Ballard(BLDP) - 2022 Q1 - Quarterly Report

Introductory Materials Letter from the Chair of the Board Ballard's Chair highlights resilience, decarbonization focus, expanded customer relationships, new board members, and achieved gender diversity - Global momentum to address the climate crisis has accelerated, with 93 countries establishing net-zero targets, accounting for approximately 90% of global emissions and 70% of world GDP[12] - The company expanded its customer base, announcing new relationships and partnerships with Talgo, CP Rail, HDF, Quantron, Hexagon Purus, Tata Motors, Linamar, Sierra Northern, Caterpillar, and Microsoft[13] - Two new members, Kathleen Bayless and Hubertus Muehlhaeuser, joined the board, bringing financial management and industrial manufacturing experience[14] - Ballard achieved its target of a minimum 30% gender diversity on its board by 2022, reaching this goal in late 2021[15] Letter from the President and Chief Executive Officer President and CEO reports mixed 2021 financial results but strong strategic progress, including product development and cost reduction 2021 Financial Highlights | Metric | Value (USD) | | :--- | :--- | | Revenue | $104.5 million | | Gross Margin | 13% | | Net Loss | ($114) million | | Adjusted EBITDA | ($82.2) million | | Year-End Cash Reserves | $1.1 billion | - Ballard's PEM fuel cell technology has powered medium- and heavy-duty vehicles for an industry-leading cumulative total of more than 100 million kilometers[22] - The company saw significant growth in Europe and North America, supported by policy initiatives, while the market in China stalled due to protracted policy uncertainty[26] - Corporate development activities included the acquisition of Arcola Energy (now Ballard Motive Solutions) to reduce customer adoption friction and a strategic equity investment in Forsee Power to collaborate on hybrid fuel cell-battery architectures[27] Notice of Annual Meeting & Management Proxy Circular Notice of Annual Meeting Shareholders are notified of the 2022 virtual Annual Meeting to elect directors, appoint auditors, vote on executive compensation, and revise quorum - The 2022 Annual Meeting will be a virtual meeting held on Wednesday, June 8, 2022, at 1:00 p.m. (Pacific Daylight Time)[7] - Key purposes of the meeting include electing directors, appointing auditors, an advisory vote on executive compensation, and approving a resolution to revise the quorum requirements in the Corporation's Articles[7] Matters to be Voted Upon This section details five key matters for shareholder vote: director election, auditor re-appointment, executive compensation advisory vote, and quorum amendment - Shareholders will vote on the election of directors, re-appointment of auditors, an advisory vote on executive compensation, and revisions to the quorum requirements[38] - Ten directors are nominated for election, all of whom are current members of the Board. Weichai Power Co., Ltd. has the right to nominate two directors as long as it holds at least 15% of Ballard's shares[57] - The Board proposes amending the articles to require a quorum of at least two persons holding or representing by proxy at least 25% of the shares entitled to vote, to encourage broader shareholder participation[79][80] Voting Information This section provides procedural details for shareholder voting, including 'notice-and-access' and advance voting, noting 298 million shares outstanding and Weichai Power's 15.5% stake - The Corporation is using a 'notice-and-access' model to provide electronic copies of meeting materials to shareholders[40] - Shareholders are encouraged to vote in advance of the meeting via internet, mail, or telephone, with a proxy cut-off of 5:00 p.m. (PDT) on Monday, June 6, 2022[44][45][49] - As of the record date (April 11, 2022), there were 298,155,753 shares outstanding. Weichai Power Co., Ltd. beneficially owns 15.5% of the shares[54][55] Corporate Governance Ballard emphasizes strong corporate governance, complying with rules, maintaining an independent board, adopting a Diversity & Inclusion Policy, and utilizing three standing committees - The Board and management consider good corporate governance central to effective operation, complying with all applicable CSA and NASDAQ rules[86][89] - The Board has a skills matrix to ensure a collective balance of relevant competencies, including CEO/Executive Leadership, Financial Literacy, Technology, and Global Markets experience[97][99] - The company has a Diversity & Inclusion Policy and achieved its target of 30% women on the Board in 2022. Currently, 3 of 10 directors are female[101][102][103] - The Board has three standing committees: Audit, People, Corporate Governance & Compensation (PCGC), and Commercial. All committee members are independent[117] Executive Compensation Ballard's executive compensation program aligns with shareholder value, targets the 50th percentile, emphasizes 