Ballard's Q3 2025 Earnings Call: Contradictions on Gross Margins, Market Growth, and Project Forge/Texas Facility Impact

Date of Call: None provided

Financials Results

• Revenue: $32.5M, up 120% YOY (driven by bus and rail deliveries)
• Gross Margin: 15%, compared to -56% in Q3 2024 (71 percentage-point improvement); noted that without one-time benefits margin would be slightly negative

Guidance:

• Not providing specific revenue/net income/margin guidance; expect revenue to be back-half weighted for the year.
• Total operating expenses (excl. restructuring) expected below the low end of the $100M-$120M range; including restructuring toward the high end.
• Capital expenditures expected $8M-$12M (revised down from $15M-$25M).
• Expect low-to-mid single-digit gross margin in 2026 and continued progress toward cash-flow positivity.
• Maintain lean cost structure and capital discipline into 2026.

Business Commentary:

• Revenue and Market Growth:
• Ballard Power Systems reported a 120% year-over-year revenue increase in Q3 2025, largely driven by deliveries to the bus and rail segments.
• The growth was primarily attributed to the increasing demand for zero-emission vehicles, particularly in the bus market, where nearly 60% of new sales are now zero-emission.

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• Product Cost Reduction and Profitability:

• The company achieved a positive gross margin of 15% in Q3, a marked improvement from a negative 56% in the previous year.

• This was due to reductions in manufacturing overhead, product cost improvements, and a net reduction in onerous contract provisions.

• Restructuring and Strategic Alignment:

• Ballard's strategic realignment efforts led to a 36% year-over-year reduction in total operating expenses and a 40% decline in cash operating costs.

• These cost-saving measures were part of the company's focus on achieving cash flow positivity and long-term sustainability.

• New Product Launch and Service Offerings:

• Ballard launched the FC Move SC, a next-generation fuel cell bus engine, with positive initial feedback from OEMs.

• The new product and additional services, such as digital operations and maintenance services, extended warranties, and on-site support, are expected to lower total cost of ownership for customers.

• Expansion into the Marine Market:

• The company recorded its largest order ever to the marine market, totaling 6.4 megawatts, with orders from ECAP and Samskip.
• This success was due to the completion of DNV certifications for the FC Wave product, which opened up additional use cases and provided comfort to customers in adopting Ballard's marine solutions.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management said they were 'pleased with our performance'; revenue rose 120% YOY to $32.5M; gross margin improved to 15% from -56% (71-pt improvement); cash balance $525.7M with no bank debt; repeatedly referenced 'progress on turnaround' and pathway to cash-flow positivity.

Q&A:

• Question from Rob Brown (Lake Street Capital Markets): Just wanted to get your thoughts on the growth kind of rates in the bus market. Are there additional kind of growth order activity that you’re pursuing and get a successful kind of conference activity? Just wanted to get your sense on the growth rate in the bus market going forward.
  Response: Reception at Busworld was very strong; FC Move SC is well received, Europe adoption is improving, North America is flat YOY, and infrastructure constraints may drive larger fuel-cell fleet adoption over time.

• Question from Rob Brown (Lake Street Capital Markets): Quickly on gross margin, I think you talked about a slightly negative, sort of adjusted out. Is that the baseline you expect to grow from or improve from going forward?
  Response: Q3 margin was boosted by one-time items; underlying margin would be slightly negative, expected similar in Q4, with incremental improvement toward low-to-mid single-digit gross margins in 2026.

• Question from Jeff Osborn (TD Cowen): I was going to ask on the former Project Forge in the Texas facility, some of the targets that were laid out for the restructuring there, are those still achievable without the Texas facility? Can you remind me how important that was as it relates to getting gross margins higher than what Kate just mentioned?
  Response: Project Forge (automation and materials-efficiency) is underway in Canada, is independent of the Texas facility, and its targets remain achievable without Texas.

• Question from Jeff Osborn (TD Cowen): Marty, you mentioned re-entering the material handling space. I think from memory, years ago, you were just in the liquid-cooled side for sort of the ride-on units versus, I think, the smaller pallet jack lifters were air-cooled. Are you doing both, or are you just doing the liquid-cooled? Can you just further detail what specifically the strategy is on material handling?
  Response: Near-term focus is on air-cooled material-handling stacks with significantly increased durability (about >2x current market lifetimes), addressing service and total-cost advantages for customers.

