawatts of power. That represents 38% growth in megawatts shipped compared to 2024. The majority of these shipments were into Europe and North America, with particularly strong activity in Canada. These shipments translated into full year revenue of $99 million plus, up 43% year-over-year. We also secured our largest marine order to date, a 6.4 megawatt award from eCAP Marine and Samskip. And on Tuesday announced our largest commercial agreement with New Flyer of 50 megawatts. But the real shift in 2025 was not just growth. It was structural progress toward our goal of becoming cash flow positive within the next 2 years.

We have made decisive changes to align our cost structure with market realities and position Ballard for durable, sustainable performance. We reduced our cash operating costs in Q4 by 41% compared to the same period last year, fundamentally resetting our cost base. We are now seeing the financial impact of that reset. In Q4, we achieved positive 17% gross margin and positive 5% for the full year, both representing meaningful improvement year-over-year. While quarterly performance is not yet ratable due to seasonality, the margin profile of the business is strengthening and is foundational for us to achieve our profitability goals.

Most notably, in Q4, we generated $11 million in cash flow from operating activities, which underscores our structural actions are working, and we are making measurable progress towards our profitability targets. With significant improvements in our cost structure and operating discipline, the next phase is clear, expanding revenue and gross margins. Our plan centers on 5 near-term focus areas: Improving commercial terms, product cost reductions, enhanced fleet service offerings, expanding product reach and business model innovations. Let me briefly touch on each.

First, commercial terms. Throughout 2025, we strengthened our commercial foundation. Our newer agreements reflect more comprehensive pricing structures and balanced commercial terms, including protections against tariff exposure, exchange rates, inflation and precious metal volatility. These changes improve transparency with our customers, enhance margin visibility, reduce earnings variability and support stronger long-term partnerships. Our customers have been constructive in these discussions as they are navigating similar cost pressures with their customers. In some cases, finalizing these improved structures has shifted certain order announcements into 2026, but the result is higher quality agreements that better protect long-term value for both parties.

A recent example is commercial agreement with New Flyer, their largest commitment to Ballard to date, covering 500 FCmove HD+ engines or 50 megawatts. This is an exciting opportunity to support New Flyer as more and more U.S. transit agency customers adopt fuel cell buses.

Increasingly, these customers are understanding the value proposition offered by fuel cells, including superior range, especially in cold weather and lower infrastructure costs related to charging infrastructure. We also expect additional activity in stationary and rail markets in the coming months.

Our second focus area is product cost reduction through a holistic approach. We are systematically cost reducing our products using 3 key levers: negotiations, execution and innovation. Our supply chain and sourcing teams are continuously securing and adding new alternative lower-cost suppliers, while our operations team continues to increase productivity and improve manufacturing process yields. We are also innovating in areas that increase performance, simplify our products and design in more durable components.

Nothing reflects this approach better than the FCmove-SC. This platform achieves a 40% reduction in total part count, while simultaneously improving power density, durability and capability. Fewer parts translate directly into lower cost materials, simplified assembly and enhance maintainability and serviceability.

We are also advancing Project Forge, our high-volume bipolar plate automated manufacturing line, which is on track to begin serial production midyear. This line has fewer processing steps, higher volumes and throughput and improved quality and process yields. Further, it combines enhanced in-line metrology and state-of-the-art automation, resulting in plate cost reductions of up to 70% at full volume. Together, these systemic approaches significantly improve our cost position, strengthen gross margin and enhance the competitiveness of our products.

Third, we are focused on leveraging our installed base through enhanced fleet services offerings enabled by product level intelligence. We now have thousands of fuel cell engines operating globally supported by a deeply experienced service organization and nearly 300 million kilometers of real-world operating experience. Every engine is equipped with a remote data unit, which transmits engine performance data. Each product is smart and adds to the collective intelligence of our installed fleet. Today, our smart engines provide a trove of performance data, enable preventive and customer maintenance and insights into enhanced customer uptime.

In the near future, additional insights will provide the foundation for prognostic and enhanced maintenance services, both co-located with our customers and from our remote operations center in Canada. This installed footprint creates a significant opportunity to expand recurring revenue under Ballard Fleet Services, including long-term service agreements, parts supply, technical support, operational monitoring, customer technician training and ongoing stack servicing. Ever increasing fleet intelligence and added services will provide performance benefits to our customers while expanding our fleet services business over time.

This service-led approach increases revenue visibility, strengthens customer intimacy and retention and adds a more stable recurring component to our business mix that scales with every unit and for years after initial delivery. Our installed base is becoming a compounding asset, supporting both customer success and sustained financial performance. We believe this is a significant source of long-term competitive advantage and differentiation and we will continue to invest in our fleet services capabilities.

Our fourth focus area is expanding in near-term markets. We are leveraging our technology platforms and durability expertise to expand into mature and rapidly growing market segments. One example is Materials Handling. This is a market where cost and durability are critical. By applying our technical and operating experience gained in heavy-duty applications, we have developed a stack to deliver superior total cost of ownership due to its longer lifetime.

Another example is stationary power. We are increasingly focused on replacing diesel gensets and powering data centers. While PEM fuel cells have traditionally been positioned as backup solutions, we believe our technology can also support peak power and in certain applications, even primary power, where hydrogen supply is available.

We have deployed solutions for a wide variety of off-grid, microgrid, high uptime and critical infrastructure applications. These have ranged from historical telecom backup installations to peak shaving and more recently to powering TV and film productions and very large construction sites. Our stationary power products have generated over 100,000 hours of power, which is nearly 10 years equivalent of reliable service. This scalable, flexible power generation capability is now being deployed and evaluated for multi-megawatt data center applications in select target markets.

Our engines provide clean, quiet, emissions-free power with very high reliability. These highly bankable features, ease permitting are welcome -- and are welcomed in any jurisdiction. We look forward to continuing to advance our product offerings to address the growth in these exciting markets and we'll provide additional updates in the coming months.

Finally, our fifth focus area is unlocking broader access to the hydrogen ecosystem. In addition to advancing our technology, we are innovating in commercial and operating models that lower both the financial and technical barriers to adoption. As customers evaluate hydrogen solutions, upfront capital costs, infrastructure complexity and long-term performance risk remain key considerations. We are addressing these through flexible commercial and financial structures, service-based offerings and partnerships, which simplify integration and reduce risk.

Innovative business models will provide our customers with complete solutions, including financial -- financing models that allow a win-win value proposition and simplified development. As part of these solutions, we are offering extended warranties based on our proven durability and comprehensive service capabilities.

