Thank you for standing by. This is the Chorus Call conference call operator. Welcome to Ballard Power Systems Q3 2013 Conference Call and Webcast. [Operator Instructions] At this time, I would like to turn the conference over to Guy McAree, Director of Investor Relations. Please go ahead.

Thank you. Good morning, everyone. On today's call we're going to discuss Ballard's Q3 2013 operating results. And with us today, we've got John Sheridan, Ballard's President and CEO; and Tony Guglielmin, our Chief Financial Officer. We're going to be making forward-looking statements that are based on management's current expectations, beliefs and assumptions concerning future events. Actual results could be materially different. Please refer to our most recent Annual Information Form and other public filings for our complete disclaimer and related information. And just a reminder that with the sale of our non-core Material Products division on January 1 this year, all comparisons to 2012 are made on a continuing operations basis, excluding Material Products. Now over to John.

Thanks, Guy. Good morning, everyone. As you saw on our press release last night, Q3 results were strong, continuing the improvement trend that we have been delivering over the past several quarters. Revenue improved 65%, gross margin was up 16 points and adjusted EBITDA improved 86%. Before we get into the details of the quarter this morning, I thought it would be timely to talk higher level as to our broader progress, our progress towards becoming a profitable clean energy fuel cell company. And I'll start with our business model and our strategy. The business model that we have developed has 3 value creation elements: product sales, Engineering Services and licensing. Our strategy for each of the 3 elements is pretty straightforward. In product sales, we are focused on Telecom Backup Power and Material Handling. We're leveraging our product leadership, and we're exploiting our early-mover positioning in these markets. In Engineering Services, our strategy is to leverage our technical capability in IT, working with lead customers in profitable contract programs, which could result in additional product opportunities downstream. In licensing, our approach is to monetize our IP and fundamental know-how in ways that establish new customer relationships, as well as opportunities in new markets. So that's a really quick overview of our strategy. And we believe that our results show that strategy is working. As you saw on the press release, our results in fuel cells products and services over the past 2 years show that revenue and gross margin have more than doubled and adjusted EBITDA loss has been reduced by more than half. The adjusted EBITDA loss in Q3, specifically now to talk to the quarter, was $900,000, close to an inflection point. This was underpinned by revenue of $17 million, gross margin of 28% and cash OpEx of $6.6 million. So what does this Q3 EBITDA result mean going forward? While we believe there's a potential in coming quarters for further improvements in both gross margin, as well as cash OpEx, but even if you model 0 improvement in gross margin and cash OpEx from these Q3 levels, then a quarterly run rate in revenue of approximately $20 million would generate breakeven adjusted EBITDA. And $20 million in quarterly revenue would be an increase of only $3 million a quarter from the Q3 level. So if you look at the numbers, and we think the numbers are clear and persuasive, we are clearly within striking distance of breakeven adjusted EBITDA. And just as a reminder, the difference between adjusted EBITDA and EBITDA is primarily noncash, stock-based compensation. And a further point, just to be very clear, of course, breakeven EBITDA is not the end objective, but it is a key first step on the path of positive cash flow. That's our key focus. So that's a bit on the higher-level picture on our progress. Now we'll come back to the details in the quarter. Tony is going to drill down on the Q3 results. Tony?

Thanks, John, and good morning, everyone. So I'll start with a review of progress in our key fuel cell product markets, beginning with Telecom Backup Power. In Q3, revenue improved 6% to $3.9 million and revenue is up 144% year-to-date to $14.6 million. Revenue is driven by the shipment of 155 ElectraGen systems in the quarter and 619 systems year-to-date, an improvement of 217%. I'm going to add some color around specific activities in Telecom Backup Power in the quarter. In Q3, we delivered the first 110 ElectraGen systems to Azure Hydrogen in China under the supply agreement we signed earlier in the quarter for 220 total systems. Of the remaining 45 systems shipped in Q3, about half were direct hydrogen units shipped by Dantherm Power to customers in Europe and India, while the other half were methanol systems shipped for customers in Asia, South Africa and the Caribbean, including 12 systems for Digicel, a new customer in Jamaica. In addition, we signed a distribution agreement with AECi, a new distributor in Southeast Asia, and we received the first AECi order for 20 ElectraGen methanol systems, which we expect to ship in Q4 for Globe Telecom, a major service provider in the Philippines. Turning now to Material Handling. We saw a significant increase in shipments in the quarter with revenue up 51% to $2.1 million. Now this partially offset the slow first half of the year and brings year-to-date revenue to $4.5 million, down 4% from the same period last year. We were also pleased to see that Plug Power successfully completed an equity transaction in the quarter, adding $10.5 million to their cash reserves and enabling the company to put its full focus back on customers and orders. And related to this development, Andy Marsh, CEO of Plug Power,…

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

You had a nice growth in your telecom segment since you've made your acquisitions. But could you give us a sense of sort of what's been driving that growth and maybe how that plays out over the next couple of years?

