Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems Fourth Quarter and Full Year 2017 Results and 2018 Outlook Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Guy McAree, Director of Investor Relations. Please go ahead.

Thanks very much and good morning everyone. The purpose of today’s call is to discuss Ballard’s fourth quarter and full year 2017 financial and operating results along with our outlook for 2018, and with us today are Randy MacEwen, our President and CEO; and Tony Guglielmin, our Chief Financial Officer. We are 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 this morning, Randy is going to review our strategic progress in 2017, our outlook for 2018 and he will also provide perspective on the longer term. Tony is going to review financial results for Q4 and full year 2017 and then we'll open the call for Q&A. Just before we get start-up a brief note that Ballard is going to be attending the 30th Annual ROTH Conference in Dana Point California. We’ll be there on Tuesday, March 13th to meet with investors and present investment highlights. And so now, I’ll turn the call over to Randy.

Thanks Guy and welcome everyone to our Q4 and full year 2017 earnings conference call. In 2017, we focused on two key objectives, first to improve our strategic position you support long-term growth, competitiveness and profitability, second to improve our financial performance. During the year, we delivered significant progress against these two objectives. Indeed 2017 was a milestone year for Ballard on our path to profitability. Financial highlights included record full year revenue of $121.3 million, a 42% year-over-year increase. Full year gross margin of 34% up six points and positive adjusted EBITDA of $3.3 million for the full year. We’ve now delivered positive adjusted EBITDA in four of the last five quarters. We believe Ballard is a first publicly traded fuel cell company to achieve positive adjusted EBITDA for entire fiscal year. In addition, we finished 2017 with $60.3 million of cash and no debt. We have a solid setup for 2018 with $91.4 million of orders in hand for expected delivery this year coupled with a robust sales pipeline. I’m excited with current customer engagement and coding activity and we expect strong new order bookings throughout the year including a purchase order from Van Hool for the 40 engines we announced just yesterday some of which we expect to ship before year end. Before we discuss our 2017 progress in detail along with our outlook, I want to briefly address the short seller report released on January 25th. We remained steadfast in our belief that Ballard is uniquely positioned to capitalize on the global trend towards zero emission transportation and unique value proposition offered by fuel cell electric vehicles or FCEVs. Nothing we have seen in the short seller report fundamentally changes are positive outlook for this business. Let me repeat that nothing. We want to be very…

Thanks, Randy, and good morning everyone. I'll quickly review our 2017 results before we open the call to questions. Revenue in Q4 was $40.3 million up 31%year-over-year and on a full year basis with a $121.3 million up 42% from 2016. And as Randy noted earlier, this was a record quarter and a record full year for Ballard. In terms of the key drivers for growth in ‘17, the increased reflected 39% growth in Power Products and 47% percent growth in Technology Solutions. Within Power Products, growth was driven by a 140% gain in Heavy Duty Motive to $63.7 million. This included the delivery of more than 600 FCveloCity fuel cell engines to China at initial MEA sales to our staff joint venture. Within Technology Solutions, we've worked on over 30 programs in the year, many of which Randy mentioned earlier, Technology Solutions also benefited from revenue associated with the TS programs, with partners in China. As we implemented key elements of our supply chain strategy for that market. In terms of gross margin, we saw continued year-over -year improvement with a 6 point improvement in 2017 to 34%. This followed a 10 point improvement in 2016 to 28% and a 3 point improvement in 2015 to 18%. These improvements have been the result of the shift in revenue mix toward higher margin businesses including heavy duty motors and Technology Solutions as well as gains in operating efficiencies greater overhead absorption resulting from higher production volumes. Cash operating cost did increase 30% in Q4 to $11.2 million and for the full year increased $4.7 million or 14% to $39.1 million. This increase was due primarily to higher investment in technology and product development including our next generation liquid cooled stack technology as well as increased investments related to our commercial…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Rob Brown of Lake Street Capital Markets.

You've talked a little bit about pipeline that you see is pretty attractive. Could you characterize sort of some of the opportunities in the pipeline opportunity lies?

Yes, it's difficult to here you. Rob, I think you are asking about kind of profile and the character of the pipeline?

Yes correct.

