This is the Chorus Call conference operator. Welcome to the Ballard Power Systems 2014 First Quarter Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Guy McAree, Director of Investor Relations. Please go ahead.

Thanks very much. Good morning, everyone. Today's call is to discuss Ballard's first quarter 2014 operating results. And with us today are 3 individuals. We have John Sheridan, our President and CEO; Tony Guglielmin, our Chief Financial Officer; and Steve Karaffa, Ballard's newly appointed Chief Commercial 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. So now over to John.

Thanks, Guy, and good morning, everyone. As you saw in last night's press release, our Q1 results showed continued progress year-over-year with improvements in all metrics, including revenue up 13%, cash OpEx down 23% and adjusted EBITDA improved 60%. These results are consistent with our 2014 outlook and our full year guidance. Also of note, our cash reserves increased to $41.6 million in Q1, a very solid cash position. So a good start to 2014, but with one soft spot, Telecom Backup Power system shipments were low in the quarter. This, in turn, impacted revenue and gross margin in Q1. To be clear though, we do not see that Q1 softness in Telecom Backup Powers system shipments as systemic in any way. The sales pipeline is strong, and our full year outlook remains strong. So no change for the full year. Steve will be speaking to our sales pipeline for Telecom Backup Power a little later on the call. Just by way of introduction, Steve joined us in February as Chief Commercial Officer. He brings a deep understanding of telecom markets to Ballard, having served in senior executive roles at Corning, including leading Corning's global telecom carrier business. Before Steve gets going and before Tony draws down on the Q1 results, I want to take a few minutes upfront here this morning to talk about the IP transaction, which we announced last Thursday night with United Technologies Corporation. We see this UTC transaction as a game changer. It gives Ballard a commanding position and strategic IP in the fuel cell sector. And as fuel cell markets continue to develop, that IP control position will be powerful to accelerate revenue and to grow shareholder value; to grow shareholder value and accelerate revenue through IP licensing, through Engineering Services and, of course,…

Yes. Thanks, John, and good morning, everyone. As John noted, top line revenue growth was up 13% in Q1 to $14 million. So I'm just going to begin by providing some additional color around Q1 revenue. First, with -- beginning with fuel cell products. As already referenced, Telecom Backup Power revenue was down in the quarter by 55% year-over-year to $2.9 million. This was the result of a much lower volume of system shipments than in Q1 last year, which was a banner quarter that included a major order from NSN Japan. It's worth noting here that the results in Backup Power in Q1 are an example of the unevenness in demand from quarter-to-quarter in early stage markets. And we don't see this as indicative a trend in any way, rather it's just a reality of lumpiness in early stage order flow from a relatively small number of customers. In Material Handing, Q1 saw a continuation of the momentum we experienced in Q4 last year, with revenue up 125% year-over-year to $2 million. Turning to Engineering Services. In Q1, revenue increased 185% to $7.4 million, the majority of which stemmed from the 4-year Volkswagen contract that we signed in March of last year. And finally, in IP Licensing, our multiyear agreement for bus module assembly in China that we signed last September generated $1.6 million of revenue in the quarter. And as a reminder, this licensing revenue is reported as part of the Bus segment within development stage markets. So that's a brief look at revenue. In terms of our other financial results for the quarter, let me start with gross margin. Gross margin improved 1 point in the quarter to 25%. This would've actually been 2 points higher if not for the relatively low volume of ElectraGen shipments for…

Thanks, Tony. Good morning to everybody. As you know, I'm new to Ballard and the fuel cell industry. And as you would expect, I'm getting up to speed rapidly on this exciting business. This morning, I'll report on commercial progress in Q1 and provide my perspective on the state of our markets and pipelines. First, in fuel cell products, let me begin with the Telecom Backup market. As we noted before, Telecom Backup Power demand is driven by 2 different value propositions through extended run time power. The first is targeted at markets with unreliable power grids, and the second is targeted at markets requiring network hardening for crisis situations. We are currently working on 2 customer engagements that illustrate these 2 different value props. Looking first at East Timor. This is a great example of a market with an unreliable grid. East Timor is a 5,400 square mile independent state on the Indonesian Island of Timor, where we have supported our channel partner, Cascadiant, in providing methanol-fueled ElectraGen systems. These systems are being used as a sole source of backup power at base station sites in the telecom network. Second, Germany is a great example of a network hardening opportunity. We're supporting FutureE, which recently secured a contract to deploy more than 50 backup power systems using Ballard's fuel cell stacks at critical sites in Germany's emergency services network, also known as BOS. And FutureE sees additional opportunities for deployments in the BOS network going forward. These are 2 current customer engagements which illustrate our 2 markedly different value propositions. These 2 value propositions underpin our robust sales pipeline. Our biggest sales pipeline opportunities are in Southeast Asia and India, where unreliable power grids predominate, and in the U.S., where network hardening activity is underway. As a result, we…