So, Rob, just to back up, one of the things that that's key to understand there is we're dealing with telecom customers and channel partners, serving them in countries around the world. But 2 distinct value props we talked about before. One is in markets in regions where the grid is reliable and telecom operators are moving into extended-run backup solutions to prepare for crisis situations. And the second one, of course, is in the areas of the world where the grid is not reliable, where there's a daily challenge with the grid power going out and backup power is needed on an extended run rate basis almost daily as part of business continuity. In terms of what we've done to prepare for those markets, of course, we've got a dual fuel solution: methanol, which is better situated for the daily usage; hydrogen that's better situated, in most cases, for the crisis situation. In terms of what's driving the growth, then, beyond that, we feel we've got the right value props for the right markets and big addressable markets. We've got a strong product lead, we feel, in the marketplace. And then it comes down to timing in terms of successful trial deployments, initial commercial deployments, repeat deployments, building up customers, building up channel partners. So the reality, though, still is at this stage, it is early in the market development and order volumes are pretty lumpy. But as you can see, we're moving forward. And even in this quarter, where the lumpiness caused a bit of dip in the total order volumes versus last quarter, we moved forward with 2 new customers, one we think will be really significant, Globe in the Philippines. The Philippines is a big potential market and less so in the Caribbean with Digicel Jamaica. But still the Caribbean is significant as we keep expanding our base there. So it's different operators, different markets, utilizing those 2 different value propositions.

Okay. And just a sense for the sort of growth rate trends in that market. Is it a -- can you say sort of what that market has been growing at and should grow at, sort of netting out some of the...

Well, we're early into it, of course. We just acquired this methanol product capability in the third quarter last year, and that's been a significant accelerator on our growth. We talked this year that we would expect to sell and ship in Europe about 1,000 systems. I'm not going to give you specific numbers for Q4. But when we get into our February guidance for 2014, we'll certainly get granular on growth going forward.

Okay, good. And then you said -- talked about gross margins being quite high and seeing that trend continue. But could you just give a little color on sort of -- is it a case of 28% gross margin should continue going forward? Or how do you sort of view the gross margin trends?

Sure. Tony, you're up.

Yes. So Q4 was a good quarter and reflected a couple of things. Certainly, one was the ongoing contribution from the higher-margin -- third quarter Yes. Sorry, I'm jumping ahead. Third quarter was the contribution of Engineering Services and, of course, the announcement in the quarter on the Azure bus license module transaction for China, which we started to realize revenue in Q3. So those 2 things certainly increased the margin in the quarter. And so a couple of things to comment. One is, as we've mentioned, the Azure deal will see us -- is over a 12-month period. So that will certainly carry us through the next few quarters. That will continue to contribute to margin as well as the Engineering Services. As we mentioned, they were kind of at a full run rate with the VW deal. So those are the 2 drivers at the high margin that are keeping us -- we think will keep us in this sort of range through the next few quarters. And then beyond that, we get into things like the cost reduction programs that we expect to be launching on the HD7 module, which will really be more of a late '14, '15 initiative. But -- so there is some things in the back end of this -- of that period I mentioned that will continue, we think, to maintain and perhaps even increase margins.

The next question is from Rob Stone of Cowen and Company.

I wanted to just follow up a little bit on the gross margin question as well. I mean, one of the milestones, of course, is getting to a revenue run rate, where you're EBITDA-breakeven. But what influence might we expect on your product gross margins just from volume, leaving aside the planned design change for cost reduction?

Sure. That's a good question. So we certainly have started to see some of that, particularly in our higher-volume products, particularly going into the backup power, so the 1020, which is an air-cooled stack and, of course, the 9 SSL, which is our other key product that's principally right now used in the Material Handling space. So over the last couple of years, volume has picked up. But as we do go forward, absolutely correct. We have some capacity -- still some excess capacity in some of those 2 product areas, including our manufacturing capability in backup power. So volumes will help both from a procurement product pricing, as well as, frankly, overhead absorption as well. So I don't have a hard number for you in '13. And not to punt it forward, but certainly as we get into guidance for next year, we'll certainly have something more specific to talk about in terms of percentages. This year has been fairly muted, probably 5%. But I would think easily -- that would certainly be an easy target in terms of future cost reduction just on volume alone.

So 5 percentage points ultimately on volume and...