Yes. So, I think one of the things we’ve worked on over the last few years is diversify our business mix and that kind of look at the opportunities reflected both in the pipeline -- in the order book as well as the pipeline. We are seeing really a scaffolding effect occur where we have a lot of traction in the fuel cell bus market in the key markets of China, Europe and U.S. and now seeing commercial truck sort of see penetration. Obviously, the rail market is financially contributing as well. And then on the technology solution side, we have obviously significant presence from the auto space particularly with Audi, but we have other customers from the auto sector. And we are seeing increased activity on the UAV front as well as the marine site. So, in material handling, we have worked on this for few years now as well to reposition our long-term strategy for material handling where we move from aftermarket sales of stacks to aftermarket systems integrators to more focused built environment for the longer term. And we are seeing that now showing up in real contracts. So as we look at the order book and the pipeline, it’s far more diversified than would have been a couple of years ago. There is some concentration obviously in order book with the long-term take or pay contract on the MEAs and we have some concentration in the order book with Audi and the Technology Solutions. But as you push through those two, there’s a fairly diversification reflective of the scaffolding effect we believe we have a lot of leverage on with the same core competencies, same technology and same portfolio.

And then on the stack JV, can you give some color on how that’s trending now? How do you see that or what’s the volume that it’s running at today? And do you see sort of stable and growing throughout the year? Or how would you characterize the growth in that production rate?

Right, So in terms of production activity, it’s running about 500 stacks per month which implies 6,000 per year. That’s the current run rate. There is an internal plan at the stack JV to scale that up significantly during the year. I don’t think we want to give a specific number at this point. One thing that’s important this year is regardless of the actual production volume is to validate the production capacity of 20,000 stacks per year. So, there’s a couple of key things going on there, one is actual volume as well as validating production capacity. So we expect see that ramping up during the year, but even at 500 per month, that’s a historic rate obviously in the fuel cell industry. I just want to punctuate this point. I believe this is the only large volume manufacturer of commercial stacks globally outside of Dallas production facility here. So, we're -- as I look demand for stacks growing in the China market, this JV is very well positioned with leading technology as well as with scale.

And then switching to the Portable Power market, could you give us a sense of how that Milestone C approval impacted the ramp in that business this year?

We were happy, obviously Rob, to receive the initial order of $1.6 million in January, not just for the order itself, but also to understand how orders get processed on your Milestone C, which was the first time for going through that process for us. So, there's a lot of learning now, what we're seeing is that the procurement will be a little bit different where there'll be a bundling, typically of larger orders together. So that's kind of the trend we see as well as the documentation which is extensive going through that process one time positions us fairly well now with the counter parties on how to process the paperwork. In terms of scaling, we expect this clearly see a growth in 2018 and I think as we move through the year, particularly with September 30 being the end of the U.S. fiscal year end is important to secure business in Q2 and Q3, we can provide updates at that point.

Our next question comes from Craig Irwin of Ross Capital Partners.

So, Randy, first one is a big question and something to frame out your progress over the last couple of years. So with Bloom Energy expected to be public before the first half is over. I think there's going to be a lot of conversation about cost out execution and how challenging it is to actually get costs out. Can you recap for us, Ballard success with cost out over the last number of years? Where your focus today and how you see Ballard’s leadership in this area?

