Ballard Power Systems Inc. Q4 FY2020 Earnings Call

Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems Q4 and Full Year 2020 Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.

Thanks very much and good morning everyone. Welcome to Ballard's fourth quarter and full year 2020 financial and operating results conference call. With us today on the call, we've got Randy MacEwen, our President and CEO and Tony Guglielmin, our Chief Financial Officer. We'll be making forward-looking statements that are based on management's current expectations, beliefs and assumptions concerning future events. Actual results could be materially different. Please refer to our most recent annual information form and other public filings for our complete disclaimer and related information. So today, Randy is going to provide his perspective on Ballard's progress throughout 2020, as well as our focus for the current year. Tony is then going to review Q4 and full year financials followed by a Q&A session. I'll turn the call over to Randy.

Thanks, Guy. And welcome everyone to today's conference call. I'd like to start today's call by thanking all of the members of Ballard's global team. I'm immensely proud of how our team responded to the global pandemic. We were guided by our purpose to deliver fuel cell power for a sustainable planet and by our cultural values. In every decision we make, we put the safety, health and well-being of our employees, customers and partners first. And we demonstrated once again Ballard's resilience and ability to adapt with both care and speed. I want to provide a brief summary of Q4 and full year 2020 results. Ballard's revenue was $28.6 million in the final quarter of the year, with total 2020 revenue of $103.9 million, consistent with our internal projections with the impact of COVID-19. Full year 2020 gross margin was 20%, adjusted EBITDA was negative $38.9 million, year-end cash reserves were $763.4 million and we ended the year with a 12-month order book for delivery in 2021 of $83.5 million. While Ballard's operations continued uninterrupted through the year, some customers, suppliers, partners and end users were forced to shut down temporarily at points during the year and some also deferred capital expenditures. So, while our sales pipeline was very robust, growing 55% in 2020, reflecting the continued increase in market interest, order flow is muted. Looking forward to 2021, the impact of the pandemic continues to be uncertain. As a result and consistent with our practice in the early stage of market development and adoption, we're not providing specific financial guidance for 2021. What I do want to share with you is how excited and confident I am about our business, about the important work we're undertaking in 2021 and our long-term future. Customer engagement in all of our Medium and Heavy Duty Motive market segments, bus, truck, rail and marine, are at record levels. We're well positioned with technology, products, field experience, customer relationships, partners, brand and financial strength. As reviewed in our September Investor and Analyst Day, we have a clear strategy and deliverables in 2021, including on technology innovation, product cost reduction, capacity expansion, our Weichai-Ballard JV and our relationship with MAHLE.