As adoption becomes easier and more predictable, our addressable market expands, creating a virtuous cycle of scale, cost reduction and growth, while at the same time, improving the full solution value we deliver for our customers. These five focus areas act as a one-two punch in tackling both the revenue and margin side of our cash flow equation, offering a realistic near-term path for achievement.

Finally, let me close with a few thoughts. Over the past year, we have fundamentally strengthened the foundation of the business. We improved financial performance, reinforced our commercial discipline, delivered record volumes, reduced our cost structure and expanded margins, all while navigating a complex market environment. We have a path to improve revenue and margins to build a business design to generate sustainable positive cash flow within the next few years. With over $500 million of cash and lower cash utilization, we have the additional flexibility to deploy capital strategically in support of this goal. With a well-managed cost structure, improving gross margins and a focused execution plan, Ballard is entering its next phase with greater financial discipline and operational clarity. We are very grateful for our long-term customer relationships and are deeply committed to continuing to deliver more and more solutions of value to serve them.

Core to our progress are the people of Ballard. I want to thank them for their dedication and professionalism. The improvements we delivered in 2025 are a direct reflection of their expertise and commitment. We are confident in the path ahead, and we are committed to deliver fuel cell power for a sustainable planet.

With that, I'll now pass the call over to Kate to review the detailed financials.

Thank you, Marty. 2025 delivered strong financial performance across revenue, margins and cost structure. As Marty highlighted, fourth quarter revenue was approximately $34 million, up 37% year-over-year. Full year revenue exceeded $99 million, up 43% in 2024, based primarily on record engine sales approaching 800 units or over 75 megawatts of delivered power.

Our Q4 gross margin improved to 17%, a 30-point increase year-over-year. Our full year gross margin was positive 5%, up 37 points from 2024. The improvement in gross margin in the fourth quarter of 2025 as compared to the fourth quarter of 2024 is due primarily to a decline in onerous contract provisions, product cost reduction initiatives taking hold and lower manufacturing overhead costs as a result of the global corporate restructuring.

Total operating expenses for the full year were approximately $109 million, 32% lower than the previous year due to the rightsizing of our cost structure. This was at the middle of our guidance range, which was between $100 million and $120 million. If we exclude restructuring and related expenses of $23 million, our total operating expenses in 2025 would have been approximately $86 million, below the lower end of the guidance range.

In 2026, we expect total operating expenses to range between $65 million and $75 million. Our total capital expenditures in 2025 were $10.2 million, at midrange of our revised outlook between $8 million and $12 million. For 2026, we expect capital expenditures to moderate further and be between $5 million and $10 million. As Marty highlighted, we are absolutely thrilled with the cash flow progress we have achieved in the fourth quarter. While we have cyclicality in our revenue and don't expect this type of performance to be ratable yet, this is a huge milestone for us. Even more impressive is that this was achieved with nearly all of our revenue was from fuel cell product sales.

Another huge highlight is that our cash usage for the full year of 2025 was down nearly 50% from 2024, underpinning the improved foundation and financial stability of the organization. We ended the year with nearly $530 million in cash, up $1.4 million from Q3, no bank debt and no near or midterm financing requirements. As we have emphasized on this call and on previous calls, we remain steadfast on disciplined spending, growing our top line revenue, expanding our margins and maintaining our financial health.

With that, I'll turn the call over to the operator for questions.

[Operator Instructions] The first question comes from Baltej Sidhu with National Bank of Canada.

So just on the restructuring side, as you alluded to in the prepared remarks, so 2025 OpEx would have been around $86 million, and the midpoint of our guide would imply another $16 million of reduction relative to that. So would you say that the large items have been harvested? And just as a follow-up on that, what are the key drivers of the incremental cost contraction?

Thanks for the question, Baltej. So I think that if we're looking at kind of the year-over-year changes, we don't anticipate any kind of additional major restructuring that we saw in 2025 or 2024 to be in the cards for 2026. So I think that the midpoint of our guidance range is a reasonable expectation for our overall cost structure in 2026. And if you could just repeat and clarify the second part of your question, that would be helpful.

Yes. Just the cost drivers of the incremental contraction. And the first part was about the -- are the large items already been harvested, which I think you've touched on?

Yes. I would say that they have been. And I would say that the kind of key pieces that we're focusing on, I think that we've really rightsized our overall cost structure at an organizational level. And now is continuing to drive cost out of our products through additional innovation initiatives, manufacturing efficiencies and product scaling. So I think you're going to start to see the cost reductions show up more on the product side relative to the overall OpEx side. I don't know if you have any other comments on that, Marty.

I would just say that it's really a combination of looking for every penny structurally from the bottom-up of the company. We essentially, in 2025, reestablished kind of a zero-based budgeting approach and rebaselined everything we spend money on. And so that work is starting to pay off in our structural approach, specifically around some of the operating expenses that are variable in nature.

That's great color. And just one more, if I may. Just with the magnitude of reduction, there's always trade-offs and scope prioritization or the piece for it. Have these actions materially alter your R&D road map or the timing of ambition of key initiatives just as you aim to accelerate now value from your bus vertical as evidenced with the announcement a few days back?

Materially, we've taken the approach that we're leveraging our product portfolio and prior investments to get as much out of them as we can. So when you think about material handling, we had a very long history of material handling, and we extended our know-how in that segment to create a new product that we're getting very good feedback that, that extended durability product is going to be well received. Similar approach can be taken when you think about heavy-duty applications, that can be used for stationary power, if you will. Some of our prior investments in heavy-duty applications can be transferred, if you will, from, let's say, a heavy-duty trucking environment. And the core technology is extensible to a stationary power application when packaging is done differently or configurations are done differently. So that's a way to say the R&D is more focused on how to extract as much value as possible from innovations that have already been materially realized and have been reduced to practice. The longer-term innovations is a different aspect. And I would put that as more in the 3- to 5-year kind of range of outlook before we need to do something significantly different in our approach. We have a good runway of product portfolio and existing innovations that we can commercialize and we're getting really, really strong feedback that these products are going to hit the market well.

The next question comes from Rob Brown with Lake Street Capital Markets.

Just wanted to follow up on the New Flyer contract. Great news there. What's the sort of duration of that contract or potential? And how do you see that ramping?

The contract itself is for 500 units, and we're not discussing the duration of the contract. We're more focused on the actual megawatts and unit volumes. And then, of course, we have a long-standing partnership and relationship with New Flyer, and it's not really predicated on a quarter here or a quarter there. We have flexibility to work strategically with them to realize their growth ambitions as well as our own. And that's the way we've characterized the relationship. Realize that also includes a long-term service tail that goes with everything we're doing. So that's part of the compounding set of assets. The bigger the New Flyer fleet gets the more that service tail grows and the deeper we get in the relationship with them, which is proving to be extraordinarily helpful and valuable for both of us.