[Operator Instructions] First question is from Robert Brown with Lake Street Capital Markets.

Wondering if you can give us a little more info on the licensing opportunities from the UTC patent portfolio? Is that something that's got some near-term opportunities? And so what should we expect on timing and what areas could those sort of near-term impact?

Thanks, Rob. So as far as the areas, first, a big, big part of what this gives us, we think, is an incredibly solid play in automotive. So UTC has done an awful lot of work, very close work in some of the fuel cell development, prototype development, early stage fuel cell stack and system architecture, with a couple of the major OEMs. So we think with the automotive heart of that portfolio combining with Ballard's IP and, most importantly, with Ballard's Engineering Services capabilities that we've demonstrated with Volkswagen, Mercedes and other companies, we think it can really position us to be the leading technology partner for automotive OEMs. So when you think areas, I'd suggest you think in terms of automotive is now a key opportunity for us. We've shown what we can do with Volkswagen and now, we feel, are much strongly positioned. Beyond automotive, bus is very significant, and there is stationary power elements in the portfolio. There's even material handling applications within the portfolio. So it's very broad. It's very comprehensive. But the key area I'd highlight is automotive. Secondly, in terms of timing, as you'd expect, Rob, we're going to be quick off the mark. We're mobilizing, as I said, in my comments the joint Advisory Council. Things are going to move fairly quickly. We've got a couple areas identified in our near-term pipeline. I think I'll leave it at that for today though. We've learned in the past, these deals are complicated. The sales cycle is fairly long. So we're not going to provide any specificity in terms of exactly when we would expect to close initial licensing agreements. But again, we will be quick off the mark in terms of mobilization.

Okay, great. That's very good color. And in on the telecom backup market, there's some good detail provided. But is that a -- I'm talking about trials this year and sort of -- and walk through how those -- how did they turn from trials to sort of more production-oriented rollouts and sort of when is the timing kind of look like? What's the latest thinking on timing there?

The way I understand the process and the way it works is, typically, we go into a trial. We prove the technology, the customer becomes comfortable with that. Then we move to a more of a pilot deployment, where we have a chance to look at the ecosystem, fueling, service, that sort of thing. The customer gets comfortable with having a larger number of systems out there. And then once that's complete, and that can be on relatively short order, once the pilot is complete, we can move into general availability. We're at various stages with the variety of these trials and pilots right now. So it would be a little bit more than we can cover on the call to give you a detailed breakdown. But we feel very comfortable that we've got a nice pipeline of opportunities at these various stages, which could turn into general deployment.

Okay, good. And then last question about sort of seasonality. I think you've talked about before revenue sort of building every quarter throughout the year. But could you give us an update as sort of Q2s look like Q1 and things improve into Q3 and Q4, or should we see a sort of a sequential step-up going forward from here?

Yes, yes. It's Tony here. Yes, I would expect to see -- well, I guess a bit more generally and I think we've alluded to in the past, we probably expect to see about 40% of total year revenue in the first half, 60% in the back half, so just in terms of the split between the front and back end. But I would expect to see sequential quarter-over-quarter increases in revenue, so Q2 should be up over Q1. And then we would expect, again, a stronger back half of the year.

The next question is from Les Sulewski of Sidoti & Company. Les Sulewski - Sidoti & Company, LLC: Regarding your higher Engineering Services revenue in the quarter, would you expect -- I'm thinking gross margins should've been a bit higher on that, although this is your higher gross margin business? What is your take on that?