Well, thanks Randy, and good morning, everyone. Top line revenue in Q4 was $28.6 million, down 32% year-over-year and on a full year basis, revenue was $103.9 million, down 2% from 2019. For the full year, Power Products revenue increased 19%, while Technology Solutions revenue decreased 20%. Within Power Products, full year Heavy Duty Motive was up 35% to $47.7 million due to a year-over-year increase in product shipments to customers, particularly sales to the Weichai-Ballard JV and the Synergy-Ballard JV in China. We also saw higher shipments of backup power products to customers in Europe. The decrease in Technology Solutions revenue to $45.3 million was due primarily to decreased amounts earned from the TS program with Audi, the Siemens development program and the Weichai-Ballard joint venture technology transfer program. Gross margin was 20% for the quarter and for the full year, declines of 1 point in each time period. The Q4 and full year declines were the result of the decrease in total revenue and a shift in overall product mix. Cash operating cost increased 25% in Q4 to $16.4 million and for the full year increased 29%, or $11.2 million to $50 million, primarily as a result of higher research and product development costs in next generation MEAs, stacks, and modules. We do expect higher cash operating costs again in 2021 as we increase our investment in additional technology and product innovation and development across our key product markets of bus, truck, rail, and marine. Adjusted EBITDA in Q4 was negative $14.5 million compared to negative $7 million in the same quarter of the prior year, and negative $38.9 million for the full year compared to negative $26.6 million. For the full year, this included Ballard's $12.6 million share of losses in joint venture investments in China, largely related to the Weichai-Ballard JV. Ballard's net loss in Q4 was negative $14.4 million compared to negative $9.8 million in Q4 last year. And for the full year, negative $49.5 million compared to negative $35.3 million in 2019. Earnings per share was negative $0.05 in Q4 compared to negative $0.04 in 2019. And for the full year, EPS was negative $0.20 compared to negative $0.15 for the prior year. Both the net loss and EPS numbers include Ballard's share of losses from our China JVs. Cash used by operating activities was $6.7 million in Q4 consisting of cash operating losses of $6.7 million and flat working capital changes. For the full year, cash used in operating activities was $42.9 million, consisting of cash from operating losses of $25.8 million and working capital outflows of $17.1 million. In terms of liquidity, we ended 2020 with cash reserves of $763.4 million, up 417% from $147.8 million at the end of 2019 and up 111% or $401.7 million from the end of Q3. These cash reserves reflected three equity transactions in 2020, that generated total net proceeds of approximately $695 million. These included two After Market or ATM programs, that generated net proceeds of $309 million, as well as a bought deal transaction that closed in Q4 and generated net proceeds of $386 million. In addition, as Randy noted, we completed a further bought deal transaction in the first quarter of this year, generating additional net proceeds of approximately $528 million. In addition to areas where we expect to deploy capital in 2021 as outlined earlier by Randy, we also have a commitment to contribute $11.4 million in 2021 toward our 49% ownership position in the Weichai-Ballard JV. At the end of 2021, we expect to have contributed a cumulative $69.1 million towards our total capital commitment of $79.5 million pro rata ownership share. Finally, we ended 2020 with a total order backlog of $117.8 million, a decrease of $10.3 million over the order backlog at the end of Q3. The 12-month order book at the end of 2020 was $83.5 million, up $3.9 million from the end of Q3. And as Randy noted, we have a robust sales pipeline of qualified commercial opportunities up 55% from the end of the prior year. Now before I turn the call back to the operator for questions, I do want to say a couple of words about my pending retirement. This will be my last investor call as CFO of Ballard. I first wanted to thank and acknowledge many of you on the call today, whom I've come to know and worked with over the past 11 years. It's been a pleasure to get to know you and I do hope we can stay in touch. I also retire with confidence, knowing Ballard's future is in good hands with a strong executive team and a dedicated workforce, as well as a very strong balance sheet. Lastly, I look forward to working with Paul on a smooth transition over the coming weeks. With that, let me turn the call back over to the operator for questions.

The first question comes from Sameer Joshi with HC Wainwright. Please go ahead.

Thanks, Randy. Thanks, Tony for taking my call and Tony congratulations on your retirement.

Thank you, Sameer.

My first question is about the China JV and revenue contributions from that. At what level of revenue contributions from China do you see your equity distribution also breakeven? This year I think you had over $12 million of equity distribution losses from that JV. How should we look at 2021? Should we expect that contribution to be a positive contribution this year?

Yes. Hi Sameer, this is Tony. Yes, so the equity right, the equity contribution is net-wise negative in 2020 and we expect it to be negative as well in 2021. As Randy mentioned, we're expecting a fairly significant ramp up in deliveries from the China JV, but that will likely take place in the second half of the year once the policy framework gets finalized. So, we don't expect 2021 to be the breakeven year for the joint venture, largely as a result of the delay in China policy. So I think realistically, we're looking more into 2022, that we would expect to start to see the JV getting closer to breakeven based on continued ramp-up. So 2021 will continue to be a negative contribution, not quite at the same level as 2020, but it will continue to be negative.

Understood, thanks for that. You just mentioned the order backlog as of December 31st, I assume was around $118 million, which was down around $10 million year-over-year. How does that compare in contrast with the strong sales pipeline? Are there delays in order conversion or what's the reason for the drop in the backlog?