Okay. Great. Okay. That's good color and it helps you -- I mean the visibility helps you plan your operations, I'm sure. And then second on the stationary market. How much of a kind of new product portfolio do you need to enter that market? Or can you take what you have and really expand there and maybe a sense of just the opportunity in the stationary market at this point for you?

Yes. I'll just say it in general. We have an XD product and that XD product and HD products that preceded it or in conjunction with it. Both of those products can address the stationary market, depending on how they're configured and packaged. So really, the work is the configuration packaging. When I say packaging, it's the arraying of multiple engines to do different quantums of work, if you will. Whether that's a single unit that's for a mobile diesel gensets replacement or whether that's an array of units that's scaled up to 20-plus megawatts, up to 50 megawatts. The packaging and the numbering up of those core engines that HD or XD capability is really being well received. At the same time, we're also making additional innovations, so that we can get more kilowatts out of each one of those stacks. So think of that as like if you could imagine getting from 100 kilowatts to 120 kilowatts up to 135 or 150 kilowatts per engine and then numbering that up. So that helps drive both performance and cost down and starts making the numbering up more and more attractive from a total cost of ownership and deployment level.

The next question comes from Dushyant Ailani with Jefferies.

I just wanted to touch on one piece real quick. I wanted to dig in on stationary if that's okay. Could you maybe talk about a little bit more in terms of the opportunities, the timing that you're seeing? And also, how does it -- how does the XT and HD compared with other competing offerings that you're seeing or the conversations that you're having with your customers?

Yes. So let's see if we can unpack that a little bit. So the stationary power market known to all on this call. For sure, everyone understands the time to power mandate, if you will. So when you see constraints in the global landscape of where data centers are being promulgated. There is a very strong opportunity for us to have a ready now product to address those needs for power now. So we are seeing more and more interest in that regard. And when I think of that, that's really supporting a thesis along the behind the meter side of things in stationary power for now. And then over time, as constraints ameliorate, you might see those transition from behind the meter to be grid connected, but this is 7, 10 years from now. So there's a very strong value proposition for our fuel cells to help solve that time to power it packaged and arrayed correctly.

At the same time, our costs and the products were designed to go into largely heavy-duty trucking. So if you can compete at the engine level in heavy-duty trucking, it suggests a very strong capability on a cost per kilowatt basis relative to other solutions that are out there that are not PEM fuel cells, but maybe other kinds of fuel cells. And on a cost per kilowatt, our total installed cost of ownership, we feel like we've got a really good value proposition emerging, which will help significantly address the market.

The next question comes from Jeffrey Osborne with TD Cowen.

Kate, maybe for you. How should we -- I saw the year should be back-end loaded, but any hints on about the first half versus the second half relative to the makeup of 2025 or sequentially how we should think about Q1 versus a year ago or the prior quarter?

I think kind of as we've discussed and we've seen historically, I think a 40-60 split H1, H2 is a reasonable expectation for 2026. And I think as Marty commented in his remarks, we're also really looking into how we can further kind of level load and smooth out our kind of quarter-over-quarter variability and seasonality helps across the board in terms of operations, our cost structure, et cetera. But I think a reasonable planning assumption for this year would be that kind of 40-60 split.

That's helpful. And then Marty, maybe for you, just with the refined focus that you've had, you've highlighted stationary this time around a couple of analysts have asked about that. But if you look back prior to joining Ballard, I think FCwave, ClearGen-II, you had a test with Vertiv and others. Can you just further elaborate on what's so unique about the XD and HD platform combined with new packaging relative to Ballard's, I don't want to say failed attempts, but challenged attempts 4, 5, 6 years ago in the stationary power market. I'm just trying to understand what's new in light of, at least in many parts of the world, hydrogen availability is still challenged.

Yes. So if you historically rewind the clock a little bit, you have to think about the product wins that we had in 2023, 2024 that were more scaled products like the ones you referenced. Those would have been conceived in the 2020, 2021 time frame. All of this is the pre ChatGPT moment, yes? So everything went vertical once the AI moment happened. So the products that we designed prior to the AI boom, if you will, were more designed for off-grid, for microgrids, for island power, things of that nature. And the customers at the time had perspectives that they were doing very similar types of products. "Hey, can we do a 1-megawatt microgrid to be deployed in an island type application?" Things have changed. That is not what the customers want today. So we have had a number of workshops and I say multi-day workshops with large technical team engagement with customers who are serving hyperscalers and others, and we're getting a much clearer view of what people care about today and what our product needs to enable. And I've already alluded to a significant portion of it, which is not surprising. It's got to be speed and cost. And speed and costs are front and center with what we're doing, and that's unlocking a significant amount of interest. And taken together with the bridge power requirements that are out there with some of the gaps in the market with some of the delays and constraints and bottlenecks across the AI landscape. It's power, that's the problem, as everyone on the call knows of where the stationary market is going. So we have a role to play in that. We don't know exactly what size or what quantum or what level. But we definitely have a product that meets the market and we'll have a role to play in that. And then we have to fight for our share after that based on delivered performance and delivered cost. And the ability to really listen deeply to what the customer cares about and package a solution that meets what they want, more capably than the examples you provided from 2021 to 2022, and the pre-ChatGPT moment, if you will.

Got it. Maybe just one quick follow-up on that. Would the focus be on Europe and Canada, just given greater availability of hydrogen as a fuel relative to natural gas? I'm just trying to understand where the commercialization efforts would be placed?

Yes. That stands to reason. Those are our home markets and the number of products or projects progressing to FID. I think the Hydrogen Council referenced some $35 billion in year-over-year projects advancing to FID. All of those projects can't just feed the refinery business or the industrial applications. They are keenly looking for offtake partners such as the kinds of partners that would be associated with integrating fuel cell power or others with data centers of all stripes.

This concludes the question-and-answer session. I would like to turn the conference back over to Marty Neese for any closing remarks. Please go ahead.

Thank you for joining us today. It's been a pleasure speaking with all of you. Kate, Sumit and I look forward to speaking with you next quarter. And thanks again, everyone.

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

Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems Third Quarter 2025 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Sumit Kundu, Investor Relations. Please go ahead.