'at-risk' pay, and includes base salary, annual bonus, and long-term incentives - The compensation philosophy is to attract, retain, motivate, and align executive performance with shareholder interests, targeting the 50th percentile of the market[140][141] - The compensation framework includes four primary components: Base Salary, Annual Bonus, Performance Share Units (PSUs), and Stock Options[149] - A significant portion of executive compensation is "at-risk," with 76% for the CEO and 62% for other NEOs being variable or performance-related in 2021[152] - The company has minimum share ownership guidelines, requiring the CEO to own shares valued at 3.0x base salary and other executives to own 1.0x base salary[153][156] Compensation Discussion and Analysis The CD&A outlines executive compensation philosophy, objectives, and process, benchmarking against peers, with 2021 framework emphasizing 'at-risk' pay tied to corporate scorecard and long-term incentives - The 2021 annual bonus was based on a Corporate Scorecard with a 30% weighting on quantitative metrics (Revenue, Gross Margin) and a 70% weighting on qualitative strategic goals (stack cost reduction, truck development program, strategic agreement signing)[150][172] - Long-term incentives consist of 75% Performance Share Units (PSUs) and 25% Stock Options. PSUs are earned over three annual performance periods based on revenue and gross margin targets, with a three-year cliff vesting[151][181][182] - For 2021, the target value of the CEO's annual long-term incentive grant was increased from 175% to 220% of base salary to better align with market conditions[202] Executive Compensation Tables This subsection presents detailed compensation data for Named Executive Officers (NEOs) for 2019-2021, including summary compensation, outstanding equity awards, and vested incentive awards 2021 Summary Compensation for NEOs (CDN$) | Name and Principal Position | Salary | Bonus | Share-Based Awards | Option-Based Awards | All Other Compensation | Total Compensation | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Randy MacEwen, President & CEO | 600,000 | 609,000 | 990,000 | 330,000 | 42,684 | 2,571,684 | | Paul Dobson, SVP & CFO | 394,231 | 292,566 | 800,000 | 0 | 70,350 | 1,557,147 | | Robert Campbell, SVP & CCO | 377,385 | 260,414 | 199,500 | 66,500 | 34,309 | 938,108 | Value of Incentive Plan Awards Vested or Earned During 2021 (CDN$) | Named Executive Officer | Option-Based Awards – Value Vested | Share-Based Awards – Value Vested | Non-equity incentive plan – Value earned | | :--- | :--- | :--- | :--- | | Randy MacEwen | 1,863,649 | 3,281,896 | 609,000 | | Anthony Guglielmin | 625,891 | 1,169,546 | 107,916 | | Robert Campbell | 625,891 | 1,169,546 | 260,414 | | Kevin Colbow | 424,294 | 658,775 | 214,725 | Termination and Change of Control Benefits Executive employment agreements provide for payments upon termination without cause or following a change of control, including a 'double-trigger' provision for severance within two years of a change of control - Employment agreements for key executives contain a "double-trigger" change of control provision, entitling them to a 24-month severance package if terminated (including constructive dismissal) within two years of a change of control[230] Estimated Termination & Change of Control Payments (as of Dec 31, 2021, CDN$) | Named Executive Officer | Termination of Employment | Change of Control (Vesting Only) | Termination following Change of Control | | :--- | :--- | :--- | :--- | | Randy MacEwen | $1,965,373 | $3,624,017 | $2,507,576 | | Paul Dobson | $901,177 | $475,505 | $1,827,353 | | Robert Campbell | $903,610 | $1,324,394 | $1,380,415 | Director Compensation Non-executive director compensation targets the 50th percentile, consists of annual flat-fee retainers, with a larger portion paid in Deferred Share Units (DSUs) to align interests 2021 Director Annual Retainer Fees (CDN$) | Position | Cash | DSUs | Total | | :--- | :--- | :--- | :--- | | Non-Executive Board Chair | $75,000 | $100,000 | $175,000 | | Director | $55,000 | $75,000 | $130,000 | | Audit Committee & PCGC Chairs | $8,400 | $11,600 | $20,000 | - Directors are required to hold at least the number of Ballard Shares with a value equivalent to three times their annual retainer, with six years to comply[113][248] Equity-Based Compensation Plans Ballard uses the Consolidated Share Option Plan and Share Distribution Plan, with a combined maximum issuance of 8.5% of outstanding shares and specific annual burn rates - The aggregate number of shares available for issuance under the Option Plan and SDP cannot exceed 8.5% of the issued and outstanding shares at the time of grant[257] Annual Burn Rate | Year | Option Plan | SDP | | :--- | :--- | :--- | | 2021 | 0.18% | 0.09% | | 2020 | 0.74% | 0.14% | | 2019 | 0.57% | 0.22% | Financial Information (MD&A) Core Business and Strategy Ballard's core business is PEM