First of all, I think for the first time in Ballard’s history, cost out isn’t just a theoretical discussion and isn't just a discussion of both technology design and product design improvements. So as we looked at the past number of years, even going back to the last five or six year, obviously we've seen significant cost reduction in the range of 67% on fuel cell engines and significant cost reduction on stacks as well. Those have all been primarily achieved through next generation design. And we're, of course working on next generation design of our liquid cooled stack in-house currently as well as the eighth generation of our module, and we expect significant cost reduction as well from a design perspective. Now, what’ interesting is the last year in particular, we've now started to be able to look at supply chain as an opportunity. And just as an illustrative example just on the shipments of the 600 engines in Q -- in the last half of 2017 on the supply chain, we're able to squeeze out one point, $1.1 million of cost savings through supply chain that was through localizing supply of components with high quality suppliers in China. So we're now starting to see the benefits of some scale occur and that of course help support gross margin expansion last year as well. So as we look out, I think you're going to see three things occurring, we’re going to see cost reduction from continued improvement in world's leading technology both at the MEA level at the stack level as well as with the modules and I want to point out cost is it just a function of upfront capital cost. What we’re seeing with our technology improvement is increased durability which helps impact overall long-term cost in terms of total cost of ownership. So that’s number one, as you continue to see I think really good improvement and this year will be and 2018 will be very important year on the development of our next generation technologies and then we’ll continue to see improvement as scaling occurs in our localization efforts independently as well as with our Chinese partners continue to show value and realizing cost savings particularly around the balance of systems components for modules. And then third, we starting to see tail obviously and just something as simple as 500 commercial trucks deemed deployed in Shanghai all using the same convertors and the same stacks and the same modules is another opportunity where we’re starting to see scaling occurred that will occur first in China, but we’re just as excited in the long-term market opportunities for the European theatre and for the U.S. market as well.

Next question, I wanted to ask is about the LOI in your press release yesterday. I guess first I should say congratulations it’s nice to see that basically in the both here from your prior calls commentary around the outlook for the European market and North America sounds like there potentially others that could materialize and contribute to the 2018 revenue number. Can you maybe frame out for us just in loose terms sort of where we should be watching the relative importance of different geographies as we look for potential incremental bus order or 18?

Yes, I think Europe is going to be a key market long term I think you’re going to see increased order activity in Europe for buses in 2018. So the announcement yesterday really related to the German cluster under guide 1. We expect to see the UK cluster likely in the next four to five months on the long end hopefully shorter than that and we expect to see opportunity for participating in that cluster as well and I think you’re going to start to see additional JIVE I and JIVE II programs crystallizing and again we expect that a fairly significant participation rate.

And then last question, if I may. The investment tax credit it's never been central to your business model the way that Ballard is approached this markets, but material handling is a market that does see some material benefits there. Can you maybe talk about your customers in that market, not just the one that people historically talked about, but other new customers whether or not there is an increased appetite and increased tempo of activity, as people are looking to capitalize on something that could be nicely profitable over the next couple of years?

Yes, I think the reintroduction of the ITC in U.S. is an important catalyst. You mentioned Bloom Energy IPO, no doubt that will help their public market positioning, and this clearly helpful for Plug Powers business. I think longer term there will be other entrants into that material handling market space and we feel we’re very well positioned. Some of those entrants will benefit from the ITC. Frankly, I think it’s really about strengthening the value proposition with the end customers and enabling financed solutions to come to Ballard that can be used as ITC credit.

Our next question comes from Jeff Osborne of Cowen & Co.

Hey. Good morning, guys. A couple of clarifications and then one question on trucking. Randy, I you said the synergy facility produced was 11 -- 1,145 stacks and from opening in the September to year end and 558 in the month of December alone, was that right?

Correct. Correct, yes.

And then so it sounds like just in the course of -- if I am doing the math right, they ran in the month of December above the nameplate capacity, let me say can produce 6,000 a year, which should be 500 a month, understand, reconcile that?

You’re correct. Yes.

How did that happen?

Well, there’s two lines there. The two lines, one is I’ll call it effectively a copycat line with the Ballard line here. There’s a second one that has some automation implemented, next generation automation steps. So that line was started getting tested last year and most of the product has been run off at the first line so far. Also when we talk about capacity, they really only ran one shift. And so they are running one 12 hour shift and there’s a lot of ability for them to scale it significantly beyond 6,000 per year by moving more shifts and also getting that second automated line operational. So when we talk about production capacity for 20,000, I personally believe that’s a very conservative production capacity number. And longer term with the growth in the market demand there, that JV is really well positioned.

And then can you bring me to discuss this, Tony might have mentioned it. But I am just trying to kind of piece together the flattish revenue on the conservative and responsible side as you worked it. Could you share with us what the TS transfer China affiliated technology transfer, what revenue was in calendar ‘17 that won’t repeat itself in ‘18, just so we can look at an apples-to-apples comparison?