Thank you, operator, and good morning. Welcome to Ballard's Third Quarter Financial and Operating Results Conference Call. Joining me today is Marty Neese, Ballard's President and Chief Executive Officer; and Kate Igbalode, our Senior Vice President and Chief Financial Officer.

Before we begin, please note that 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 our complete disclaimer and related information.

I'll now turn the call over to Marty.

Thank you, Sumit, and welcome, everyone, to our third quarter earnings call. Today, alongside our quarterly financial and operational highlights and updates on our market verticals, I'll share progress on our recent restructuring and strategic alignment, discuss our path toward becoming cash flow positive and provide updates on key developments across our global organization.

I'll begin with an overview of our business and markets. Overall, I'm pleased with our performance in the quarter. We continue to progress on pace with order delivery resulting in a 120% year-over-year revenue increase, largely from our deliveries to the bus and rail segments, representing more than 70% of this quarter's revenue.

Net order intake was approximately $19 million, and we achieved a positive gross margin of 15%, reflecting meaningful progress in reducing product costs and a net reduction in onerous contract provisions. While this margin result may not represent a new ratable baseline, it demonstrates the progress of our product cost improvements and overall profitability trajectory.

Our revenue makeup highlights the importance of the bus market, a market we expect to continue growing in the coming years. I recently had the opportunity to attend Busworld and meet with bus OEMs and transit operators. What was truly eye-opening was the interest in electrification for buses has grown substantially with combustion engines largely absent from the show and an almost exclusive focus being on electric alternatives, including fuel cells. This is not surprising when considering that nearly 60% of new bus sales are now zero emission.

In this electrified space, the advantages of fuel cells to serve a wide variety of routes, short refueling times and the increasing infrastructure costs in face of grid constraints is becoming ever clearer. As the market attractiveness and technical and competitive merits of fuel cell buses grow, so too is the competition in the fuel cell bus engine space. With new entrants coming in, it is more important than ever for us to continue to differentiate ourselves as the fuel cell industry leader. Here, we believe that our decades of innovation and hundreds of millions of delivered kilometers positions us well. Having the most experienced and most durable, reliable products with the lowest demonstrated total cost of ownership sets us apart.

We are also ready for the next generation of buses. At Busworld, we launched the FCmove-SC, and initial feedback from OEMs has been very positive. Customers recognize the potential benefits of higher power density, simpler and more integrated functionality, a smaller, lighter footprint and higher operating temperatures. These are all features that lower their total cost of ownership. Further, we continue to improve our core stack lifetime and industry-leading durability. Taken together, our customers are excited with these innovations.

In terms of timing, product availability is expected to line up well with OEM timing for homologation into their next generation of vehicles. Additionally, we are enhancing our product cost leadership and long product life with a more comprehensive focus on delivering best-in-class service. We are complementing our products with additional services, including digital operations and maintenance services, extended warranties, spares management and on-site and virtual technician training and support. Our strong balance sheet and commitment to long-term service and support sets us apart, and our customers are eager to engage with us further to enhance these offerings.

Moving briefly to our rail and marine segments. We continue to see momentum for freight and passenger rail locomotives. Recently in a milestone for sustainable transportation, Stadler's FLIRT H2 hydrogen-powered train officially entered service in San Bernardino, California, another important step towards carbon-free public transit. The train sets a new benchmark for clean, efficient and passenger-friendly rail travel in the region that we are proud to be powering.

In the marine segment, during the quarter, we recorded our largest order ever to the marine market with our order totaling 6.4 megawatts to eCAP and Samskip. These are both interesting markets for Ballard, though I would add that both these markets remain at early stage of development and customer adoption.

For the stationary power market, let me address the topic that is particularly hot at this time, AI data centers. It is clear that the rapid growth and the need for data centers and related infrastructure is creating challenges for local grids, and there is a shift to evaluate potential sources of off-grid power as well as address CO2 emissions rules and noise requirements in many jurisdictions. This applies for both backup and primary power sources.

Ballard's stationary solutions to date have demonstrated that we can supply kilowatts to megawatts of power. Our near-term product offering for this market is focused on backup power solutions to replace diesel generators. Unit volumes in our forecast continue to increase as does our product evolution from hundreds of kilowatts to multi megawatts. We are leveraging these factors to innovate further with our stationary power and data center customers. Our FCmove-XD product enables us to increase power densities today to 500 kilowatts and up to 2 to 3 megawatts in a small form factor module in the near future. This leading power density in a compact footprint opens the door to potential additional use cases.

Hydrogen supply partnerships are essential, and we are actively working on collaboration opportunities in this area. This is an exciting area of product innovation. We will continue to provide updates as customer engagements develop further.

Turning to our strategic realignment. We are making meaningful progress as we work toward cash flow positivity. On the cost side, our recent restructuring actions are delivering tangible benefits with significant reductions in cash operating costs and total operating expenses, excluding restructuring charges.

On margin and revenue, we remain focused on driving down product costs and expanding our order book and total order back -- excuse me, backlog. Building out our order pipeline is taking additional time as we work with current customers to secure more sustainable contract terms, and some orders have shifted to Q4 2025 or Q1 2026. We believe this extra time is well invested to ensure long-term sustainability and appropriately balanced commercial agreements.

Looking ahead to 2026 and '27, we anticipate further improvement in gross margins, supported by ongoing pricing and growth initiatives, additional product cost reductions and the initial sales of our FCmove-SC product. In addition, we expect further growth as we reenter the material handling market. We are seeing interest in our extended durability stack offering, which more than doubles current material handling stack lifetimes available in the market today. Customers see this product as an excellent way to increase their delivered value and lower their overall costs, especially related to stack service and maintenance. As mentioned, as we further refine our product offering for the stationary power market, we expect growth in this market as well. For both material handling and stationary power, we will provide more details on pipeline and order book conversion efforts as these potential opportunities mature.

Taken together, these efforts are critical in moving us towards our goal of cash flow positivity. While there is still work to be done to achieve long-term sustainability, we are taking the right steps to grow our business in areas that make strategic sense, all while maintaining a strong balance sheet for our long-term resilience and in support of our customers.

Moving to 2 other items of note for Ballard's global operations. First, due to changes in funding options and updated capacity outlook, we have decided not to pursue the Texas gigafactory development. Our analysis shows our existing global manufacturing capacity with minor adjustments will meet forecasted volumes. This decision underscores our commitment to capital discipline and focus on efficient execution.

And second, as part of our strategic focus, we are further reducing our involvement in the Weichai Ballard joint venture in China, allowing us to concentrate resources on North America and Europe.