Yes, yes. It's Tony here. Yes, I think Q1 was a fairly good in terms of revenue for the balance of the year. We talked about from a -- about a 30% increase year-over-year in Engineering Services, and I think Q1's a pretty good barometer of the annualized revenue. But just in terms of gross margin, there's no question our product mix will drive gross margin for us. And product mix in Engineering Services is certainly supporting it. I think, as we said, we did about -- we're looking for something in the mid -- say, high 20s. Last time, we said it was sort of 28%, 29% for the full year. And that sort of level of Engineering Services is going to contribute to that. We would've thought -- we would've been around there with the -- our first quarter if we had a stronger Backup Power. So I think looking at Q1, with Telecom in there on a full run rate, we would've been around our target gross margin for the year, with revenue coming in from Engineering Services and margin about that level. So I think it's about where we expected. Les Sulewski - Sidoti & Company, LLC: Okay. And then with your guidance of breakeven EBITDA for the year and then perhaps maybe some of your internal budgeting, is that taking into consideration the weakened -- the weaker Canadian dollar? Just kind of how that will play out for the year? I mean, is that included in your budgeting?

Yes. Certainly, there's no question the weaker Canadian dollar that we've seen in the first quarter is actually a potential enabler even to what we had in our plans. So I would say your guidance was for approximately breakeven adjusted EBITDA, there's no question, if the dollar remains at this level for the full year. That will provide some support and some potential upside to our plan. But at this stage, premature to be building anything in. But there's no question, it's is certainly working in our favor. Les Sulewski - Sidoti & Company, LLC: Okay. And then last one for me. The recently announced $4 billion loan aid from the U.S. Department of Energy, is there any opportunity for Ballard from that to kind of get in front of?

I think there's opportunity, Les. But quite frankly, we're trying to focus where the commercial value propos [ph] is strongest, where we don't require government subsidies. I think it's a dangerous business to focus too much where subsidies are required. But having said that, we are aggressive on the government support front and will be looking hard at it.

The next question is from Dev Bhangui of Byron Capital Markets.

Quick question, just in terms of, I guess, revenue streams. So with respect to the 60-40 split, as you guys have explained in the MD&A, in Q3 and Q4, the primary drivers, I would assume, would be the growth in Telecom Backup come back to Q1 and also the new Engineering Services through a combination of your existing services and the UPC [ph], I guess, IP-based services. Is that correct? I mean, the Material Handling you guys already covered, that's all I'm asking.

Yes. You hit nail in the head. I think the only other one that might be somewhat of an enabler in Q4 is in the bus market. We did not deliver any bus modules in Q1 and we're not expecting much activity in Q2. So as we talked about, we're expecting to hear confirmation shortly on the Van Hool [ph] bid into the JTI program. So there's a possibility we might see little bit of bus module revenue success, and that would certainly help in the back half as well if we're successful on that one.

Just to go back on one thing you said there though, Dev, and I'm very pleased to hear that you read the MD&A, so good for you. You've got the detail. But when we talk about the 60-40 and the 60 in the back half, that 60 doesn't require the UTC-related revenue that we're talking about. That's upside.

Okay. No, that is good clarification. So since, John, you're talking about UTC and we spoke about the UTC, I guess, IP hold being harvested, I would consider that the harvesting will go 2 ways. One is the traditional way you guys have done with Mercedes and with Volkswagen, which is the Engineering Services. And the other could be in terms of IP infringement, wherein companies who want the IP essentially go for litigation, if at all. People don't sign the licensing agreements and they spend upfront, I would say, significant amount of the litigation cost on lawyers and, subsequently, get harvest one at halfway down the road and then [indiscernible] there is some kind of a settlement outside the court. Do you guys, with respect to this huge 800-plus pattern [ph] hold, are you trying to develop that stream or that particular revenue stream going forward into litigation?

Yes, we are. So but to put it into context, what we'll be looking for primarily would be to leverage our Engineering Services capabilities supported by that IP for new contracts like Volkswagen, as you said. So think of that primarily. Two, there's a number of automotive OEMs out there that have spent a lot of money, hundreds and hundreds of millions of dollars on development of fuel cell car technology, and they do have some patents. But I think, Dev, if you talk to anyone of them, they would admit they're seriously concerned that as this gets closer to commercialization, there are other patents out there that will block them. And then that's a concern in terms of the amount of money they would have to spend on development programs to find ways to circumvent those blocking IP positions or whether they've got to get into commercial transactions. So we see there's an opportunity, short of infringement enforcement, just in terms of licensing nonexclusive license deals that would -- that provide more freedom of movement going forward for some of the automotive players as they look towards commercialization. And then the third area is, you're right, it's a world out there that we will play in. We've got a very significant patent portfolio. We'll enforce it. Would that lead us to infringement-related activities and that? It's a revenue stream we see.