Sure, happy to answer that. In fact -- let me -- we can go a little bit further there. We talked about two -- really what I would describe is two big China items in the year. One is the Technology Solutions on the China joint venture. We booked $16 million last year specifically related to the completion of that joint venture TS program. The other significant item in China last year of course was the delivery of 1,600 modules and components to Broad-Ocean. That itself was $28 million over the course of the year. So when you look at the contribution from those two items alone, that would have been $44 million. So if you kind of just look at those from an apples-to-apples and just take our 2017 revenue, let’s shall we say take that out, fundamentally we’d be looking at over 50% growth in the balance of the business just to remain flat. So whilst we’ve talked about relatively flat. If you put those aside, we are looking for some very significant growth in the rest of the business just to get -- to fill that gap for lack of a better term.

Yes, so I think what that means Jeff and I appreciate the question is that the underlying business is showing a lot of growth, and we’re pretty excited about that. So those two one-time transactions position us strategically in China. The underlying growth is showing strength and the underlying business is showing strength and growth, and we expect to have a good year.

Can you remind me, you may have gone over this on prior calls? Why wouldn't Broad-Ocean by more in calendar ‘18?

They recall the key transaction there with Broad-Ocean in 2017 was to help them to set up for module assembly in China. So they will start manufacturing modules. They have started manufacturing module assembling modules in Shanghai already.

So offsetting the $28 million loss of the 600 modules, you should have MEA revenue attributable to, to some extent of the modules that there producing?

Exactly, it results in demand pull through stack JV of stacks and then to Ballard of MEAs exactly.

So is there any rule of thumb that you get -- sorry to interrupt, but is there a rule of thumb that you get like $0.10 for every for an MEA relative to a dollar worth of module sales or how we can look at that 600, if that goes to couple of thousands, whatever the ramp is?

If we look at -- if we think about a module as a -- for an individual slot, it's probably about 20 -- if you'll look at the MEAs let's call it about 20% of the value of a module ballpark. And then, and of course for the, under the licensing agreement with Broad-Ocean, there's also a royalties paid per unit on top of the MEA sales as well. So it'll be a combination of that MEA plus a royalty under that licensing agreement, so absolutely lower dollars per slot, but, but rowing and volume will increase as we go through and I will say the margin that could be the effective margins as well or are at least as equally as attractive the way we're or the business is structured with MEAs and royalties relative to module.

And then the last one I had is just around the Kenworth project especially following the Tesco buzz around electric trucks on the class 8 side, which certainly a picked up momentum and some of the noise that cars making. Can you just, as you and/or Kenworth are marketing testing of this for drayage applications. Do you have a rough sense of what fuel cell costs per mile would be or of the hybrid solution as the 30 miles on electric batteries and then reverting over to the fuel cell? Is that how the buyers are looking at this on a cost per mile that certainly had testable position so I'm just curious how you are looking at it?

So I think first of all, the work with Kenworth already is quite valuable, very, very sophisticated organization and the collaboration on the integration, is already showing opportunity for improvements in terms of cost reductions. And so we're very excited about that market. The other thing is that this market when you look at markets where range, heavy payload and fast re-fueling or critical, we see this as an extraordinarily attractive market particularly the size of the market, the addressable market for FCEVs. So Kenworth see that and we're seeing actually seeing globally a lot of trucking OEMs or truck OEMs are now seeing this as a really attractive market opportunity. In terms of the economics, there are a couple of metrics that these partners are looking at. They obviously look at the capital cost on a cost per kilowatt basis and they're looking at the TCO as well in terms of a cost per mile. So we're working with them to refine the economic models and make sure that we have a compelling solution that drives value in this market place.

Our next question comes from Amit Dayal of HC Wainwright.

Most of my questions have been asked. Just wanted some color on the $91 million in change in backlog. How much of that is China and if you could break that down between technology and bio products?

You talked to me yesterday. So this is the $91 million of orders that we have on hand for the year. So, yes, these orders that we committed orders for delivery this year certainly a significant portion of that will be MEA deliveries for the balance of the year. Again recalling just for those who don’t recall it, but -- it's a $150 million over five years so simple math would have about $30 million to $35 million of MEAs in that number for delivery this year. So that will be heavy duty revenue, product revenue, MEA revenue that’s China. The rest of that though is broadly across Technology Solutions, VW-Audi contract is certainly an important contract, but we also have a fairly diversified deliveries Randy mentioned the European bus theatre where was the portion of that that’s included as well. And so, I think it’s quite diversified when beyond the MEA and the VW program.

