Ballard Power - No Light At The End Of The Tunnel

May 10, 2022 10:37 PM ETBallard Power Systems Inc. (BLDP)5 Comments4 Likes
Henrik Alex profile picture
Henrik Alex


  • Company reports another disappointing quarter with both the top and bottom line missing consensus expectations.
  • Gross margin turned negative for the first time in recent history while cash usage remained at elevated levels.
  • On the conference call, management admitted to a persistent lack of concrete policy support.
  • Even after a series of downward revisions over the past couple of months, current consensus expectations are still too high particularly given the weakness of the company's near-term order book.
  • With no catalysts in sight, investors should continue to avoid the shares.
Umweltfreundliches Alternativenergiekonzept mit dem Bus an der Wasserstofftankstelle

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Note: I have covered Ballard Power Systems (NASDAQ:BLDP) previously, so investors should view this as an update to my earlier articles on the company.

On Tuesday, leading Canadian fuel cell systems developer Ballard Power Systems ("Ballard" or "Ballard Power") reported another set of disappointing quarterly results:

Q1 Overview

Company Press Release

The company missed consensus expectations on both the top and the bottom line while gross margins moved into negative territory:

In Q1, we experienced continued downward pressure on our gross margin. This compression is consistent with our 2022 plan, reflecting expected changes in our revenue mix, selling prices and cost structure. On revenue mix, we have a heavier weighting of module product sales, including some new modules that are early volume production.

On selling prices, we've been pricing certain low-volume customer pilot projects based on securing platform wins with strategic accounts. On cost, fixed overhead costs are elevated as we invested in advanced manufacturing and production capacity expansion. Like others, we've also seen some inflationary cost pressures in our supply chain and freight costs.

While quarterly cash usage of $55.7 million remained at elevated levels, the company still has more than $1 billion in cash and cash equivalents, sufficient to fund the business for up to five years at the current pace of cash burn.

The company's book-to-bill ratio for the quarter was approximately 1.3 as Ballard managed to secure $27.8 million in new orders.

While overall backlog was up sequentially to $99.8 million, the company's 12-month backlog was down slightly to $65.8 million.

Even after a series of downward revisions over the past couple of months, the current consensus revenue estimate of $110.7 million still looks too high, particularly given the weakness of the near-term order book.

On the conference call, management admitted to a persistent lack of concrete policy support:

And I think it's important to understand kind of where we are as an industry, lots of 50 countries now that have hydrogen strategies and road maps, but that hasn't translated to a clear policy nudges and levers for early adopters to see a value proposition.

So there's a gap in the cost structure today and the value proposition in low volumes. And normally, what we've seen in solar and wind and even battery electric in a number of markets is that there have been policy levers that help support early adopters to get their deployments out. And we haven't seen the hydrogen strategies translate yet to those levers. It will happen, but it hasn't happened yet.

In China, the company's joint venture with Weichai Power (OTCPK:WEICF) (OTCPK:WEICY) continues to suffer from a lack of clarity regarding the country's new subsidy regime which is currently being exacerbated by COVID-restrictions and lockdowns.

The sole bright spot in the quarter was the company's stationary power business with sales at multi-year highs. That said, management expects segment revenues to remain lumpy going forward.

Bottom Line

No light at the end of the tunnel for Ballard Power shareholders as FY2022 will likely be an ugly combination of negative top-line growth and record cash usage of well above $200 million.

With no near-term prospects of achieving commercial scale, the company is basically back to what it has been for most of its existence, a provider of engineering solutions and custom-made fuel cell systems for all kinds of pilot projects.

While Ballard Power has sufficient liquidity for the next couple of years, near- and even medium-term business prospects appear far weaker than previously anticipated by market participants.

After the recent sell-off and given the company's large cash balance which approximates to $3.50 per share, I am upgrading the stock from "sell" to "hold".

This article was written by

Henrik Alex profile picture
I am mostly a trader engaging in both long and short bets intraday and occasionally over the short- to medium term. My historical focus has been mostly on tech stocks but over the past couple of years I have also started broad coverage of the offshore drilling and supply industry as well as the shipping industry in general (tankers, containers, drybulk). In addition, I am having a close eye on the still nascent fuel cell industry.I am located in Germany and have worked quite some time as an auditor for PricewaterhouseCoopers before becoming a daytrader almost 20 years ago. During this time, I managed to successfully maneuver the burst of the dotcom bubble and the aftermath of the world trade center attacks as well as the subprime crisis.Despite not being a native speaker, I always try to deliver high quality research at no charge to followers and the entire Seeking Alpha community.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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