Ballard Power Systems (NASDAQ:BLDP), an industry leader in fuel cell solutions, is expected to report its second-quarter earnings on Aug. 1. The company provided mixed results in the first quarter, failing to meet sales expectations while reporting a $0.04 loss per share, as analysts had expected. In Q2, analysts expect the company to again report a loss of $0.04 per share, on revenue of $22.4 million.
Although it will be interesting to see how the company fares in meeting expectations, savvy investors know that there's much more to a company's quarterly performance than just top- and bottom-line metrics. So let's prepare for the company's report by keying in on some points we can expect management to address.
1. Orders up?
Forecasting 2019 revenue to be flat compared to 2018, management foresees growth in 2020 and beyond as it makes further headway in Chinese and European markets. While the news of a $44 million order from the Weichai-Ballard joint venture is one success from the second quarter, investors should be curious to see how the company progressed in growing its backlog even further. For example, while Ballard announced in April that it had received an order from Norled A/S, one of Norway's largest ferry and express boat operators, the financial terms of the agreement were not released.
On the company's Q1 conference call, Randall MacEwen, Ballard's president and CEO, tried to incite investors' enthusiasm, claiming that the market will "see a significantly increased order book in the next three months to four months as some of the work that we're working on closes." It will be interesting, therefore, to see what deals besides the one with Norled A/S MacEwen is referencing and how they affect the order backlog. Specifically, investors can watch to see if the company ends Q2 with an order backlog that is higher than the $188.4 million at which it stood upon the close of the first quarter.
2. Margin shrinking
With management eyeing big things on the horizon for Ballard in 2020, investors will likely see the signs of the preparations for this growth on the income statement in the form of quarter-over-quarter rises in operating expenses. Due in large part to the implementation of an "ambitious hiring program," management reported operating expenses of $10.7 million in the first quarter. But the hiring spree isn't over. On the Q1 conference call, management stated that it expects this to increase in the second and third quarters, leveling off thereafter.
Besides adding personnel, the company's development of the Marine Center of Excellence in Europe and work on the joint venture with Weichai Power will also contribute significantly to the company's operating expenses in the second quarter. Considering all of these moving parts, investors shouldn't be surprised if the company reports an operating margin lower than negative 53%, which it reported in the first quarter.
3. Keep on trucking
While Ballard made waves recently in its advances in the marine market, investors shouldn't be distracted from keeping tabs on how the company is doing in regard to the trucking industry. In all likelihood, details regarding progress with the Weichai joint venture will be scant; Ballard's management stated on the Q1 conference call that greater clarity will be coming later in 2019 in deference to Weichai's communications strategy.
Although China has been more of the focus regarding fuel cell applications in trucks, news of Anheuser-Busch's order for up to 800 of Nikola Motors' hydrogen-electric-powered semi-trucks suggests that there's also considerable interest in the U.S. Investors, therefore, should look for commentary regarding Ballard's progress (or lack thereof) in North America. In addition to partnering with Kenworth on a project at the Port of Los Angeles, Ballard is working with UPS on a project that is exploring the viability of fuel cell electric hybrid delivery trucks.
What to focus on from Ballard
While I'll be watching to see if Ballard meets expectations regarding revenue in the second quarter, I'm more interested to see how the company fared in building its order backlog. The $44 million order from the Weichai-Ballard joint venture is certainly a victory for the company, but Ballard's future success will obviously rely on numerous supply agreements with multiple customers. An inability to secure future deals should certainly have investors reaching for the red flag.