Before I pass the call to Kate to review our financials, I would summarize this quarter as showing progress on our turnaround efforts. Year-over-year growth in shipments and revenue, progress on margin expansion, executing disciplined capital spending and launching compelling new products and services that deliver lower costs and more value to our customers is a really good start. There is much more to do to further transform the company and get to cash flow positivity, and we are committed to this overarching goal.

With that, I'll turn the call over to Kate for a detailed review of our financial results.

Thanks, Marty, and good morning, everyone. For the third quarter of 2025, Ballard delivered revenue of $32.5 million, an increase of 120% year-over-year, driven primarily by the bus and rail deliveries. Gross margin improved to 15% compared to negative 56% in Q3 2024, a 71 point improvement. This reflects lower manufacturing overhead, continued product cost reductions and a net reduction in onerous contract provisions. This reduction in onerous contract provisions, coupled with a higher margin onetime off-road sales transaction contributed to the outsized gross margin performance in the quarter. Without these onetime benefits, our gross margin would be slightly negative, still illustrating a market year-on-year and quarter-on-quarter improvement.

As Marty highlighted, we continue to make measured progress towards gross margin expansion and expect this to be reflected in our 2026 outlook.

Total operating expenses were $34.9 million, down 36% year-over-year or 55% lower when excluding restructuring costs. Cash operating costs declined 40% year-over-year as the benefits of restructuring actions flowed through to our results. The rightsizing of our corporate cost structure, while never easy, was critical for our long-term sustainability and financial health.

Adjusted EBITDA improved to negative $31.2 million compared to negative $60.1 million in the prior year. Cash used by operating activities was $22.9 million, an improvement from $28.6 million in Q3 of 2024. We ended the quarter with $525.7 million in cash and cash equivalents, no bank debt and no near-term financing requirements. Our strong balance sheet and firm hand on prudent capital allocation is a key differentiator amongst peers and provides us with business flexibility and resilience in this dynamic macro environment.

Looking ahead, consistent with prior practice, we are not providing specific revenue, net income or margin guidance given the early stage of market development. We continue to expect revenue to be back half weighted for the year and total operating expenses, excluding restructuring charges, are expected to be below the low end of our $100 million to $120 million guidance range. Including restructuring costs, expenses are expected to be towards the high end of the guidance range.

We now expect capital expenditures of $8 million to $12 million, down from our prior guidance of $15 million to $25 million, reflecting disciplined capital allocation and deferred facility investments. Looking to 2026, you can expect us to maintain our lean organizational cost structure and continue to demonstrate capital discipline. Maintaining a healthy balance sheet and accelerating our pathway to profitability is critical for our success and to deliver value to our shareholders. With that, I'll turn the call over to the operator for questions.

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

Just wanted to get your thoughts on the growth kind of rates in the bus market. Are there additional kind of growth [ order ] activity that you're pursuing and get a successful [ conference ] activity? But just wanted to get your sense on the growth rate in the bus market going forward.

Yes. I would answer that, Rob, by saying that the reception at Busworld was tremendous. The new product is being very well received, and that's by both existing OEMs and some OEMs in development, if you will. Further, the constraints I mentioned around infrastructure pinch points for battery electric charging infrastructure, if you will, is starting to change the dynamics for fuel cells where we look much more compelling than previously outlined, if you will, relative to battery electric.

So I would say that that's a good news for fuel cells story and starts pointing towards a larger fleet size adoption, especially where the infrastructure constraints can be overcome by adopting fuel cell buses. So in general, I would say Europe is making steady and improving progress and adoption rates for fuel cells. North America is essentially flattish year-over-year. And that's -- yes, that's where I'd leave it.

Okay. And then quickly on gross margin. I think you talked about a slightly negative sort of adjusted out. Is that the baseline you expect to grow from or improve from going forward?

The short answer is yes. But Kate, maybe you could provide some more details on the gross margin bridge for Q3 and then kind of what you're outlooking from there.

Yes, absolutely. So you're spot on, Rob, in that in our remarks, we did highlight that without this kind of onetime pieces in the quarter, it would be slightly negative. I think that's kind of where we expect to close out in Q4 as well. And looking into 2026, again, I think you can expect low to mid-single digits on our gross margin. We don't provide margin guidance, but I think you do expect us to see incremental progress going forward from here on out.

The next question comes from Jeff Osborne with TD Cowen.

I was going to ask on the former Project Forge and the Texas facility, some of the targets that were laid out for the restructuring there. Are those still achievable without the Texas facility? Can you remind me how important that was as it relates to getting gross margins higher than what Kate just mentioned?

Yes. I would say Project Forge is primarily automation and materials efficiency. And that is, in fact, still in flight, yielding well, heading in the right direction and not dependent on Texas in any way, shape or form. Texas was more of an integrated view for complete stacks and modules with Project Forge and the automation being a core attribute. But that's being done in Canada as we speak. So we're good on that front.

Good to hear. And then, Marty, you mentioned reentering the material handling space. I think from memory years ago, you were just in the liquid-cooled side for sort of the [ ride-on ] units versus, I think, the smaller pallet jack lifters were air-cooled. Are you doing both? Or are you just doing the liquid-cooled? Can you just further detail what specifically the strategy is on material handling?

Yes. The near-term interest we're seeing is for air-cooled. And so air-cooled with additional durability is resonating well with a handful of new customers. And when I say additional durability, I mentioned at least 2x the state-of-the-art as we see the market today. That really is attractive when you think about the service obligations for customers over the long run. And so different customers are really valuing that in a more thoughtful way as they get more and more experienced servicing and managing a long lifetime fleet. And so that durability equation is starting to show economic clarity for them.

[Operator Instructions] The next question comes from Craig Irwin with ROTH Capital.

It's Andrew on for Craig. One quick one for me. Congrats on signing your largest marine order to date with the Samskip vessels. I know you've been working with this partner for a couple of years now, I think, since 2021. So can you kind of talk about the -- just evolution of this agreement, how it came about and maybe what you can take away from it and learn from -- for other customers?

Yes. I might pass that to Kate for additional clarity. But the headline is we have been developing this opportunity for a couple of years. And the product, FCwave product is DNV certified for a marine application. And so that took a good bit of time on certifications and standards bodies, but we were the first ones to do that. And after that heavy lift was complete on the certs, then we started seeing an adoption rate like the Samskip order. Noteworthy is that FCwave product has additional use cases beyond marine, and that certification of DNV, if you will, for the marine application, provided a lot of comfort to other customers in using that product and the approach that we use relative to that product.

So that's kind of what I know from a background or context standpoint. If there's more relative to the contract evolution, Kate, that you want to add, feel free.