fuel cell products for Heavy-Duty Motive, Material Handling, and Backup Power, with a strategy focused on technology, value chain expansion, market partnerships, and ESG - The principal business involves PEM fuel cell products for Heavy-Duty Motive, Material Handling, and Backup Power markets, as well as Technology Solutions[341] - The company has a 49% interest in the Weichai Ballard JV and a 10% interest in the Synergy Ballard JVCo, both located in China, to manufacture and sell fuel cell products for the Chinese market[344] - Ballard's strategy focuses on five key themes: investing in core technology, expanding across the value chain, creating new market partnerships, building competitive platforms in key regions, and enhancing its ESG proposition[346] Select Annual Financial Information and 2022 Business Outlook This section summarizes 2019-2021 financial data, showing stable revenue but declining gross margin and increasing net loss, with a 2022 outlook projecting increased operating and capital expenditures Select Annual Financial Information (in thousands of U.S. dollars) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenues | $104,505 | $103,877 | $105,723 | | Gross margin % | 13% | 20% | 21% | | Net loss | ($114,397) | ($49,469) | ($35,291) | | Total assets | $1,440,943 | $975,599 | $340,319 | | Cash, cash equivalents and short-term investments | $1,126,899 | $765,430 | $147,792 | - The 2022 outlook includes total Operating Expenses of $140 million to $160 million and Capital Expenditures of $40 million to $60 million, reflecting increased investment in technology, product development, and manufacturing capabilities[357][358] - The 2022 outlook is supported by a 12-month Order Book of approximately $67.3 million and a total Order Backlog of $93.1 million as of December 31, 2021[360] Recent Developments (Including Contractual Updates) Ballard has been active in corporate and commercial developments, including the acquisition of Arcola, a strategic partnership with Forsee Power, and advancing projects across key markets - Acquired Arcola, a UK-based systems engineering company, for up to $40 million to enhance powertrain and vehicle integration capabilities[367][368] - Formed a strategic partnership with Forsee Power to develop integrated fuel cell-battery solutions, supported by a €37.7 million ($43.8 million) investment for a 9.77% ownership stake[368][370] - Received an order for eight additional 200 kW fuel cell modules to support the expansion of Canadian Pacific's Hydrogen Locomotive Program[397] - Collaborating with Caterpillar and Microsoft to demonstrate a 1.5 MW hydrogen fuel cell backup power generator for data centers, supported by the U.S. Department of Energy[397][398] Results of Operations For 2021, Ballard reported $104.5 million revenue, a 1% increase, but gross margin decreased to 13% and net loss widened to ($114.4) million due to increased R&D investments Full Year 2021 vs 2020 Financial Performance (in thousands of U.S. dollars) | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $104,505 | $103,877 | 1% | | Gross Margin | $14,013 | $20,984 | (33%) | | Gross Margin % | 13% | 20% | (7 pts) | | Total Operating Expenses | $102,116 | $60,745 | 68% | | Net loss from continuing operations | ($114,397) | ($49,469) | (131%) | | Adjusted EBITDA | ($82,188) | ($38,944) | (111%) | Q4 2021 vs Q4 2020 Financial Performance (in thousands of U.S. dollars) | Metric | Q4 2021 | Q4 2020 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $36,705 | $28,589 | 28% | | Gross Margin | $4,771 | $5,640 | (15%) | | Gross Margin % | 13% | 20% | (7 pts) | | Net loss from continuing operations | ($43,836) | ($14,408) | (204%) | | Adjusted EBITDA | ($25,482) | ($14,470) | (76%) | - The decrease in full-year gross margin was primarily due to a shift to lower overall product margin and service revenue mix, combined with an increase in labor, supply, and freight expenses[421] - The 67% increase in full-year Cash Operating Costs to $83.8 million was driven by higher R&D spending on next-generation stacks and modules for bus, truck, rail, and marine applications[425][426] Cash Flow, Liquidity and Capital Resources Ballard ended 2021 with strong liquidity of $1.127 billion, primarily from a $527.3 million share offering, offset by cash used in operating and investing activities Summary of Cash Flows for Year Ended Dec 31, 2021 (in thousands of U.S. dollars) | Cash Flow Category | 2021 | 2020 | | :--- | :--- | :--- | | Cash Used by Operating Activities | ($80,476) | ($42,934) | | Cash Used by Investing Activities | ($85,630) | ($36,393) | | Cash Provided by Financing Activities | $526,908 | $696,529 | | Increase in Cash and Cash Equivalents | $360,465 | $615,638 | - The company's liquidity increased to $1.127 billion as of December 31, 2021, primarily due to net proceeds of $527.3 million from the February 2021 bought deal offering[467][477] - Cash used in investing activities