5% in terms of cost -- product cost reduction. I wouldn't say it's going to be 5% percent, yes, in terms of margin improvement, but yes.

So 5% product cost but leaving aside other overhead. So it wouldn't be 500 basis points of gross margin.

No, absolutely not. No, it would be -- it might be -- if I were to translate, we're talking maybe 1 point or so. But it really is -- we've got some volume opportunities -- again, not to get to belabor it. But certainly, the backup power is significant to us, Material Handling. And then we still -- we're doing fairly low volumes in bus yet. So I think when we move into higher-volume and a lower-cost bus situation, you'll start to see that adding some points to the gross margin as well. But that again, that's [indiscernible] later next year.

Okay. And licensing certainly does sweeten the overall mix. Can you talk about other potential opportunities in licensing and what kind of sort of medium-term opportunities you see there?

Yes, Rob. This one, it's John. I won't go too far or I'll disappoint you, but probably won't surprise you. This is early stage for us, so the license we announced for the bus module assembly with Azure in China was essentially our first licensing agreement. We've got discussions actively underway now on a second, but it would obviously be premature to give you any details on that. Not surprisingly, it's not in bus. And I'm sorry, I don't mean to be cute. But I think until we have more definitive elements to paint for you, we won't go too much further with that picture. I think the bigger question on licensing, and you asked about the medium term, is as these markets continue to develop, and they've been developing at a very slow pace, which has frustrated us all, but we see things now starting to move forward. So with commercial market forces out there, with the development of markets, with additional players moving into the markets, that's where we do see the opportunity for more licensing opportunities. So Step 2 for us will be a second contract and Step 3 will, hopefully, to be the right of curve as markets develop.

Okay. And with respect to the run rate of operating expenses, you mentioned that you do see some room for further cash OpEx reduction. But then at a certain point, I would think you would reach an inflection and need to grow OpEx along with revenue. So can you give us a sense of order of magnitude, how much more room there is to get the run rate down and then what circumstances you would have to start growing it again?

Sure. So we had set out at the beginning, as you're talking about, a mid-$20 million OpEx target for this year. And broadly, we're going to be a little higher than $25 million. So that would translate into something in the neighborhood of about a $6 million a quarter run rate, so we were at $6.6 million in Q3. So just based on what we see in the immediate term, and this would just be the full year effect of some of the cost reduction initiatives we started last year plus just the other driver, the reduced OpEx as well, is that as we grow our Engineering Services business, we have the opportunity to deploy our existing engineering resources into our people, if you will, in support of Engineering Services. So that actually has been a enabler this year, year-to-date. And we see that as an opportunity going forward, as well, as I say, as we grow our Engineering Services. So broadly speaking, something in the $6 million-ish a quarter is sort of the run rate. Now to your question about sustainability, frankly, we do feel we have the ability to keep it there for the foreseeable future. I mean, we've grown a little bit in our sales and marketing organization. But we think we've got the right number of people in the field right now for the business. And we're increasing with more channel partners than we are hiring people. And in terms of the G&A, more broadly, we've taken steps to streamline, but we think we have the capacity. So outside of those 2, outside of sales and marketing and G&A, we think we can keep steady. And the balance of the organization is really our product and research development, and that's not growing. If anything, we're actually becoming more efficient by deploying them into revenue-generating businesses. So I think, not to get ahead of ourselves, but we think this is a sustainable OpEx level for the next couple of years, easily.

Yes. I would just add there to the point, we're not giving '14 guidance at this point. But when we come to our outlook, don't expect to see any direction upwards in OpEx. I think it's realistic to think again an improvement next year over this year.

Okay. That's actually a perfect segue into my last question, which was related to Engineering Services, where you're deploying some of the engineering staff. What time period do you see this sort of steady run rate of Engineering Services? Or what's the visibility on continuing to grow that segment? I know the VW contract goes for a while. But how's the outlook for that segment?

Yes. So we said a couple of times and mentioned it today, as well, that we're into what's kind of a full run rate for Volkswagen now with the program of around $4 million to $5 million a quarter. So think of Volkswagen as kind of $20 million a year in that vein. And we're just in the first year of a 4-year contract with 2 1-year extensions. Secondly, we do, of course, have other customers today. And we expect to build on those relationships, and we do expect to acquire new contract activity. So for us, it's hard to say going forward, because, again, this is still somewhat new for us. But we think this is a business that should grow in the near term to beyond $30 million a year and still retain very, very healthy margins and good cash payment terms.