No, I think those are excellent points, Marty. And I think I'm glad you asked about this, Andrew, because I think there's a number of key learnings, not only on a technical basis, but also commercial and contractual and how we work with customers. I mean these are large projects. They take years to develop and form. And I think for me, one of my big takeaways was how are we listening to our customers in terms of what's important to them from a technological point of view and how we're using that to inform our next generation of product development. And then I think the other piece, too, is understanding their entire ecosystem around how they're getting hydrogen supply at a cost that is affordable to them.

So it's kind of looking at the whole holistic view of what it really takes to get these projects across the goal line. And it's a very collaborative effort for us with our technical teams, our commercial teams and also on the aftercare and service piece is incredibly important in these types of applications, which really require very high reliability and ease of maintenance. So I was really happy to be involved on this across the last number of years, and I'm thrilled to see it come to fruition.

This concludes the question-and-answer session. I would like to turn the conference back over to Marty Neese for any closing remarks. Please go ahead.

Thank you, everyone, for participating in today's call. Really appreciate it, and we look forward to providing additional updates in the future.

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

Thank you for standing by. This is the conference operator.

Welcome to the Ballard Power Systems Second Quarter 2025 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions]

I would now like to turn the conference over to Sumit Kundu, Investor Relations. Please go ahead.

Thank you, operator, and good morning.

Welcome to Ballard's Second Quarter Financial and Operating Results Conference Call. Joining me today is Marty Neese, Ballard's new President and Chief Executive Officer; and Jay Murray, our Vice President of Finance and Corporate Controller, who is stepping in for Kate Igbalode this quarter. 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 our complete disclaimer and related information.

I'll now turn the call over to Marty.

Thanks, Sumit. Good morning, everyone.

As this is my first earnings call as CEO of Ballard, I'd like to begin by sharing some of my background and the principles I bring to Ballard. I'll apologize in advance for talking a bit about myself, but I believe context is important, both for understanding the journey that brought me here and the perspective I bring to our path forward. As the saying goes, the sum of your past moments is what led you to today. My journey includes leadership roles in both Fortune 100 companies like Flex and innovation-driven start-ups like Verdagy.

I've led product and service businesses, publicly traded companies and venture-backed teams. Each experience has reinforced my belief that there are always better ways to do things and that success lies in execution, innovation and delivering meaningful value to customers. I spent the first 15 years of my career in the electronic manufacturing services or the EMS industry. That experience shaped my understanding of the value of disciplined execution and cost control, delivering products with precision, frugality and extraordinary service.

In EMS, success is earned through reliability, working capital efficiency and constant operational rigor. The past 18 years of my career have been focused on clean tech, serving as COO at SunPower, a vertically integrated public solar company and most recently as CEO of the hydrogen electrolyzer startup. These roles were centered on innovation-led value creation. First, to reach grid parity in solar and then to unlock fossil parity for green hydrogen. The importance of technical excellence, product innovation, urgency and establishing bankability was constant throughout.

In 2015, I joined Ballard's Board. Now as CEO, I'm both grateful and excited to be leading this company. Ballard has over 45 years of history pioneering and educating the world on the promise of hydrogen fuel cells. In recent years, we've transitioned from being primarily a technology development and solutions company to a product company with growing commercial traction in bus, rail, marine, stationary power and material handling.

That transition hasn't been easy and it hasn't been linear. Tailwinds in policy and market enthusiasm have shifted in recent years. As we face new headwinds, uncertainty, changing regulations, tariffs and delayed adoption in certain sectors, we must evolve again. That change starts with me. We are charting a course toward becoming a sustainable cash flow positive business by the end of 2027. To do that, we are aligning around what I believe are universal truths for any successful business, including Ballard. The value of execution and cost. Execution is fundamental. It starts with understanding, simplifying and reducing our costs across our operations, our products and our processes and coupling cost improvements with disciplined capital management.

Our recent investments in automated manufacturing of MEAs and bipolar plates gives us a cost reduction advantage we intend to fully leverage. The value of service. Commercial success is earned from customer success, winning on total cost of ownership and delivering real measurable customer value is how we win. Just as important, our customers need to be willing to understand and pay for this delivered value. That's how we build a self-sustaining business. The value of innovation. Innovation is not just about technology. It's about products, services, business models and partnerships from stack improvements to value-added balance of plant and from product simplification to customer-centric design. We are relentlessly focused on developing better, safer, higher-value solutions.

As the saying goes, a designer knows he has achieved perfection not when there is nothing more to add, but when there is nothing left to take away. That's the mindset we bring to product development. The customer feedback we are receiving is very encouraging and bodes well for the future of our new products in development. We also see innovation opportunities beyond the product across our business model, supply chain and go-to-market approach. The value of deep experience and brand. Ballard has delivered over 300 million kilometers of fuel cell-powered transportation, more than any competitor by far.

We have the most durable products, the best delivered TCO or total cost of ownership and a globally respected brand. Our reputation and technical depth are tremendous assets that we will continue to build upon. The path forward. We are taking a hard look at markets that are not moving as fast as expected. For example, we are adjusting our investments in the heavy-duty truck sector. These are hard choices, but they are necessary to maintain focus and discipline. Our recent realignment and headcount reduction efforts structurally lower our cost base and allow us to redirect resources toward near-term opportunities where we see clear product market fit and margin improvement potential.

We are now supplementing our industry-leading innovation culture with a focus on continuous improvement, operational rigor, capital discipline and customer value delivery. Ballard's foundation is strong. We have no debt, no immediate capital needs and an unmatched global team. This is why I joined and why I'm optimistic about the future we're building together. We'll provide more detail on financial implications of our restructuring on the Q3 call, and you can expect near-term updates on key strategic focus areas. We're also planning our next Ballard Capital Markets Day expected to take place in 2026, where we'll share more about our path forward.

Moving to our Q2 performance. We delivered a solid quarter, leading to an increase in revenue of 11% year-over-year, with growth, particularly in the rail vertical. Gross margin improved by 24 points, reflecting cost efficiencies driven by our 2024 restructuring activities and a net reduction in onerous contract provisions. Despite soft order intake in Q2 of $8.3 million, we are progressing with key customers across our verticals. Notably, after the quarter, we secured one of the largest marine orders in our history with eCap and Samskip. Deliveries in the bus and rail segments remained on pace, and we are seeing renewed interest in material handling opportunities.