Yes. Sameer, thanks for the question. We have seen a very significant increase in customer interest across the board. If you look at our sales pipeline, up 55%, a significant portion of that comes from the Medium and Heavy Duty Motive markets of bus, truck, rail, and marine, with relatively good diversification across the markets and geographic areas as well. As I pointed out, in 2020, we did see a number of customers defer capital expenditures and not signing orders, as many organizations were reducing their CapEx budgets to moderate cash flow, as you would expect. So, I do think that had a significant impact, but I think as we look forward, we expect to convert a substantial part of the sales pipeline into orders in 2021 and 2022. It's important to remember that the sales pipeline conversion takes time, from the moment we receive interest, translating that through the sales force, ultimately to the order book, because there's a long sales cycle for these markets. So, I think you will see some positive movement in 2021 and into 2022 as well.

Understood. One last one before I step back in queue. You listed a bunch of investments in the areas of damped acquisition and upgrades. So, should we expect that the budget for these investments is mostly going to be operational operating expenses? Or are there any capital expenses associated with this investment as well?

Yes, certainly on the product innovation side that I mentioned, that would be in the operating budget. In terms of production capacity expansion and localization, there could be additional CapEx spending as we look to deepen our manufacturing presence in China and Europe, for example. No specific dollar amounts to share today. Regarding M&A, of course, that would involve investment of cash and potentially stock as well for potential transactions.

Got it. Thanks a lot for taking my questions.

Sure.

The next question comes from Rupert Merer with National Bank. Please go ahead.

Good morning, everyone. And once again congratulations on your retirement, Tony. All the best.

Thank you, Rupert.

I'd like to start with the expectations for R&D this year. Can you talk about what we may see in R&D expenditures and if you can give some color on the activities you are going to focus on this year and maybe expected deliverables you could see this year from the R&D program?

Sure, Rupert, it's Tony here. Yes. So the R&D - the total budget from looking at 2020 over '21, we do expect to increase our investment in the OpEx area, which as Randy mentioned a moment ago, is probably going to be up $20 million plus this year, year-over-year. This is a significant increase, and this will flow through our cash OpEx in reported OpEx, and that investment is across a number of programs. Certainly the work that we're doing on next-generation high-power density modules, focusing particularly on the truck market, that's one specific area. We are also launching some next-generation MEAs and stacks this year. So it's across our range of power levels, and across MEA stacks and modules, with a focus particularly on the truck market. So, as I say, think about a potentially $20 million plus increase in our investments in the cash OpEx area this year.

Okay. Does that include your activities with MAHLE?

Well, that would include some of the development work, yes with MAHLE. That doesn't include any specific investment if you're thinking about as discussed earlier about any localization or joint venture; that's all to come. But yes, this would include the development work on this heavy-duty or truck program that Randy alluded to in his remarks.

On your Investor Day, you talked about a three-year goal to reduce your cost by 70%. So, is it fair to assume that R&D expenditures this year are in programs that are going to be over the next three years? And maybe we shouldn't expect too many deliverables in the 12-month time frame?

Yes. When you look at the MEAs and plate work that we're doing, we saw some very good progress last year. In fact, our product cost reduction in 2020 was higher than planned. The actual realized cost reduction was higher than planned for the stack level in 2020. When you look at the investments in 2021, there will be developments that are crystallized, and we'll be able to share in 2021. A significant portion of the additional spend, is really around acceleration and expansion of the product portfolio, with different power ranges and remember now, we're focused on bus, truck, rail, and marine. Each of these markets in some cases have different market requirements, addressing the unique market requirements at the module level while continuing to drive standardization at the MEA plate and stock level. There will be announcements this year on product improvements, on cost reduction at the stock level and at the module level. But you're right, some of the earlier stage R&D activities do cross over into multiple years. With the 3X3 plan, we are aiming for a 70% cost reduction over that, in the 2024 timeframe, and there are clear timelines and deliverables in each year. I'm confident about the progress we're making against that.

Great, thanks for the color. And then secondly, just a quick follow-up on China. Your disclosures highlight that you still have some optimization work to do at the Weichai-Ballard JV on the production side. Just wondering if you can give some more color on what activities you have left in China.