Yes, Amit, one piece of color that I would add is that as we look at our expected revenue mix at the end of 2018 for the year. China was slightly over 60% in 2017. I expect probably around 45% in that range for 2018, so higher diversification occurring in 2018 with the strength of both the European and the U.S. markets.

And in terms of the revenue flows for the year. Do you expect some variation quarter-over-quarter? Or should we start to see a steady event going into the year on a quarterly basis?

Yes, it's going -- the revenue ramp up will look very familiar to the last year which will be ramping up Q1 through the year and we would expect the similar contribution in the back half of the year we’ve often seen kind of sort of 40% front end and 16 the back half type of ramp up. That’s two items are going to drive that in particular here Randy referred earlier the Protonex business that’s certainly going to be ramping up during the year and then the European as we start to delivering in Europe. So I think I would look for similar kind of ramp up through the year as we seen in the last couple.

And just on the balance sheet side of things. You guys are pretty little situated at this point. Are there any plans to strategically leverage that for any acquisitions? What do we do with the $60 million in our balance sheet?

Yes on a relative basis in terms of the industry, we think we have a very strong position in it and something we want to preserve as we go forward. Certainly, we looked at lot of M&A opportunities over the last year than even have it met our financial screen criteria. One of the key considerations is to make sure that we’re minimizing the consumption of cash both from a transaction perspective as well as from a go forward perspective. So we’re trying to look at opportunities that contribute to EBITDA not drag on EBITDA and contribute to cash and not drag on cash. So as we look at opportunities, our cash position and the host transaction cash position is something that we consider very carefully.

Right, you guys touched on gross margins, sort of not changing too much with MEA is now probably sort of most of the sales for China opportunity. I mean should we expect 30% or 30% to 35% type of gross margins in 2018?

Yes, I think just to be conservative like our outlook, we’ve said for a couple of years now that 30 plus percent is kind of where we are targeting and I think we would set the standard therefore now.

And just one may be a reminder if you will -- the 6,000 stacks per year, how many buses does it translate to, if you could just refresh that for us?

Yes, so that’s about 3,000 buses within it assuming 30 kilowatt engines.

Our next question comes from Carter Driscoll of B. Riley FBR.

So just getting back to the outlook and I certainly appreciate being conservative given the moving parts as you’re changing strategy from shipping directly from Vancouver to ramping the JV. First question is, maybe you could just kind of bracket some of those factors that could lead you off the kind of flattish year-over-year sidelines. I am assuming that it would be either a greater pull in of MEA demand than you are currently forecasting some level of what you've just announced with Van Hool maybe being pulled in a latter part of 2018, some one-off potential TS contracts. If you could just kind of frame how you get from kind of flattish to exceeding that level, just the top-line drivers by category or products?

Yes I think certainly there is a potential for potentially higher pulling in as you referred to on the MEA side. It’s something that we’re looking at carefully. I don’t think we would expect to see the Van Hool deliveries get pulled in higher than they are. The history of those projects is they take longer, don’t have accelerated. But there are TS contracts and TS activities that we are actively quoting. There are number of power products in heavy duty motor and medium-duty motor in China, in Europe, in US market that we are quoting. So, quoting activity has never been higher. So it’s really a function of converting our sales pipeline to orders and then seeing -- making sure that we have sufficient in year with supply chain activities and production activities and customer delivery timing. I think there’s a lot of opportunity for that. I personally see some upside to our conservative guidance. But I think where we are right now is with the order book at 91.4 that’s kind of a responsible position.

Got it, okay. And then switching gears a little bit. Can you talk about particular milestones with the agreement you signed with Siemens is adorable in 2018 and may be expectations if you are -- if we measure how that could fall through on to the product side?