We are also on schedule and progressing on Project Forge, our high-volume bipolar plate automated manufacturing initiative. This is a foundational element of our product cost reduction strategy. Before I hand the call over to Jay, I'll reiterate this. We believe deeply in the role of hydrogen and fuel cells to decarbonize key sectors of the global economy. While market adoption remains uneven, Ballard is taking steps needed to lead over the long term with discipline, clarity and resilience.

Jay, over to you.

Thanks, Marty.

As Marty mentioned, total revenue for Q2 was $17.8 million, up 11% year-over-year. The heavy-duty mobility market contributed $16.1 million, driven by bus and rail shipments. Gross margin improved to negative 8%, up 24 points compared to Q2 of last year. This improvement was due primarily to lower manufacturing overhead costs as a result of our September 2024 restructuring and by a net reduction in onerous contract provisions.

Total operating expenses were $31.7 million, down 12% year-over-year. However, excluding initial restructuring and related charges of [ $5.9 ] million incurred in Q2 on our recent realignment and headcount reduction efforts, operating expenses decreased by 28% compared to Q2 of 2024. Cash operating costs declined in a similar manner to $22.7 million, a 27% year-over-year reduction. Adjusted EBITDA was negative $30.6 million, a 13% improvement from negative $35.4 million last year, reflecting improved gross margin performance and lower operating costs, partially offset by an increase in restructuring expenses. Cash used by operating activities was $20.3 million, a 42% improvement versus Q2 of last year, reflecting lower cash operating losses combined with improved working capital.

We closed the quarter with $550 million in cash and cash equivalents, no bank debt and remain confident in our ability to fund operations and strategic initiatives without near-term financing. Finally, we expect full year capital expenditure and operating expenses, excluding restructuring charges, to come at the low end of our guidance ranges for 2025. Including restructuring charges, operating expenses are now expected to be at the high end of our guidance range. As we continue with our recently initiated corporate restructuring to further reduce our operating cost structure and capital spend, we will update both our operating expense and capital spend guidance as part of Q3 reporting as appropriate.

With that, I'll turn the call over to the operator for questions.

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

Just on the markets that you see that are sort of seeing near-term activity, I think rail and marine in particular, you've talked about, but what are the kind of the near-term markets you're pursuing? And maybe how do you approach those markets now with sort of the different cost structure?

Yes. So thanks for the question, Rob. In addition to the rail and marine market that you mentioned, we're seeing really good traction and a value proposition of significance in the bus market, both in North America and in Europe. And what really is the driver there is the total cost of ownership delivered for the asset owner operating a fleet or a bus. And hydrogen has a very strong role to play there and is winning specifically when you start seeing larger fleets where, let's say, battery electric buses are limited in their ability to scale up infrastructure and the cost of the additional infrastructure required for charging and other things in battery electric make those markets a little less attractive and make hydrogen a more favored solution as you go forward. So we're seeing that transition playing out in real time.

Okay. Great. And then could you give us some color on the marine order that you announced after the quarter end, sort of what's sort of driven that and some of the outcomes you're looking for there?

Yes. So that order, to my knowledge, is about a 2-year sales cycle to get that order over the goal line. So this is not a product life that lends itself to like every 3 months, you do another one of these kinds of ships, if you will. So that was a couple of years in the making. And it's -- if I'm not mistaken, 6.3 megawatts in size, which is great. It's using our FCwave product that was developed considerably a while back, put it that way. And that value proposition starts looking like an interesting vertical over the long run because it's got the right kind of range requirements, the right kind of route requirements, the right kind of fueling infrastructure, ability to adapt to that kind of fueling infrastructure. And so it will be interesting to see how that market evolves as more and more people get familiar with how to do that kind of transition of a marine vehicle or vessel, if you will, and what that might mean to route optimization going forward with hydrogen infrastructure growing in the key ports around the geography in question.

The next question comes from Jeffrey Osborne with TD Cowen.

And just a couple of questions on my side. I was curious if we could just run through the OpEx cadence that you had in Q2. And then it sounds like there'll be more detail on Q3, but just trying to figure out what the new run rate will be. Is it similar to Q2? Or any details you could help articulate that? And then any restructuring charges that would flow through in Q3 that we should be modeling? Or was all of that incurred in Q2?

Yes. So it was not all incurred in Q2. And Jay, do you want to provide a little bit more color from there?

Yes. We recently announced July restructuring. Most of the charges related to that will be incurred in Q2. We're not disclosing the amount now as we continue to work through the details of that. There was a CEO transition in there, and part of those costs are reflected in the Q2 restructuring numbers. I would say this recent restructuring in July is expected to reduce go-forward operating costs by another 30% with most of those realized in 2026. We'll see some benefit in the last half of the year, but not the full benefit.

Got it. And then if I heard you right, you talked about realigning the business to be cash flow positive exiting ' 27 or it was unclear if it was exiting or for the full year of '27. But do you have like a framework on what you're aiming to achieve to get there? Is that sort of 15% to 20% gross margins and then the OpEx cuts that you're announcing now are aligned to match that and get you to sort of EBITDA cash flow neutral? Or just how do we think about like what the financial parameters are to make that statement?

Yes. So it is exiting 2027. It's not for the full year 2027. And yes, we have essentially a 10-quarter waterfall of how we'll get the gross margins expanded to the appropriate level and the cost reduced to the appropriate level. And we're refining that model as we progress through Q3. And just to go back a second, just a quick annotation. Jay mentioned the restructuring charges were in Q2. You meant some of the restructuring charges were in Q2. The bulk of the restructuring charges will be in Q3. So just making that quick edit on the fly.

[indiscernible] and change in Q2, it will be something meaningfully higher than that in Q3, but you're not quantifying that. Is that the right way to think about it?

That's correct.

Got it.

I think that's all I had. As it relates to the pipeline of orders that you're chasing for the second half of the year, you alluded to strength and following up on Rob Brown's question, rail and bus, et cetera. But I think you mentioned Marty, material handling. What are you seeing in that market?

Yes. We're seeing some green shoots in stack replacements. We're not actively doing battery box replacements or anything like that. That's not our core; however, we are seeing various integrators and OEMs talking to us about stack replacement as they start seeing the need for higher-performing stacks with greater durability and they're looking for ways to lower their total service costs of addressing that space. And we play extraordinarily well in that domain with the stack lifetimes that we've been able to achieve. So they're quite interested.

The next question comes from Mac Whale with Cormark Securities.

I just had a question on whether there are some concerns you may have that if you focus on the markets that are ready now, like you noted with the bus TCO looking attractive, will it sort of -- with the decline in your technology development necessarily allow you to be ready for when the other markets like truck start to see an improvement because that technology, I think, does need a steeper cost decline and probably a better performance increase. Can you just speak to how you're sort of future-proofing yourself on that front?