Yes. The key areas for optimization are really around yields on plate assembly, the production of plates. In December and into January, we achieved yield results consistent with what we see in Vancouver. There are some pieces of equipment that some suppliers are making small changes to that could help that further. I believe we'll have higher yield from the Weichai-Ballard JV than we'll see in Vancouver in the coming months, which is encouraging. These are minor adjustments in terms of time or spend; it's primarily about fine-tuning. The more important deliverable is unlocking that market to ensure the policy framework is clear, allowing order flow to be released and production to scale.

It sounds like you have some time for optimization while you're waiting for those policies to come through. Anyway, I'll leave it there. Thank you very much.

Yes, thanks, Rupert. One thing I would note too is, looking at our own yield results in Vancouver over the last number of years, where we have the higher production runs, higher volume production runs, yield results are higher. We're looking forward to seeing that occur in the JV as well.

Right. Thank you.

The next question comes from Pearce Hammond with Simmons Energy. Please go ahead.

Sorry, I was on mute. Congrats on your 2020 accomplishments and Tony, all the best on your retirement.

Thank you.

In the earnings release, it seemed very clear that you could expand your geographic focus beyond your three core areas of China, California, and Europe this year. What markets are you looking at? What are some of the criteria for entering those markets? Does it have to do with subsidies and market structure? And then lastly, would this be entering with a new JV partner or an existing partner? Thank you.

Yes. Pearce, thanks for that. We are looking at a couple of new geographic markets. I commented on some progress we've made, for example, in Australia, where we're seeing progress in New Zealand. I think you'll see something on that fairly soon, and India is a market showing very strong interest coming out of the hydrogen fuel cell space at this point. As we look at markets, we think about the policy framework and support in those markets. What's the size of the addressable market, particularly for bus, truck, rail, and marine? And what's the competitive dynamics and how we position in those markets? Those are a couple of things we should look at. Whether we enter those markets independently or with partners, every market is different. India is a very unique market; that's one we would likely consider collaboration on. However, for markets like Australia and New Zealand, it's very easy for us to establish a sales and support office.

It's Tony here. Pearce, just to supplement too, I think what we're also starting to see is the demand pull from some of our customers in some of the newer markets we're considering. Many of these customers are global by nature. We may end up looking at new areas for things like mining and marine, which are truly international markets. We'll find ourselves following customer opportunities around the world because of where they are located.

That's great, thank you for that color. And then my follow-up is, you've talked about some of the initiatives on fuel cell cost reductions, but are there any specific technical or scientific advancements that you would want to highlight today that are helping reduce fuel cell costs?

Yes, I think we went through this fairly significantly during the September Investor and Analyst Day, where we looked at different operating - sorry, different technical parameters we're focusing on today, tomorrow, and even a number of years from now. This includes current density, power density, operating temperature, free start capabilities and other parameters we currently have and what those targets will look like over time. A lot of exciting work has been done in 2020. For instance, our ability to utilize thinner plates to help improve power density was a significant development for us last year. The advancement in new materials, including thinner materials, lower-cost materials, or higher performance materials is extensive. Much work needs to be done, and we are, in many cases, working collaboratively with the supply chain to help them improve their specifications.

Excellent. Thank you for taking my questions.

Sure, thanks.

The next question comes from Michael Glen with Raymond James. Please go ahead.

Hey, good morning. And congratulations, Tony, on your retirement.

Thanks.

Just to start with - Randy you do seem to be speaking more favorably or optimistically, say for this China roadmap. I'm just wondering if there's anything in particular driving that? And as we see that information come out, are there particular aspects of that roadmap that you'll be looking to see?

Yes. I think a couple of important developments. Even in December, China released a policy document designating the fuel cell industry as an Encouraged Industry, which means they support the localization in China of international companies. Those companies should be treated similarly to domestic players and can do that without needing a JV controlled by a Chinese partner. So as we think about opportunities for continued value chain expansion in China, that's very encouraging for us. Additionally, having spent six weeks in China, I observed the momentum in that marketplace first-hand. Although we experienced a stall-out in China over the last year due to the policy landscape, the enthusiasm and number of companies entering the space as supply chain partners hasn't waned, which is encouraging. Many politicians and policymakers at senior levels expressed strong interest in collaborating, which gives me high conviction on the growth we're going to see in the China market, and a solid belief in the role that Weichai-Ballard will play moving forward.