So I won’t emphasize again, this is a really important customer. And already we’ve gone through kind of EH and quality type audits with Siemens and ABB as well. And so those have actually been very important milestones from initial qualification perspective in the last number of mile. So that’s really important. In terms of the program we have got a really good jump on this for the Siemens program in 2017. The funding that just came in from Europe to support this for Siemens as well, I think gives them a lot more confidence to resolve in terms of potentially accelerating activities. In terms of technical milestones and deliveries all subject to MEA, and I don't think we want to get specific on those given the customer sensitivities. Tony, you want to add something.

Yes, I was just going to add to that, thanks Randy. We did -- this is -- this contract is somewhat unique in that there are a significant number of milestones within the contract a little different than some of the other ones that we've had that have had very large milestone spread out. This is a, you know, some 25 odd milestones over the floor when we delivered two of those in Q4, we booked about $700,000 of revenue in Q4. So from a rev rec point of view, we anticipate knocking off milestones fairly, fairly regularly over the course of the program. So I think the rev rec will be fairly, you know, fairly steady over the course of the three years as opposed to waiting for what might traditionally be a large milestone every six or 12 months. So bit unique as compared to some of the other ones.

And then just, I think some people don't recognize that you have other opportunities with different OEMs in China. Sometimes I think people look at the Broad-Ocean relationship and you don't think that's the only vendor you're tied to. Could you talk about some of the discussions you've had with other OEMs outside of the territory is that Broad-Ocean has kind of drawn as wall around? And are there characterized the type of discussion they are in the scope versus what Broad-Ocean is doing with you and/or the type of customer at least their primary business?

Yes. I mean, I would say we're actively working with all the key players in the China market right now. So it's a very interesting market. You're, you might be competing in one province and collaborating in another province. So, a number of the systems integrators and potential partners in that market, we've had very good progress with over the last six months in particular. The other thing that's really important is we've been working fairly aggressively with the bus and truck OEMs sustained period here over the last year, with symposiums and really getting into customer requirements, you know, market requirements and customer requirements and making sure that we've got the right product for the long-term in that marketplace. And so we've had a high level of engagement from the leading bus and commercial truck OEMs and are now starting to see demand pull through in terms of the, those OEMs, you wanting to make sure they have valid technology inside, given the durability and safety profile and other key features. So I think that's important. And if you starts to look at vehicles getting registered and certified as a fuel cell vehicle in that marketplace, there are a number of platforms now that have Ballard technology certified. So that's a key metric I think in terms of showing opportunity with a number of different bus OEMs, and commercial truck OEMs. Tony, do you want to add to that.

Nothing.

Maybe just two last quick ones, if I may. So you talked about working on a new liquid cooled stack. Does incorporate the new catalyst work that you are doing with Nisshinbo? And/or if so when you think you might be able to lease a beta of that new stack? And I just have one last follow-up after that?

Yes. So, we'll have you know -- we already have stacks on test right now. So there's the LCS program is fairly advanced and this is an important year for delivery. We certainly expect to have samples of that product for testing with key customers in select markets later this year. The Nisshinbo non-precious metal catalyst program will feather in later on, it will be featured in initial, but we have a new MEA that we developed and qualified in 2017 that’s going into this new stack and it provides much higher level. And so when you look at the current target for the LCS, the liquid cooled stack is 34,000 hours of durability which I believe is an industry standard. It will be the benchmark.

Okay. And then just lastly, you talked about -- I know you just won a TS contract to develop a purpose built product for I think real the class 3 material handling unit. Is that an existing OEM in material handling field a new entrant? And how do you plan to communicate any potential updates moving from the TS program into hopefully production units on the product side?

Yes, so a very important customer they're highly sensitive to public disclosure on the profile of the partner there. So we won't comment on that. I will say that we’ll provide updates from the technology perspective from time-to-time and in terms of market activities or geographic market exposure or partner name stuff like that we’ll wait for our partners to give direction on that.

But do you see the trend towards more purpose built away from the retrofit market? I mean obviously it’s very small right now, but…

Yes, we clearly see momentum building and I think there will be other important developments by Ballard in 2018, in the Material Handling segment.

This concludes the question-and-answer session. I would like to turn the conference back over to Randy MacEwen for closing remarks.

Thanks Ariel. Thank you for joining us today. We look forward to speaking with you again in early May when we’ll discuss results for the first quarter of 2018. Thank you.

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