Ballard Power Systems Inc. Q2 FY2022 Earnings Call

Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems Second Quarter 2022 Results Conference Call. As a reminder all participants are in a listen-only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. I would now like to turn the conference over to Kate Charlton, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and good morning. Welcome to Ballard's second quarter 2022 financial and operating results conference call. With us on today's call are Randy MacEwen, Ballard's CEO; and Paul Dobson, Chief Financial Officer. I'm also excited to announce we will be hosting our Investor Day this fall on November 22. We look forward to hosting you in Vancouver. Today, we will 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. I'll now turn the call over to Randy.

Thank you, Kate, and welcome, everyone, to today's conference call. I'd like to first report that during Q2, we welcomed David Mucciacciaro as Ballard's new Chief Commercial Officer with global responsibility for sales, marketing, product line management and customer care. Prior to joining Ballard, David was most recently Vice President, Global Sales, M&A and Marketing of Magna Electronics. He brings a depth of expertise and a strong track record in leading global commercial teams, with over 25 years of sales leadership experience from the automotive industry, including with ZF, Faurecia, Lear and TRW. His skill set will be highly valuable to Ballard as we grow sales and transition into commercial scale deployment. David is already having a positive impact on our commercial activities. Now getting into the quarter. In Q2, Ballard delivered $20.9 million in revenue and secured new orders totaling $12.3 million. This activity translates to an order backlog of $91.2 million at the end of Q2. This is softer than planned, as a number of expected sizable orders have shifted out. We remain excited about our expanding opportunity set across our various applications and regions, as reflected in the significant growth of our sales pipeline. We're experiencing record levels of customer engagement, progressing through demonstration programs with multiple platform customers and fully expect to execute on important platform wins in the next 12 months. Our market focus remains unchanged, targeting large addressable markets of medium and heavy-duty mobility, including bus, truck, rail and marine as well as select stationary power generation markets. These are the applications where the value proposition is strongest for our hydrogen fuel cell technology. I'll provide a brief update of highlights and our progress on our key applications. We continue to see progress for fuel cell adoption for bus applications in Europe and the U.S. Our ongoing work with our bus OEM customers and transit operators to pilot small bus fleets and demonstrate our fuel cell's ability to meet customer needs is paying off. Europe is now entering its next stage of deployment, with certain cities moving from a handful of fuel cell buses to now over 100. As examples, recently, public transit operators in Cologne, Germany, and West Midlands, U.K. announced plans to deploy additional hydrogen fuel cell bus fleets of 100 and over 120 buses, respectively. We are confident Ballard will be positioned to participate in supporting these plans through our strong customer and end-user relationships. In the United States, due to the significant increase in federal low-no funding, we are seeing higher customer engagement in California and other states, including a 300% increase in the number of low-no applications for fuel cell buses. The Federal Transit Administration announced funding in March for $1.1 billion each year for the next 5 years. We've been working closely with our partners on applications, and expect this to support growth in the U.S. fuel cell bus market. In the truck market, we continue to make steady progress with our partnerships. Our development program with MAHLE remains on schedule. Integration of Ballard's fuel cell module and testing on the concept engine is ongoing, and expected to continue throughout the year. Consistent with our previous messaging, we're leveraging our parallel go-to-market strategy, partnering with both OEMs and vehicle integrators to enable Ballard to support end-user demand in the near, mid and long-term, and accelerate the adoption of fuel cell electric trucks. One of our European upfitter partners, Quantron, is planning to unveil a zero-emission truck powered by Ballard fuel cell engine at the IAA 2022 show in Hannover in September. In Rail, we are on track with key customers in Europe and North America. Over the past 4 years, we've been