Fantastic. No, that's great. Steve, quick clarification, and by the way, welcome onboard. You said in your prepared remarks, something when you're talking about telecom backup; something like 30% to 50% CAGR. Is that CAGR for the second half or is that for the whole year in 2014, vis-à-vis 2013?

That number range was for the full year. And thanks for your welcome.

Okay. So, Steve, 30% to 50% CAGR on that Telecom Backup Power in fiscal 2014 compared to 2013. Am I right?

That's correct.

Okay. And then one last question for me. Just in terms of product development, John or Tony, can you give us some -- I mean, you talked about HD7 [ph]. But I mean, given that the Telecom Backup Power itself is going to undergo tremendous amount of growth, what is the view in terms of newer products, either the methanol-reforming product or for the developed markets product in terms of the stationary Backup Power?

Yes, thanks. Yes, so you're quite right. We are continuing to focus and work on product cost reduction in the ElectraGen area. So we are looking actually at a -- launching another version of our product sometime the second half of the year, which will enable a small, maybe 10%, reduction in that particular product. So there is something going on certainly in Backup Power. We also are working on another more robust and greater cost-reduced product, but that would be more into mid-'15. So there is some things going on in ElectraGen. And as you said, as you pointed out a moment ago, in HD7. So we are focused on both.

Okay. So this ElectraGen, 10% reduction, Tony, would be towards the emerging markets product, right, not the hardened?

Yes.

Yes.

Okay, okay. And then one last, I guess, the follow to that. Why [indiscernible] increase R&D, Tony? Is the OpEx run rate, I mean, which is -- I mean, you can see there's so many different ways. It's like almost $24 million to $25 million a year, or you can look at it from a cash operating cost point of view. Is that [indiscernible] stepped-up materially, or is it not really any kind of seasonal [ph] increase?

No, no. It's not going to set that. We're looking -- so we are looking for -- yes, and again, you're right. We talked about cash OpEx because for that, that's what we're managing here. So that's excluding depreciation and amortization on cash, stock comps. So we're looking for cash OpEx in that 5 to -- we were a little over. We're at $6.3 million in Q1. We would expect to be in the, as you said, broadly $20 million to $24 million for the full year, so somewhere -- call it, somewhere around $22 million. So we do see a bit more improvement this year, but we see that flat remaining -- remaining at that level for the foreseeable future.

Dev, just to add on there in a bit of a tangential point. And I know you're aware of it, but some of the others on the call may not. We do spend a lot of money, invest a lot of money in product development, primarily related to cost-down activity, but increased functionality as well. And a lot of that investment comes from leveraging third parties. The SDTC, the Canadian government arm, has been very supportive to us. Some of our Engineering Services contracts have customers paying for development works. So to Tony's point, we're very successful in bringing cash OpEx down. We don't see an upward trend in cash OpEx. But within that, we've been able to invest very significantly in product development.

Next question is from James Medvedeff of Cowen and Company.

I just want to circle back through some of the revenue items and make sure -- so for example on the Telco business, how much of that 30% to 50% growth this year is actually in hand now and how much of it still has to be signed?

Yes, it's Tony here. The majority of it needs to be signed. So we've got a number, as Steve was mentioning, we have a number of conversations fairly progressed. But as you've -- and I guess maybe just -- maybe I should just wrap -- I'll circle back, which is coming back to the order backlog number, which is we don't have a large amount in our order backlog at the end of Q1, the reported order backlog. And the reason for that is a lot of these contracts are either close to be signed, but more importantly, often get signed and delivered within the quarter. So good pipeline, a number of them very close to being signed, but at the moment, not firm contracts in the backlog.

And just to add on to be clear. Part of the reason that is, is with our major distributors like NSN, we have an ESA in place. So it's not as though we've got to sign new contracts to drive volume. NSN issues purchase orders within that existing ESA.

I see. How much of that -- how much of the growth is accounted for by that existing relationship?