in 2021 totaled ($85.6) million, which included ($43.8) million for the Forsee Power investment, ($14.7) million in capital expenditures, ($12.4) million in contributions to the Weichai Ballard JV, and ($7.2) million for the Arcola acquisition[475] Consolidated Financial Statements Management's Report & Auditor's Reports Management affirms responsibility for financial statements and internal controls, while KPMG LLP issued unqualified opinions on both financial statements and internal control effectiveness - Management is responsible for the financial statements and has concluded that the Corporation's internal control over financial reporting was effective as of December 31, 2021[559] - The independent auditor, KPMG LLP, provided an unqualified opinion, stating the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation in conformity with IFRS[563] - KPMG also issued an unqualified opinion on the effectiveness of the Corporation's internal control over financial reporting as of December 31, 2021[564] Financial Statements The core financial statements show total assets of $1.44 billion and total equity of $1.33 billion as of December 31, 2021, with $104.5 million in revenue and a net loss of $114.2 million for the year Consolidated Statement of Financial Position (in thousands of U.S. dollars) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total current assets | $1,229,186 | $854,315 | | Total non-current assets | $211,757 | $121,284 | | Total assets | $1,440,943 | $975,599 | | Total current liabilities | $83,159 | $52,091 | | Total non-current liabilities | $29,567 | $22,621 | | Total liabilities | $112,726 | $74,712 | | Total equity | $1,328,217 | $900,887 | Consolidated Statement of Loss (in thousands of U.S. dollars) | Account | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Revenues | $104,505 | $103,877 | | Gross margin | $14,013 | $20,984 | | Total operating expenses | $102,116 | $60,745 | | Net loss from continued operations | ($114,397) | ($49,469) | | Net loss | ($114,233) | ($51,377) | | Loss per share | ($0.39) | ($0.21) | Notes to Consolidated Financial Statements This section provides detailed disclosures on accounting policies, acquisitions (Arcola), discontinued operations, revenue disaggregation, balance sheet accounts, related party transactions, and financial risk management - The acquisition of Arcola Energy Limited was completed on November 11, 2021, for total consideration of up to $40 million, resulting in the recognition of $24.0 million in goodwill[716][733] - Revenue is disaggregated by geography, with Europe (41%) and China (37%) being the largest markets in 2021. By application, Heavy Duty Motive was the largest segment at $51.7 million[849] - The company has significant related party transactions with its joint ventures, Weichai Ballard JV and Synergy Ballard JVCo, primarily consisting of revenues from technology transfer and product sales[872][873][876] Appendices Appendix A - Board Mandate The Board Mandate outlines responsibilities for corporate governance, strategic direction, CEO evaluation, fiscal oversight, legal compliance, risk management, and board effectiveness - The Board is responsible for the overall corporate governance, overseeing and directing the management of the Corporation's business and affairs[272] - Key duties include appointing and evaluating the CEO, approving corporate strategy annually, monitoring financial performance, overseeing legal compliance and risk management, and conducting annual performance evaluations of the Board itself[279][280][281][286] Appendix B - Description of Option Plan This appendix describes the consolidated share option plan, eligible participants, its 8.5% rolling cap with the SDP, typical vesting schedule, and change of control provisions - The aggregate number of shares issuable under the Option Plan and the Share Distribution Plan cannot exceed 8.5% of the issued and outstanding shares[290] - The number of shares issued to insiders in any year under all share compensation arrangements may not exceed 10% of the issued and outstanding shares[291] - The plan contains a "double trigger" for accelerated vesting in the event of a take-over, requiring Board approval for the acceleration to occur[295] Appendix C - Description of SDP The Share Distribution Plan (SDP) includes DSU plans for executives and directors, and a PSU plan for employees, subject to a 5% individual cap and an aggregate 8.5% cap with the Option Plan - The SDP includes DSU plans for executives and directors, and a PSU plan for employees[304][307] - PSUs issued under the SDP vest up to three years from issuance, subject to performance criteria and potential accelerated vesting upon a change of control (with a "double trigger" requiring Board approval)[308][309] - The maximum number of shares available for issuance under the SDP cannot exceed 5% of the issued and outstanding shares at the time of grant[313]