developing a 200-kilowatt fuel cell engine to support Siemens Mobility in the development and commercialization of a 2-car commuter train that combines innovation with sustainability. Siemens has now commercialized the Mireo Plus H, which is a highly advanced second-generation hydrogen train featuring acceleration of up to 1.1 meters per second squared and a top speed of 160 kilometers per hour. The train has the lowest life cycle costs on the market and can be refueled in just 15 minutes. We're thrilled that in June, Siemens Mobility announced the first fleet order of its Mireo Plus H trains for the Berlin-Brandenburg metropolitan region. The 7-train fleet, to be powered by 14,200-kilowatt fuel cell engines, is expected to be commissioned and operated on the network in late 2024. By switching from diesel to hydrogen, we're expecting to see reduced annual CO2 emissions by around 3 million kilograms and save 1.1 million liters of diesel. We're excited about the long-term partnership with Siemens as a platform rail customer. And in North America, as we look at the locomotive market, we continue to support CP Rail as it progresses on its hydrogen locomotive program. We're excited to report that CP is progressing on hydrogen infrastructure. CP is planning the construction of 2 hydrogen production and fueling facilities in Calgary and Edmonton, Alberta, with EPC partner, ATCO. The hydrogen infrastructure in each CP site will include a 1-megawatt electrolyzer, compression, storage and dispensing for locomotive refueling. Construction of the facility is expected to begin this year, with production and supply of hydrogen being provided to locomotives in 2023. We also see continued momentum in the Marine market, specifically in our current target markets of coastal and inland applications. We see strong engagement from existing and prospective customers for marine applications, following our achievement of DNV-type approval for the FCwave product in the quarter. We've seen a growing opportunity pipeline for these markets and believe our technology and our type approval achievement will set us apart from competitors. In Stationary Power Generation, our total order backlog has increased 36% year-over-year. This is indicative of growing market opportunities as companies identify hydrogen fuel cells as a competitive alternative to traditional diesel technologies. Our focus applications for stationary power include backup power for data centers, like the project underway with CAT and Microsoft, grid storage applications, and captive power for mines or construction sites. We're increasingly confident in the outlook for this segment of our business as we gain meaningful customer traction on large order volumes in our sales pipeline. Now looking at our key geographic regions. Our European revenues increased 25% from the first quarter this year as we saw Europe increasingly prioritize energy security and decarbonization. Q2 was a very busy quarter for European policies as the EU doubles down on investments and new initiatives to boost renewables and hydrogen, as evidenced by the REPowerEU action plan and banning of internal combustion engines for cars by 2035. Post-quarter, we continue to see additional policies and funding announcements to support Europe's energy transition. Such initiatives include the approval of grants totaling over EUR 5 billion for 41 large-scale hydrogen-related projects across the continent, and many others to be rolled out over the coming months. This is going to be a catalyst in the European market to drive down the cost of low-carbon hydrogen. We are confident Ballard's technology and competitive positioning, including our partnerships, position us well in multiple markets across the continent, and we expect Europe to continue to be a rapid and growing adopter of our hydrogen zero-emission fuel cell technology. In North America, we saw the continued trend of increased sales, with revenue up nearly 30% quarter-over-quarter and year-over-year for the region. We anticipate the U.S. Inflation Reduction Act, which was passed by the Senate this past weekend, to have a significant positive impact on the broader clean energy industry, the hydrogen industry and Ballard. The act includes nearly $370 billion for domestic energy production and manufacturing, energy cost reduction as well as lowering national carbon emissions by 40% by 2030. There are provisions for $3 billion in funding for zero-emission equipment and technology at ports, $1 billion for clean heavy-duty vehicles such as buses and garbage trucks, as well as hydrogen fuel incentives, extending and expanding electric vehicle investment tax credits and introducing hydrogen production tax