Okay. And just any specific aspects that you're particularly looking for as that roadmap comes into form? Are there certain aspects that you are hoping will be contained in that?

I think there probably won't be any surprises in my opinion in terms of the next phase. The question will be which demonstrations are initially awarded and I think there's an understanding that at least three regions will be included. We expect that to be Shanghai, Guangdong, and Beijing. These are the regions where you're seeing a lot of support, and Shanghai just recently issued another policy document to support the deployment of fuel cell vehicles at scale. This looks like a very attractive marketplace and there will be other policy frameworks announced in 2021, beyond this cluster demonstration financed through the Ministry of Finance. I expect additional developments from the Ministry of Science and Technology, to support the deployment of fuel cell vehicles substantively.

Okay. And just in terms of the recent meetings you had with your JV partner, have they shared any insights on how they view the ramp-up in terms of volume and regarding a potential IPO of the Weichai-Ballard JV?

During my time there, we discussed both IPO interest and market ramp. There's significant interest right now in the China market for fuel cell and hydrogen companies. REFIRE, a company in this space, is currently going through the IPO process in China. We're studying that case closely. There's a shared vision for a long-term opportunity to IPO the vehicle. Timing and the right circumstances are discussions we'll continue to have. As for the production ramp, we have several scenarios for 2021 and 2022, depending on when and how the policy framework is clarified. Congress is currently meeting in Beijing, and there are expectations that clarity will come soon, which would allow us to trigger a number of our scenario plans with the JV.

Okay, that's great. Thanks for taking the questions.

Yes, thank you.

The next question comes from Aaron MacNeil with TD Securities. Please go ahead.

Hi, good morning all. Paul, if you're on the line or listening, congrats on the new role. Tony, I'll join everybody else and congratulate you again on your retirement.

Thank you.

Randy, you referenced in your prepared remarks, but based on the press release activity in Q1, it seems like the cadence and the magnitude of order flow have increased. Would you characterize this as a lumpy group of announcements due to pent-up demand from COVID? Or can we view this pickup in the first quarter as something more sustainable, indicative of some broader secular trends regarding fuel cell commercialization?

Yes, I think the history of the industry has been lumpy announcements in very project-based work. You're right that we've seen an increase in cadence and the relative importance of some of the announcements. The commitment level to decarbonize is much stronger and the understanding of the role hydrogen can play is also significantly stronger. While I'd like to hope that this is an indicator of what will happen going forward, history teaches me to be cautious about being too bullish yet. The sales pipeline, rather than the announcement order, is a stronger indicator of where the business is headed than the timing and lumpiness of press releases.

Understood. And then, I know this has been brought up already as well. But can you say how your backlog is broken down in terms of fuel cell sales and then the Technology Solutions piece? Are those different buckets moving in different directions right now? Can you give us any sense of what that looks like in more detail?

Yes. In my mind, the sales pipeline is probably a better indicator of where the trends are than the order book. If you look at the sales pipeline, a couple of years ago, we targeted diversifying it effectively, 40% from China/APAC, 40% from Europe, and 20% from North America or the rest of the world. The relative geographic split is similar to that target we established years ago. We're also seeing a heavy weighting, as expected, for bus, truck, rail, and marine. We characterize those four markets in that order because that's the sequence of adoption. The scaffolding effect means the bus market will commence before commercial trucks, and both will scale before rail and marine. What’s been surprising is the surprisingly high interest in rail and marine markets, showing up in customer engagement that isn't fully reflected in the sales pipeline. The commercial truck market positions us well in China given favorable fuel cell policy. Our relationship with MAHLE and the costs and milestones associated will significantly enhance our opportunities for commercialization and success.

