Due to report third-quarter earnings on Nov. 2, Ballard Power Systems (NASDAQ:BLDP) is, arguably, the fuel cell company closest to achieving profitability. Through the first six months of fiscal 2017, Ballard reported a 104% increase in adjusted EBITDA over the same period last year. And although the company is far from consistently keeping the bottom line out of the red, there are signs that the company is moving in the right direction. Will the third quarter reflect even greater momentum? Let's look at some things we can expect management to address.

On the road...

Accounting for 36% of Ballard's top line in fiscal 2016, heavy-duty motive represented the second largest segment by revenue, but it demonstrated the largest year-over-year increase, at 170%. Besides the tram market, the segment, which largely reflects Ballard's success in meeting China's demand for fuel-cell vehicles, includes fuel-cell solutions geared toward the bus and heavy-duty truck markets.

The number one is written into the symbol for hydrogen from the periodic table.

Image source: Getty Images.

Arguably, Ballard's success predominantly depends on its success in the heavy-duty motive segment, so it's something on which investors should be keenly focused. Management, for example, may provide color on an $18 million supply contract, signed in June, for 400 fuel-cell engines that are to be integrated into buses and trucks in major Chinese cities. According to management, significant deliveries for this contract, and another for 200 engines with the same customer are expected to occur in the second half of 2017. Combined, the two supply contracts are valued at $29 million.

...and in the warehouse

Besides the heavy-duty motive market, Ballard's fuel cells can be found in material handling equipment, in large part because of a supply agreement it signed with Plug Power (NASDAQ:PLUG) in 2014. According to the terms of the deal, Ballard will supply the fuel-cell stacks for Plug Power's GenDrive system through 2018 and has the potential for two one-year extensions.

During the earnings report, it will be interesting to see how management addresses -- if at all -- Plug Power's agreement with Amazon.com, which was announced last spring. Speaking to the agreement, Plug Power's management stated that it may recognize as much as $70 million in fiscal 2017 and $600 million overall. In addition, Plug Power, in its Q2 earnings report, stated that it signed a new agreement with Wal-Mart. According to Plug Power, it will deploy 10 GenKey sites in 2017 and, potentially, an additional 30 sites by 2019. Investors, therefore, should look to see how this translates to Ballard, whether it is an increase in revenue in Q3 or an increase in orders to be delivered in Q4 or later.

In a class by itself

Among its hydrogen-oriented peers, Plug Power and FuelCell Energy (NASDAQ:FCEL), Ballard is the closest to proving that the fuel-cell industry can be profitable.


BLDP EBITDA (TTM) data by YCharts.

The company's performance in fiscal 2017 may elucidate this point even further. During its Analyst Day presentation, management noted that it will be "about adjusted EBITDA positive" if the company reports fiscal 2017 revenue of $108 million -- the analysts' consensus estimate. Investors, therefore, should confirm that the company achieves analysts' Q3 revenue estimate of $28.4 million and that the company is on track to achieve management's gross margin forecast of 35% for the year. Through the first six months of the year, Ballard has reported a gross margin of 38%, so investors should not be dismayed if the company's gross margin falls below 35%.

Investor takeaway

For those hitching their hopes to a hydrogen-powered future, Ballard currently offers investors the greatest opportunity. Nothing is for certain, though, as the company still has plenty of hurdles to overcome before it becomes a profitable endeavor. Continued success in China and an increase in orders related to Plug Power's deal with Amazon will certainly be green flags for the company. I, however, will be most interested to see if the company remains on track to meet annual revenue and gross margin estimates -- two things that may power the company on the road to profitability.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Scott Levine has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.