credits of up to $3 per kilogram. The combination of policies to decrease the cost of infrastructure, vehicles and hydrogen fuel are expected to be catalysts in lowering the total cost of ownership of hydrogen fuel cell technology and accelerating the uptake and pace of adoption. A competitive total cost of ownership is a critical driver for the commercialization of fuel cells. Specifically, fuel costs are estimated to account for between 30% and 70% of the total cost of ownership depending on application. This means that the production tax credit on low-carbon hydrogen could reduce the total cost of ownership of fuel cell technologies to at or below the cost of the incumbent fossil fuel technology. Amidst this strong U.S. industry backdrop, we continue to invest in our U.S. platform. We're growing our current team and capabilities in the U.S., including a manufacturing footprint in Oregon. The new facility is anticipated to be operational in 2023, and will support our customers who secure Buy America funding by manufacturing our newest generation fuel cell module, the FCmove HD Plus, in the United States. In Q2, we saw a decrease in revenue contribution from China compared to Q2 last year. We await further policy clarity as Hunan's policy planning, the cluster in which the Weichai Ballard JV facility is included, has been impacted by COVID with lengthy lockdowns, including in Guangzhou. Throughout the quarter, many regions throughout the country were impacted by COVID restrictions and lockdowns. While their manufacturing facility in Weifang has stayed open, day-to-day business operations amongst companies and government bodies continue to see delays. Despite the recent challenges China has faced, we are confident in the mid and long-term outlook and continue to evaluate how best to position to expand our operations to take advantage of the policies and long-term market capture. In Hong Kong, we observed growing support for fuel cell buses. This quarter, Hong Kong launched its first-ever hydrogen fuel cell bus. This double-decker bus was built by our partner, Wisdom Motor Company, and powered by Weichai Ballard fuel cell module. This demonstration showcases our fuel cell technology capabilities to meet one of the world's most demanding operating environments, comprising of steep road grades, high passenger loads, the need for fast refueling and the requirement for significant air conditioning. Wisdom provided the bus to fleet operator Bravo, who operates over 1,700 buses and carries over 1 million passengers daily. Bravo's long-term vision is to operate a fleet of zero-emission fuel cell buses. Shifting to our financials in the quarter, we saw further gross margin compression in Q2. The downward pressure was driven by a combination of a shift in revenue mix, the impacts of pricing strategy, higher fixed overhead costs, higher warranty adjustments, increased inflationary supply costs as well as negatively impacted by net inventory adjustments. With volume, cost reduction and improved pricing dynamics, we expect to see margin expansion in 2023 and 2024. Recognizing a challenging and uncertain macroeconomic outlook, we've decreased our planned investments in 2022. We're revising our total operating expense and capital expenditure guidance downwards. Our total operating expense guidance has been revised from $140 million to $160 million to $130 million to $150 million. Capital expenditure guidance has been lowered from $40 million to $60 million to $30 million to $50 million. With a balance sheet of $1 billion in cash, we continue to evaluate corporate development opportunities. While we've been active in our opportunity evaluation of acquisitions and investments, we remain disciplined on execution to ensure we make the best strategic decisions for value creation. Our opportunity valuation remains focused on expanding across the value chain, simplifying and enhancing customer experience, accelerating fuel cell adoption in target markets and facilitating business scaling. We have high conviction in the long-term opportunities for hydrogen and fuel cells, and are encouraged by the growing importance governments and customers across the globe are placing on the acceleration of the energy transition. We see converging trends driving the energy transition, including net 0 ambitions, low-cost renewable energy and energy security. Ballard's resilient business model, world-class fuel cell talent, diverse market exposure across applications and regions, advanced technology, continued innovation, strong partnerships and customer relationships and solid balance sheet set us up for success. With that, I'll turn the call back over to the operator for questions.