Understood. Maybe I'll just close up with an oddball question. One of your competitors has given warrants to its customers to incentivize spending. For obvious reasons, this can be a double-edged sword. As it relates to Ballard, are you worried that investors may not be familiar with the details of how your customer engages with major clients and how your backlog versus theirs may differ? Even worried that this model may make that competitor a bit stickier with large potential customers, given that growing and high-profile reference base of work?

For us, we'll focus on technology innovation, product improvement, great customer experience and ensure our positioning in the markets. I'm not going to second-guess what that company did; they are performing well in the Forklift Material Handling market and have a very entrenched position.

The next question comes from Greg Wasikowski with Webber Research. Please go ahead.

Hey, good morning, guys. Thanks for taking my questions. Just wanted to dive a bit deeper into your comment about seeing an acceleration in the marine market. Can you give us an update on the project with ABB? Additionally, can you share your thoughts on the timeline for larger capacity hydrogen carriers and the potential for hydrogen use in longer-haul tankers, cruise ships, and container ships?

The focus in 2021 is to get Type Approval for our FCwave product, a 200-kilowatt modular product. This will be the first fuel cell product I know of with Type Approval, designed to meet rigorous marine requirements. We've seen a lot of interest from customers, and I think we have close to 15 orders in the marine market. These are all demonstration projects, a very early stage. Customers want to sample, trial, pilot these products before, similar to the bus market, moving to larger opportunities. In terms of ABB, they are a giant in the marine segment, and we're pleased to work with them; they are involved in many projects we have and are continually looking to expand that relationship.

That's really helpful, thank you. Additionally, in engaging with Global Energy Ventures, I understand Asia Pacific is the initial focus. Specifically in China, what appetite have you seen? I understand that this could still be very policy dependent, but is it something Ballard could facilitate or promote, given your presence there?

Great question. I suggest that in almost every meeting I attended during six weeks, the interest to collaborate with Ballard in the marine market was evident. China has significant marine vessel decarbonization challenges across the Yangtze River Delta and the Pearl River Delta. I believe China will be an attractive market for the Marine segment, and it's a focal point of our activities moving forward.

Awesome, sounds good. That's all I got. And Tony, I wish you well in your retirement.

Thanks, Greg.

The next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.

Hi, good morning. A quick question on capacity additions. I think you said you're doing a 6X capacity expansion in Vancouver. What does that give you in terms of revenue capacity? And then maybe your thoughts on adding capacity in Europe in particular, in terms of timeline?

So the 6X capacity expansion we discussed is for MEA capacity here in Vancouver, which we see being sustainable through mid-part of the decade, before needing to increase capacity again. I won’t assign a revenue target as many MEAs go into products, including shipments to China. The incremental cost to increase MEA capacity is relatively modest, about $10 million to $20 million for a similar capacity increase. The larger question is about stack and module capacity. China is well situated for that through the joint venture. However, regarding Vancouver stack and module capacity, we're good for the next couple of years, but consider localization of capacity in Europe for stacks and modules, this is a potential area of focus.

Okay, great. Thank you for that color. Specifically regarding MAHLE, you talked about some product development milestones next year. Could we see customer project activity in 2021, or would that be thereafter?

We’re engaged in discussions with MAHLE and end customers already. In terms of timelines for any announcements, it would be more prudent to anticipate activity in 2022, as the product will be unveiled in 2021. There’s substantial work being done to optimize the product for truck platforms, alongside developing reliability and cost-effective balance of plant components.

Okay, thank you. I’ll turn it over and best wishes for Tony in his retirement.

Great, thanks.

Thanks, Rob.

The next question comes from PJ Juvekar with Citi. Please go ahead.

Yes, hi good morning. It looks like some of your orders, Randy, were slow to come in Q4 due to COVID. Do you think they were pushed into Q1? You recently won an order of 50 buses from Wrightbus and additional orders from Van Hool. Does that position you ahead of schedule in Q1 from where you thought you were? Additionally, for these buses in Europe, who is supplying hydrogen fueling and stations? Are you limited by how quickly that hydrogen infrastructure builds up?