Yes. Well, again, most of the -- most of our growth is through our distributors. Again, we work as channel partners. It's NSN, certainly, our biggest global partner. But in the same fashion in Asia, we have a number of other regional distributors that we've had standing relationships with. So I'd say the vast majority of our current business is through distributors under existing ESAs or existing relationships. We are looking at additional customers, newer customers, but that's the vast majorities, through the likes of NSN and other distributors.

Okay. And then on the Material Handling side, that was a nice, strong number in the quarter, congratulations.

Thanks.

It's interesting that the Plug deliveries don't start until the second half or the -- I'm sorry, for the Walmart order, don't start until the second half. So what was underlying the strong number in Q1?

Yes, certainly -- again, I just want to make the point relative to last year. Q1 last year was very, very soft. So there's no question about it. So Q2 is, for us this year, is really getting back into a regular cadence aligned with Plug's guidance. So Q -- obviously, we're delivering in advance, perhaps, of Plug's putting product to its customers. So I would attribute part of our higher number in Q2 just to a bit of a timing one. Certainly, we're doing -- obviously, we have -- we're doing recourse on existing product as well. But I absolutely -- the Walmart deliveries, as well as other customer deliveries, are really what's going to drive our back half of the order -- year order. So $2 million of revenue, roughly in Q1. We would expect to maintain that and see slight improvement through the balance of the year as those Walmart orders get delivered.

Okay. And then another one on the Engineering Services business. If the Volkswagen contract is -- is that a straight-line application to revenue of the $60 million to $100 million contract?

Yes, roughly. We've talked in the past that it's around $4 million to $5 million a quarter of revenue. It is a bit -- there might be plus or minus $1 million. So in some cases, it may be slightly higher. So certainly, if you read into our Q1 number for Engineering Services, you can assume the majority that, i.e., in that range of $5 million or so is VW, maybe slightly higher, and then the balance will be some of these new customers and existing customers that Steve referred to earlier. But you can assume -- can kind of assume $4 million to $5 million roughly each quarter out of the VW contract through to the duration.

Well, that's exactly where I was going with that question. It's -- so the additional, say, $2.5 million or so is from these -- are these new customers, new relationships, new programs that weren't there before? And should we expect them to continue?

Yes, it's a combination of both. We certainly had some existing customers on top of VW last year. Some of these can potentially last for several months. So I guess Q1 would be a bit of a mix of contracts that we had signed last year. And then there were a few new ones that were also signed in Q1 that probably -- that have generated some small amount of revenue in Q1, but those are really going to feed the revenue for the balance of the year.

Just to add on as you remember, of course, we have an ongoing relationship going back many years with Mercedes. So depending on the quarter, there could be some significant amount or less significant amounts. So there's a number of other Engineering Services activities beyond Volkswagen.

So there could be a little bit of lumpiness in that sector?

Yes, there could be a little bit of lumpiness, in that the Volkswagen program can move up a little bit or down, but the Volkswagen provides a significant increment. To your point, James, yes, it's other activity, other contracts.

Okay. And just for clarity, did you say that the cash OpEx number should be relatively flat through the year, or does it kick up as revenue kicks up later in the year?

No, cash OpEx would remain flat through the year. In fact, it's slight -- we expect it to actually go down slightly from the Q1 on a run rate basis, but it will be kind of -- and quarterly sort of in that $6 million -- $5 million to $6 million range and remain there for several quarters.

Okay. And last one, just housekeeping. What will be the share count as of the end of Q2?

Share count at the end of Q2, we're in about 132 million at the end of Q1. And we would expect it to remain at roughly that level, short of some -- short of we still have some warrants still outstanding that if the stock price moves in a favorable direction. But absent any future exercise of warrants, it should be about flat to the 132 million range.

So the weighted average shares for Q2 and then beyond should be around 132 million?

Yes.

Yes. So again, James, what's happened is the impact of the warrant exercises, which added to our cash position, which was good, the impact of the Anglo conversion of the convertible debt, a strategic investment there, and also the United Technologies share issuance. So a number of factors have increased the share count, but at this point, Tony, to your point, we don't see that increasing as we go forward.

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

Well, thank you, and again, thanks for everybody for joining us today. Thanks for your ongoing interest in our company. It's an exciting time in the fuel cell sector. We see significant opportunities. Good start to the year. We've got one soft spot we talked about, and we're very much focused on that. So we look forward to reporting progress in Q2. We'll be back to you in early July on that. Thank you.

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