Ballard Energy: Robust Q3 Outcomes However 2024 Expectations Stay Too Excessive (NASDAQ:BLDP)

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I’ve coated Ballard Energy Programs Inc. (NASDAQ:BLDP) beforehand, so buyers ought to view this as an replace to my earlier articles on the corporate.

Final week, main Canadian gas cell techniques developer Ballard Energy Programs Inc. (“Ballard” or “Ballard Energy”) reported vastly improved third quarter outcomes with revenues rising by 80% sequentially and considerably decreased gross losses:

The development was principally attributable to elevated gross sales within the firm’s rail phase as Ballard Energy delivered on gas cell engine orders placed by Canadian Pacific Kansas Metropolis Restricted (CP) earlier this 12 months.

As well as, money burn (whereas nonetheless substantial) was decreased to the bottom stage in virtually two years. On the present tempo of money utilization, remaining liquidity can be enough to fund the enterprise into 2029.

On the convention name, administration alluded to ongoing value discount initiatives and the current determination to discontinue sure legacy merchandise and non-core actions:

We proceed to concentrate on prudently managing our prices, whereas making strategic investments in know-how and product improvement applications, together with product value discount applications in addition to superior manufacturing and manufacturing scaling and buyer expertise.

In step with centered strategic investments in our core enterprise, we initiated a portfolio evaluation of all present merchandise and product improvement applications.

Following this evaluation, we have prioritized our investments in our core gas cell stack and module applications which have leverage throughout our enterprise mannequin and goal markets. We’re discontinuing sure legacy merchandise and discontinuing sure product improvement applications in non-core actions and markets. We have additionally discontinued any new company improvement investments.

The corporate affirmed previously-communicated ranges for 2023 working bills ($135 million to $155 million) and capital expenditures ($40 million to $60 million) and reiterated expectations of H2 revenues contributing roughly 70% to the corporate’s full-year efficiency.

Accordingly, I’d count on This fall revenues to method $40 million, considerably above the present analyst consensus of $33.1 million.

Nonetheless, the quarter wasn’t totally flawless. Weak order consumption of simply $14.8 million resulted in complete backlog of $134.6 million dropping virtually 9% on a sequential foundation:

The corporate’s 12-month backlog decreased from $85.9 million to $72.7 million or greater than 15% on a quarter-over-quarter foundation.

On the convention name, administration did not appear to be overly involved by the setback so as circulation and alluded to it as extra of timing challenge with orders already rebounding within the present quarter and a powerful pipeline going into subsequent 12 months.

Nonetheless, contemplating the corporate’s moderately low near-term order backlog, present consensus expectations for revenues to extend by 38% to $131 million in 2024 seem too excessive.

As well as, the corporate impaired $26.3 million in goodwill and intangible property associated to the acquisition of Arcola Vitality (subsequently renamed “Ballard Motive Options”) two years in the past.

(…) we have proposed an extra restructuring of Ballard Motive Options, which we not view as core, leading to a noncash impairment cost to goodwill and intangible property.

Once we made our funding in BMS 2 years in the past, OEM clients had been much less sure on the adoption of hydrogen gas cells in medium-duty and heavy-duty mobility purposes.

Consequently, they weren’t making vital in-house investments on gas cell powertrain and car integration. Subsequently, a key goal in buying BMS was to supply OEM clients with third-party integration assist to take away friction within the adoption of Ballard gas cell engines into the car platforms, whereas additionally working to optimize powertrain efficiency.

Since that point, the market has made essential and thrilling shifts. Many bus and truck OEMs have elevated their conviction on the adoption of gas cells and because of this have scaled their in-house investments in gas cell powertrain integration. They now view the scope as core and proprietary to their gas cell car platforms, together with their aggressive place.

Furthermore, near-term prospects for the corporate’s Chinese language operations stay bleak resulting from an ongoing lack of coverage assist and liquidity constraints by native governments:

(…) the general China gas cell electrical car market continues to lag the nationwide targets set by the policymakers and present declining market exercise in Q3. We have beforehand mentioned the sophisticated coverage setting, however imagine the trade has been additional stunted by liquidity constraints at native governments that wouldn’t have enough funds to order extra automobiles and hold cost obligations present.

With a complete FCEV park in China at roughly 10,000 automobiles, it is troublesome to see how China will obtain its 2025 goal for 50,000 gas cell electrical automobiles by the top of 2025.

Consequently, near-term development shall be largely pushed by rail software and gas cell bus markets in Europe and North America whereas the info middle market seems to be extra of medium-term alternative at this level.

On the convention name, administration said expectations for gross margins to succeed in break-even ranges in late 2024 or early 2025.

Backside Line

Ballard Energy Programs reported considerably improved third quarter outcomes and primarily based on administration’s directional steering, the corporate’s This fall efficiency ought to handily beat present consensus expectations.

As well as, a mixture of improved margins and aggressive value discount efforts has resulted within the firm’s liquidity runway being prolonged to early 2029.

Nonetheless, weak order consumption resulted in near-term backlog reducing by greater than 15% to $72.7 million which apparently does not bode properly for the corporate’s development trajectory subsequent 12 months.

At this level, I think about present analyst expectations of revenues rising by greater than 35% subsequent 12 months as too aggressive.

With $2.62 per share in money and money equivalents and no debt, additional draw back seems restricted at present ranges however aggressive 2024 consensus expectations and a scarcity of near-term catalysts are maintaining me from changing into extra constructive on the inventory at this level.