We will now begin the question-and-answer session. The first question is from Aaron MacNeil with TD Securities.

Randy, as it relates to the Inflation Reduction Act, how are you thinking about the $0.60 to $3 per kilogram production incentive and the $40,000 per commercial vehicle tax credit in terms of what it could mean for U.S. bookings activity over the next 12 months? I guess, more specifically, do you think that incentive is enough to get some of the customers you're engaging with over the line and moving towards a formal order?

Yes, Aaron, thanks for the question. I think we view this as a major catalyst in the U.S. market. It wasn't too long ago, maybe 2 years ago, where the U.S. market really was not a high priority for us. In fact, we had characterized the U.S. market as a California market. That has clearly changed over the last year. Of course, we're not quite there. There's still some work to do later this week, I think, to see this pass, of course. But I think the combination of lowering the cost of low-carbon hydrogen as well as supporting early adopters with the CapEx cost for vehicles, I think, are very powerful tools. We've seen similar tools to be successful in the U.S. before, and we're expecting this to be a significant accelerator not just for the Bus market but for the truck market as well. And we're looking at not just fleets with opportunities to refuel at tethered refueling stations, but also longer term for corridor refueling infrastructure.

And in terms of my follow-up, I'm just wondering if you could give us a bit more detail on the guidance revisions in terms of what sort of specific activities or initiatives were canceled or deferred as you move the spending ranges lower?

Paul here. We have slightly reduced our guidance on both operating and capital expenditures in response to a challenging macro environment. Our total costs in Q2 reached $38 million, which is $14 million higher than last year, indicating an ongoing increase in our expenditure. We're investing in research and development, product development, next-generation products, including MEAs, plates, stacks, and modules. We are also focused on reducing product costs and scaling up our production facilities and market development, particularly in Europe and the U.K. While we’re making some cuts, our commitment to scale up and invest in our products remains strong. Customers expect us to provide high-quality technology at scale, and we will maintain our focus on that objective. There are areas where we might trim back without compromising this goal. We also face supply chain challenges that we expect to persist into 2023, which are extending lead times for parts and production equipment, ultimately affecting our spending. Additionally, while we have successfully onboarded about 80 new people, mostly in engineering, our hiring has been slower than anticipated due to the current environment. Taking all of this into account, we project our spending will be slightly lower than the guidance provided for both operating and capital expenses.

The next question is from Rupert Merer with National Bank.

Just a follow-up on the hydrogen PTC outlook. You talked a little about the potential for heavy-duty trucks in the U.S. I'm wondering though, does this change the value proposition in some of your other target markets in the U.S? Do you anticipate you could see an acceleration in power markets, for example, or even interest in rail, in hydrogen in the U.S.?

Yes. Rupert, I think you're right. This is going to support adoption across a number of market applications. On the rail market, we have been looking at the locomotive market with CP, obviously, in Canada. But more broadly, we're seeing a lot more interest from rail operators to decarbonize. And in North America, for the freight market, you really don't have opportunity for catenary wire infrastructure. So in my opinion, the only option there is fuel cell technology. And with this change with the production tax credit and the total cost of ownership for this application, locomotives, you're looking at fuel as the number one cost for rail applications. So we do see that strengthen the value proposition. There's work to do over the coming years to validate the hydrogen fuel cell value proposition. But certainly, the hydrogen PTC outlook is strong as we look forward in that market. And then, I think the other market we're quite excited about for the long term as well is not just transit buses but coaches. And so the opportunity to see lower-cost fuel, which is important to coach total cost of ownership as well, will be valuable. So it won't be just trucks, but we'll see transit operators, coach operators and the rail market as opportunities as well for the U.S. market.

How about the Power market? Do you see any growing opportunities for either energy storage or backup power?

Yes. So for the backup power market, I don't see the PTC as a big catalyst, in my opinion. These are typically applications that don't consume a lot of fuel, so it's more about having resiliency and zero emission, and in some cases, the ability for accelerated permitting. So I think those are stronger drivers than PTC. There are, of course, some stationary applications where you will see more primary power, where fuel can become a larger portion of the total cost of ownership. That's still, I would say, work in progress in terms of developing those markets for the U.S.

The next question is from Jeff Osborne with Cowen & Company. Please go ahead.

Randy. I was wondering if we could dig into the gross margin pressure in the past couple of quarters. You had a bit of a laundry list of items. The 2 I wanted to try to focus on and how they sort of unwind themselves were the warranty charge you mentioned and then also the pricing strategy. Can you just touch on what the pricing philosophy has been over the past 12 to 18 months of flowing through the P&L now? And then how that sort of unwinds itself as we look at expansion into '23 and '24?