The next question is from Les Sulewski from Sidoti & Company. Les Sulewski - Sidoti & Company, LLC: I think most of my questions were pretty much answered. But just maybe follow up on the internal -- do you have internal targets to achieve the $20 million in revenue for breakeven? Or is something in the 2014 range a safe bet to say?

So thanks for asking, Les, because I did want to get the opportunity to come back and make sure we're not confusing anybody today. Again, what we were just trying to portray in my comments earlier was if you think of the triangle underpinnings of EBITDA with gross margin and cash OpEx and revenue, we think the gross margin, cash OpEx are sustainable going forward and room for improvement. So then it's just an arithmetic exercise we're pointing out that with $17 million with those underpinnings, we've got $900,000 negative EBITDA adjusted. And to get to 0 or breakeven with our current margins, you'd need about $3 million revenue. So I'm sure you got that, but I just wanted to make sure everybody else got that. Now as to where we get the additional $3 million, again, we're not providing specific guidance here for Q4. Bear with us. We will be out in February with our guidance for 2014, and we'll be explicit on growth and revenue guidance. But again, just a rule of thumb, to illustrate the point that we're within striking distance, if you think of around 150 or so incremental sales of ElectraGen systems, you've got $3 million of revenue. Now it all depends on the mix of margins, et cetera, et cetera. But $3 million of incremental revenue could come from a variety of sources with our current business trajectory. It's not a big leap. That's all we're trying to illustrate. Les Sulewski - Sidoti & Company, LLC: Fair enough. And then maybe just, if you could, shed a little more color on the Material Handling and with Plug. Is that kind of in full force at this point? Or is there further improvement?

Yes, it's a great question. So certainly, as I said a moment -- I said during my remarks, Q3 was a significant turnaround from the first half of the year, and it has everything to do with Plug's success. And as Andy mentioned on his call, they had a fairly significant amount of pent-up demand. And so we did see that in Q3. As to Q4 and going forward, it's our full expectation that we will continue to see the similar growth rates that we experienced up until really the first half of this year. We've been growing -- Plug has been growing their business and, of course, as a supplier we have as well, in the 30%, broadly 30%-plus range. And so we don't see any reason why that's not going to continue. We're getting some good orders from Plug still. They're still coming through. What we hear from Plug Power is they're still seeing some strong orders. And really, as I said, we're not giving any guidance for next year. But just based, as I said in my remarks, based on what Andy just said recently about his early look at '14, which would be about a 50% -- it translates to about 50% growth, and we're certainly not saying that for '14 or for next year. But just broadly speaking, we don't see any reason why we're not going to get back on that trajectory.

The next question is from Jeff Osborne from Stifel. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: I was just wondering if you could update us on the Azure deal in China, in particular with the 2 modules shipped this quarter. Are those going to be for field test for the next 6 to 12 months and then you would expect an uptick? Or what's the cadence outlook for that for 2014? And I guess, my concern lies that the subsidy for fuel cell buses expires, to my understanding, at the end of '15. So if you have the typical 1 full seasonal cycle of a full year of test at the municipal level, is that enough time to kind of drive that new relationship for you folks?

Yes. Jeff, you were good enough to let us know about that question earlier on the subsidy, which we appreciate. So we did follow up with both our partners in Japan and government -- or in China. Japan wouldn't do as much good. Our partners in China, as well as government officials in China. And we got strong assurances back that there's absolute certainty in the minds of the people that answered our questions that, that subsidy will be extended. So take that for what it's worth. If next time, you're over there, again, I think you'll get the sense is that the government preoccupation and the pressure on government with the particulate air pollution is just getting even more intense. So the government is really under pressure to do something. 0 emission public transit is a natural thing they're pushing. So we think that it will stay. Just to link to your question a bit more specifically, then, our partner with Azure is not that heavily driven in the short term by the subsidy anyways. Their whole view is to build the capability systemically, first, their own capability with bus module assembly, and then a broader partnering with a bus partner, coach manufacturer in China with some third-party support from the Shandong Institute of Technology, who has a lot of technology expertise in the area, to get going with reference buses, small fleets and to gradually move forward. So for them, that's a couple-year journey. And the subsidies in their initial low volumes won't be that critical to them. What they're trying to do, more broadly, and obviously we're working closely with them, is to think about their cost, the supply chain requirement, the assembly cost requirements, to get a fuel cell bus in China with initial volumes that would be around $600,000 or $700,000 a bus. And then they're very competitive with battery electric buses. So that's where they're trying to go. It's going to be a while. And coming back to your point about the initial 2 modules, just view that is part of the support we're giving them for their lab testing, for the work they're doing, for their initial assembly setup-type work. Those 2 bus modules aren't going to be in buses on the road in the near term. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Okay, good to hear. And then the $600,000 to $700,000 selling price, I assume that would be the complete bus itself. To my understanding, it's roughly half of what a fuel cell bus would sell in Western Europe or North America. A, is that correct? And then, b, with the development efforts that you have with Azure, is there any know-how that you can leverage to drive down the cost in other more Western markets?

