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Summary

  • Ballard Power Systems is aggressively cutting its losses, apart from delivering solid improvement in the revenue.
  • Ballard has lined up a strong portfolio of customers that will help it deliver better revenue growth in the future.
  • Ballard's bottom line is expected to improve at a solid pace.
  • Ballard is diversifying its business to profit from fuel cell growth across the globe.

Fuel cell player Ballard Power Systems (NASDAQ:BLDP) looked like a buy going into second-quarter earnings, and the company didn't disappoint when it came out with its results on July 30. Ballard delivered an improved performance, as its losses decreased year-over-year, driven by a significant increase in its revenue.

A solid quarter sets the tone for the future

In fact, Ballard's second-quarter loss declined to $4.5 million from the year-ago period's loss of $5.2 million. Also, its revenue rose 27% to $18.5 million, which was better than the consensus estimate of $17.2 million. Apart from this, its gross margin improved 3 points and its cash operating expenses declined 5%. Going forward, management expects full-year revenue to increase 30%.

Ballard's solid performance was mainly driven by an increase in demand for fuel cells that are used in various industrial applications such as forklifts and telecom networks. Its share price has more than doubled in the past year, and as demand for clean energy increases, Ballard has the potential to deliver more upside.

Gaining traction

Many industries are gradually switching to fuel cells. Ballard, for example, counts the likes of Volkswagen (OTCQX:VLKAY) and Wal-Mart (NYSE:WMT) as customers, which signifies that fuel cells are finding application in retail and automotive. The company is tapping this market through three segments, namely material handling, development stage markets, and engineering services. The good thing is that all these segments are growing at a good pace.

Moving forward, Ballard plans to use its IP licensing to develop new markets. An example of this is its Azure Bus licensing agreement. It has signed a memorandum of understanding with Azure to support Azure Hydrogen's zero emission fuel cell bus program in China. Under this agreement, Azure would use Ballard's fuel cell technology to develop zero emission fuel cell buses in China.

Although it is in the early stages of execution, the company is making progress in this direction. It expects this deal to generate around $6 million in the first year, along with the possibilities for future stack sales and royalties. In addition, Ballard has closed two more licensing deals, one with M-Field for the assembly of material handling systems in Europe, and the other with United Technologies (NYSE:UTX).

Diversification moves

Ballard' backup power business is gaining traction in Asia. But, the company is diversifying as it tries to make its mark in the U.S., Europe, South Africa, and the Caribbean. As a result of these efforts, it sees better opportunities in the second half of the fiscal year.

Moreover, in Japan, Ballard has partnered with Nokia Siemens Network to expand its business. This partnership has enabled Ballard to bag orders from SoftBank, a Japanese carrier. Management is eyeing contracts from two more carriers in the second half of the fiscal. In Myanmar and India, Ballard is continuing its trials with various clients, and it has also managed to acquire a significant order in China.

Its Asian performance was quite good, but the company is facing challenges in the U.S. Although Ballard sees great potential in the U.S., progress is slow because of the process needed to obtain site permits. But in spite of these headwinds, it is making progress and is deploying four pilot sites for a major carrier.

Going forward, Ballard would launch its next-generation cost-reduced fuel cell stack that has been designed for the ElectraGen line of products. This innovation will improve its performance and provide the company with a competitive edge. It has also made significant strides in the development of its new HD7 module that will be used by Azure for buses in China.

For the upcoming quarters, Ballard has various new orders in its pipeline. According to management, "We currently have firm orders and visibility to additional business for a total of more than 100 ElectraGen systems." Along with this, it has significant volumes for delivery in the fourth quarter as well, which is why management is confident of its growth for the entire year.

Conclusion

Ballard is cutting its losses, focusing on innovation, and is also landing more customers. Going forward, this trend is expected to continue, as analysts expect Ballard's bottom line to improve 55% this year and 87% next year. So, investors should continue holding on to Ballard despite its solid appreciation of more than 150% this year, as the company can get better in the long run.

Source: Ballard Power Systems Hasn't Run Out Of Fuel Yet