Yes, while we should remain cautious as COVID-19 is ongoing, I'm encouraged by what I've observed. Orders have increased recently. Even more encouraging is the robust sales pipeline of qualified commercial opportunities. Regarding hydrogen supply at fueling stations, we focus on centralized depot refueling, which doesn’t require expansive distributor infrastructure. Current users simply replace their diesel refueling stations with hydrogen ones. Multiple companies, such as Linde, Air Liquide, Air Products, Shell, BP, and others, have been active in this market. It's important to note that there is a universal consensus that the cost of hydrogen will decline significantly over the next decade.

Great, thank you for that color. Lastly, you've mentioned that you're effective at making MEAs and FC stacks, which is similar technology for electrolyzers. Would you consider getting into electrolyzer production, to enhance your vertical integration?

Yes, that's a valid point. To clarify, we excel not only in MEAs and stacks but also in modules. The overlap exists, as electrolysis and fuel cell technologies are essentially reverse processes and share materials like membranes and catalysts. We aren’t looking to develop electrolysis in-house. However, we would consider strategic collaborations or M&A opportunities in the electrolysis field.

Thank you very much.

Thank you.

The next question comes from Craig Shere with Tuohy Brothers. Please go ahead.

Good morning. Congratulations on the commercial progress. I want to delve deeper into Aaron's question about order flow and what's emerging in the maritime sector. If I'm understanding correctly, the Canadian Pacific freight train and Global Energy Ventures' hydrogen carrier opportunities markedly exceed the TAM outlined in your September Analyst Day due to increased unit kilowatt requirements. If these initial demonstrations prove successful, how material do you think these markets could become, and how soon will we know if the demonstrations are effective?

Yes, looking at these markets, there's no doubt they will be decarbonized. The locomotive rail industry has fewer than 1% of its routes electrified in North America. So, you have two options: overhead catenary wire, which is costly, or hydrogen. I believe these are the only two viable options for decarbonizing rail transport in North America. The market opportunity is compelling, particularly with potential CO2 pricing increases. Regarding market adoption, expect pilot projects to take two or three years. I anticipate seeing the CP locomotive demonstrated in 2021, with trials over a two-year period. Past experiences suggest that once users trust the technology and its safety protocols, they'll be enthusiastic about deploying it. Hence, I characterize the potential size of these markets as understated.

Thank you for this. Regarding the hydrogen fuel truck market, the competition is heating up. Companies like Westport and Plug are moving into the market. Can you elaborate on your relationship with MAHLE and your competitive positioning in the hydrogen fuel truck marketplace?

It's true that many players are rushing into the market, validating its appeal. However, our proven history of durability in the field—over 70 million kilometers—provides us with a strong competitive advantage. No other company has this type of installed base for buses and trucks. Our units have been in operation for extended periods, boasting 38,000 hours of durability for the same fuel cell stack, which sets industry records. Reliability is crucial for the total cost of ownership, which we excel at. The ongoing MAHLE collaboration positions us to increase performance and reduce costs for the commercial truck market in Europe, making it an exciting partnership that adds significant potential.

Thanks for your insights. The order book at year-end was nearly $118 million, with $83.5 million earmarked for 2021 delivery. Since then, you’ve announced orders from Canadian Pacific, Global Energy, UK passenger trains, and bus orders from Wrightbus and Solaris, which may total around $11 million. Does it mean your order book for 2021 delivery could be approaching $100 million right now?

While I'd prefer to focus on the order book's directionality by the end of 2021, we expect great conversion in 2021 based on our robust sales pipeline. However, we will not provide a concrete revenue outlook, given the uncertainty surrounding COVID-19 and the early-stage market environment.

This concludes the question-and-answer session. I would like to turn the conference back over to Randy MacEwen the CEO, for any closing remarks.

Great. The call went a bit longer today, and I appreciate your patience for that. Thanks everyone for joining. Paul Dobson, our new CFO effective March 29, and I look forward to speaking with you in early May when we'll discuss our results for Q1 2021.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.