Yes. I would say that a couple of things. One is the core technology that continues to evolve and improve is the stack. And when you think about the fungibility of the stack across all the different applications, making meaningful progress on durability and lifetime and efficiency and all the key customer metrics that translates across all the verticals. So that march is going on now. Additionally, we're seeing markets like truck being more like 2030 and beyond. And so we've got plenty of time as you start thinking about market signals, if we were needing to adapt further, we could adapt from there.

Lastly, I'd say that all of the markets are let's say, commercially sensitive and understanding the total cost of ownership explicitly end-to-end is the work product that we've got going on now that will serve us no matter what market we're entering now or in the future. And really, that's about getting the delivered value explicitly characterized so that we know exactly what the CapEx is, what the OpEx is and the lifetime of the asset we're trying to serve and making sure that we're developing a product and a service portfolio that addresses it appropriately.

Okay. So yes, it would be helpful next year, looking forward to that Capital Markets Day to dig in a lot of these issues...

Absolutely.

Our next question comes from [ Craig Dettary ] with Raymond James.

I think in the quarter though, there was a $2 million backlog adjustment being pulled out. Could we see more pieces of the business being exited? What are some of the margin profile of the backlog? And are there pieces of the business that you may view as suboptimal or unattractive?

Yes. So in the case of that particular reversal, Jay, do you have the particulars on that particular...

Not right now.

Okay. So sorry, Fred, I'm not going to be able to get you the exact name of that particular reversal or what that market was. It's just too new for me at the moment. That said, we are establishing and improving our pricing disciplines and what opportunities meet a threshold and a hurdle rate and what opportunities do not. And when an opportunity does not meet a hurdle rate, that doesn't mean that we suspend work in that particular vertical or that customer account. It means we have to be more creative on the balance between a CapEx and an OpEx model and understanding what the customer is solving for. Are they solving for upfront costs? Are they solving for lifetime costs? And do we know the difference in how to price it accordingly.

So I would just say that we've got more maturation to do in value pricing and making sure that the markets we're serving and the products we're delivering to those markets have a fit and they have a value proposition that wins and the customer recognizes that value and is willing to pay for it, whether it's upfront in the CapEx or whether it's ongoing in the services.

Okay. And I see in the MD&A, there's still mention of the Rockwall, Texas facility being pushed out to be reviewed in 2026. Just wanted to know internally, what are you looking at specifically to give you the confidence if the facility were to get a go ahead, what sort of metrics are you using externally to sort of think about that?

Yes. This is part of my kind of operational heritage, if you will. The first order effect for me as a former ops person is you always strive for more out of your installed capacity. And so as we look for ways to be more process efficient, and to see the benefits of our automation coming in, we'll keep looking at our overall capacity and understanding how much available capacity we have to address the markets that we're targeting and then what the role of a Texas facility would or would not do to help us on the capacity front. As we sit today, we're still on pause in Texas without a need for that additional capacity on the horizon. So we'll revisit that statement as we see the market evolve over the next couple of quarters. But as we head into 2026, we should be able to get to a more certain outcome.

The next question comes from Craig Irwin with ROTH Capital Partners.

So Marty, I definitely appreciate the fresh look at the business model over at Ballard. Positive cash flows by the end of '27, not so many fuel cell companies have had positive cash flows even for very brief periods. A much more important milestone, I think, for investors is positive gross margins and maybe margins above a certain threshold of maybe 15% or 20%. Can you maybe talk about what might have you pause as far as putting out the margin target for investors?

Do we need to get past commitments in backlog where pricing might not have used the same discipline that you're going to bring over the next couple of years? Or are there other structural items that we might need to consider as you work towards this impressive goal of positive cash flows?

Yes. I would say it this way. I think there's an opportunity for us to do a few things at the same time. So while we have a backlog of orders that was derived in prior to me times, let's say, that doesn't mean that we don't have active engagements with those strategic customers, and we're not actively looking at ways to deliver lower product costs for them, while at the same time, improving our own margins simultaneously. So we share the benefit of a cost road map and at the same time, that helps them, that helps us.

And so I would say that when you think about the backlog, you think about how would we improve that order book and how would we exchange value with those customers. And when I say that, that includes at the CapEx level and on the overall servicing of the account level. So think of it as total delivered value from the customer service standpoint with upfront and follow-on cost reductions and service improvements.

Understood. That makes sense. So then one of the pieces of the equation that was kind of missing at Ballard in the past that -- or at least from my opinion, right, and many investors was a fuel strategy, right? A lot of what Ballard was doing is just saying our customers will figure it out, rather than taking a more active and strategic approach. Can you talk about whether or not considerations around fuel strategy are a part of what you're looking at these days? How do you feel the team tracked on their support for customers with fuels over the last several years as people are looking at different ways of buying hydrogen. Is this something that is worth a close look as you focus on these positive cash flows in the future?

Well, I'll give you a quick response, which is I just spent 4 years trying to develop partnerships on the other side of the table as a molecule producer. And so the partnerships required to deliver the total cost of ownership end-to-end for any one of our verticals require thoughtful partnerships on fuels. To the extent that we can be more of a value add in that discussion with the right kind of strategic partners and bring the right type of imputed mileage, if you will, to bear on their offtake requirements. I think those are exchanges that would be welcome from molecule producers. Put it this way, if I had an opportunity to have partnered with Ballard at my last company, I would have loved to have done so.

Fantastic. I knew you bring some new perspective.

Our next question comes from [ Jill Kanik, ] private investor.

Yes. Welcome aboard, Marty. My question has to do with China. Can you sum up our activities, our present activities in China and the outlook there?

Thanks for the question, [ Jill. ] And we are on materially a pause on China. We have not invested in any way, shape or form over the last quarter. And as we look forward, we're looking to make clear where or where it does not fit in our portfolio. We are continuing to buy components from China. It becomes -- it's a critical supply chain node for us. It's less clear of the demand environment of how the China market is available for us to address. And so we've just stopped approaching the demand side of the China market and instead have been using the supply side on the supply chain to help us lower cost for customers.

This concludes the question-and-answer session. I would like to turn the conference back over to Marty Neese for any closing remarks. Please go ahead.

Thank you for joining us today. As I mentioned, Ballard is focused, aligned and operating with urgency. We will continue to take decisive actions to build a more capital-efficient, disciplined and commercially focused company. We look forward to updating you on our progress next quarter. Thank you very much.

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