Yes, yes, yes. You've got it absolutely right, Jeff. So to begin with, the cost in other parts of the world today are high -- much higher than the range you cited. But again, each time we do one of those buses, it's usually 3 or 4 custom buses. There's no volume. There's no production run of any significance. They're very high-cost construction, commissioning of individual buses. So every time we move forward with a new iteration, it gets cheaper. Tony mentioned earlier the HD7. So when we get into the HD7 with Azure in 2014, that's a very significant drop in our cost, which will enable other cost reductions in the propulsion system. So, yes, the cost that I mentioned in China would represent a significant reduction in the fuel cell cost of buses people have seen lately. And then lastly, to your point, part of the advantage to us if this works with Azure -- and again I stress if, they've got some bridges to cross. But if it works with Azure, we can take advantages of the cost-enabling things they do, which we think will help develop markets in other parts of the world. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Got you. Just 2 more here, one last on buses, and then another topic. On the bus side, with the 0 emission vehicle subsidies in China, I didn't see much in the public domain about trying to promote either electric charging stations or hydrogen fueling stations. And so do you see a potential disconnect at the municipality level if the fueling infrastructure isn't there? Or are you seeing conversations emerge that, perhaps, Azure or other individuals are involved with in China to try to promote that?

Good question. China is so different in so many ways. It's hard to give you a simple read. It's hard to ensure that we've got the accurate read. And I don't know about electric charging stations on the battery side, to be very directly with you. On the hydrogen fueling side, in terms of fuel cell buses, the view there seems to be as the bus capability gets in place, as governments at different levels get behind it, the fueling will be relatively simple. Because the fueling -- one of the advantages we've always talked about for buses versus cars, of course, it's centralized depot-type fueling. So that will be more -- there's a number of people that do that industrial fairly cheaply. That's not complex to do. And when the forces lineup, I think the fueling will be there. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Got you. And the last question was on the telecom side. I think in prior calls, you talked about sporadic interest out of Scandinavia, in particular in Norway, and then also an RFP opportunity here in the United States. I was just wondering if you can update us as to more Western markets as opposed to the Caribbean and the Philippines, which is nice to see the progress there. But what are you seeing out of Western Europe and North America, in particular?

Well, I'll give you kudos for that, Jeff. We had a conversation on the U.S. with the Sprint tender, I think, either the last call or the call before. And you were suggesting the timeline could remain very slowly evolving. We had information at the time that things were about to move. As we sit here now 3 months later, I concede that you were more right than I was that this is moving slow. Sprint still seems to be committed. Sprint still does have a fairly significant appetite. And we're led to believe repeatedly the budget is there. But the early stage testing and the early stage deployment has gone quite slow. So we are in active dialogue with Sprint. We are in the early, early stages of a small number of systems in the hands of Sprint. But as far as telling you today about the order trajectory in terms of significant volumes, can't really go there yet. Hopefully, on the next call, we'll have an update. But interest remains, market remains, value prop remains. We think we're well positioned when Sprint makes a procurement decision. But timing has been pushed out on us. The Nodnett in Norway, the TETRA emergency network there, that one, I'm afraid, is even more disappointing to us. That has really bogged down in the political process in Norway. There were going to be deployments late last year then early this year. And now the shift has been to look at possible trials for next year. So, again, we're well connected there. The value prop is very strong. Money seems to be there. But the timeline has been frustratingly slow. And it brings us back to, then, what is moving in this business, as we talked about a bit earlier. We've got a real focus and real traction where service providers do need extended run backup time on a daily basis, not for regulatory government supported network, not for crisis situations, but day-to-day business. So that's the Philippines, that's Indonesia, that's India, that's South Africa. So that's where a large part of our focus is. On the crisis side, the biggest movers have been in Japan. And we remain active in Japan and we expect to see significant volumes continuing in Japan. The other one on the crisis side has been on the Caribbean we've talked about before.

This concludes time allocated for questions on today's call. I will now turn the call back over to John Sheridan for closing comments.

Thanks, operator, and thank you all for joining us this morning. Excellent questions. We're very pleased to keep reporting on the progress of our business. We are pleased with the progress of our business. And the next time we'll be back to you will be in February when we'll talk about Q4, the year end and our outlook for 2014, which we think is going to be a very exciting year for the company. Thank you.

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