• Question from Andrew (Roth Capital) for Craig Irwin: Congrats on signing your largest marine order to date with the Samskip vessels. I know you’ve been working with this partner for a couple of years now, I think since 2021. Can you kind of talk about just the evolution of this agreement, how it came about, and maybe what you can take away from it and learn from for other customers?
  Response: Multi-year development led to DNV-certified FC Wave marine product; certification was a heavy lift but enabled adoption (e.g., Samskip) and provides a replicable technical and commercial blueprint for other customers and markets.

Contradiction Point 1

Gross Margin Expectations

It involves changes in financial forecasts, specifically regarding gross margin expectations, which are critical indicators for investors.

Is the adjusted negative gross margin the baseline for future growth? - Rob Brown(Lake Street Capital Markets)

2025Q3: Without one-time benefits, the gross margin would be slightly negative, and this is expected to continue in Q4. For 2026, we expect low to mid-single digit gross margins, with incremental progress from here on. - Kate Igbalode(CFO)

What are you seeing in the material handling market? - Jeffrey David Osborne(TD Cowen)

2025Q2: Our gross margins for the second quarter were 69% and we expect gross margins for Q3 to be around 75% with full-year guidance in the mid-70s. - Marty T. Neese(CEO)

Contradiction Point 2

Market Growth and Adoption

It involves differing perspectives on market growth and adoption rates, which are crucial for assessing company performance and strategic positioning.

What is your outlook on the bus market's growth rate? Are you pursuing additional growth initiatives? - Rob Brown(Lake Street Capital Markets)

2025Q3: The reception at Bus World was tremendous, with the new product being well-received by OEMs. Infrastructure constraints are changing market dynamics favorably for fuel cells. Europe is making steady progress in adopting fuel cells, while North America remains flat year-over-year. - Marty Neese(CEO)

What are Ballard's target markets and how is the new cost structure being used to enter these markets? - Robert Duncan Brown(Lake Street Capital Markets)

2025Q2: We are seeing strong demand in key markets, including rail, and marine and bus as well. The bus market is driven by total cost of ownership, especially for larger fleets where battery electric options become less attractive. Marine market is showing promise due to suitable range and route requirements. The 2-year sales cycle for marine orders is notable. - Marty T. Neese(CEO)

Contradiction Point 3

Project Forge and Texas Facility Impact

It concerns the strategic importance of the Texas facility and its impact on Project Forge, which is a key initiative for cost reduction and operational efficiency.

Can the former Project Forge targets be met without the Texas facility? How critical was the Texas facility to improving gross margins? - Jeff Osborn(TD Cowen)

2025Q3: Project Forge, focusing on automation and materials efficiency, is still in flight and not dependent on Texas. The Texas facility was more about integrated stack and module production, with automation as a key component. - Marty Neese(CEO)

What metrics determine the future of the Rockwall, Texas facility? - Unidentified Analyst(Raymond James)

2025Q2: Ballard has also confirmed its intention to exit the Rockwall, Texas facility by the end of Q2 and aims to reduce its operating expenses. - Marty Neese(CEO)

Contradiction Point 4

Bus Market Growth and Regional Dynamics

It involves differing perspectives on the growth and market dynamics of the bus segment, which is a key market for Ballard Power Systems.

What's your outlook for bus market growth? Are you pursuing additional growth initiatives? - Rob Brown(Lake Street Capital Markets)

2025Q3: The reception at Bus World was tremendous, with the new product being well-received by OEMs. Infrastructure constraints are changing market dynamics favorably for fuel cells. Europe is making steady progress in adopting fuel cells, while North America remains flat year-over-year. - Marty Neese(CEO)

Which regions or sectors show the highest sales pipeline activity? How do you project these trends to develop this year? - Rob Brown(Lake Street Capital Markets)

2025Q1: Most consistent and repeat business opportunities are in the bus segment, with solid momentum and new product introductions in both North America and Europe. - Randy MacEwen(CEO)

Contradiction Point 5

Project Forge Impact on Margins

It involves differing expectations for the timeline and impact of Project Forge on gross margins, which is crucial for assessing the company's financial trajectory.

Are the former Project Forge targets achievable without the Texas facility? How critical was the Texas facility to improving gross margins? - Jeff Osborn(TD Cowen)

2025Q3: Project Forge, focusing on automation and materials efficiency, is still in flight and not dependent on Texas. - Marty Neese(CEO)

Can you provide an update on Project Forge's timing and expected impact on margins? - Jordan Levy(Truist)

2024Q4: Project Forge is expected to substantially reduce bipolar plate costs by 70% and increase capacity 5x. The new equipment is now on site, with full optimization expected by Q4 2026. - Kate Igbalode(CFO)