Yes, Jeff, thank you for your question. I will begin and then Paul can add to it. I'll start with our pricing strategy. We've transitioned to the next generation of our product, which includes new pricing strategies aimed at securing orders and guiding customers to this new technology. This is a key factor in our pricing challenge. Additionally, we've experienced inflationary pressures on the supply chain since late last year and early this year, which has increased some costs as we fulfill these orders. As we discuss the initial volumes for these new products, we anticipate that as we scale up production and adjust pricing in response to changes in the supply chain, we will see shifts in our gross margin profile and some improvement in gross margin in 2023 and 2024. It's also important to note that due to our investment in manufacturing capacity and currently low volumes, our overhead absorption remains diluted at this time. Paul, would you like to add anything about the warranty?

Yes. The impact of the warranty in the quarter wasn't very significant. It may seem more pronounced due to the size of our revenues. We recorded additional provisions in previous quarters for certain issues identified with our products in the lab. We have made considerable progress in addressing many of those issues and believe we are now fully provided to handle them with customers. It’s essential for us to maintain sufficient warranty provisions to support our products as they are tested by customers during the rollout. Overall, I would say the warranty impact was relatively minor this quarter, and we don't anticipate much change in the second half of the year either.

And maybe just one quick follow-up. I'm not sort of following, Randy, maybe I haven't had enough coffee, but the move towards the new platforms, why do you need to discount? Did you have to do that like when you moved from the Mark 9 to subsequent platforms in the past? Or is this really just an issue of moving from sort of tech solutions platform development and monetizing units that way to true commercial terms with the Move HD platform or something else? I'm just trying to understand why when a platform gets more energy dense, you need to lower the cost?

Yes, we've had discussions with the bus OEMs for some time about adjusting the cost structure to ensure that the overall value proposition works for both the bus operators and the OEMs. It's not just us; other players in the value chain are also working to get demonstration fleets into the market. Additionally, there is a cost involved for operators when transitioning from one product to another, and part of encouraging this transition involves our pricing strategy.

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

Randy, during your opening comments, I missed it, but could you elaborate on your plans to establish some manufacturing in the U.S.? Can you share your thoughts on the timing for when that might occur and clarify what you are aiming to build there?

Yes. Thanks, Michael. This is really kind of our initial manufacturing facility that we look to set up in the U.S. in Oregon, where we already have a relatively small engineering team that will help support this build-out of the facility. It's a relatively modest investment initially; it's about $4 million. The ability to manufacture up to about 2,500 modules per year, and we expect that to be online and operational in Q1 2023.

I noticed that Alfred Wong was promoted from Managing Director of China to CEO of China. Can you explain the reason behind this change? Does it reflect any developments in the Chinese market?

Yes. So a couple of things there. One is that Alfred was Managing Director for Asia-Pacific, and so we moved him to CEO for China. So very much focused on the China market rather than Asia Pacific coverage. Secondly, our organizational structure, we made some changes to be more regional, closer to the customers. So this is part of it, and part of Alfred's career arc as well.

The next question is from Craig Shere with Tuohy Brothers.

So there was kind of revenue softness in the quarter for both Stationary Power and Material Handling. Do you see that as a bit of an aberration? What are the specific prospects over the next 12 months?

Yes, Craig, thanks for the question. I don't think we expect to see any major increase on the Material Handling side over the next 12 months. But the Stationary Power market is proving to be very active in our sales pipeline. A lot of engagement there in Europe, in North America, and I expect some very positive developments on the Stationary Power market over the next 12 months.

You mentioned that there are many opportunities with the pilots, demonstration studies, and joint ventures. Can you share any specific milestones regarding when we might receive feedback in areas like vehicles, rail, or marine over the next 12 to 18 months? For example, should we expect to hear something in the first half of next year? Any timing updates or milestones would be helpful.

Yes. On the Rail market in Europe with Siemens, they have secured their first commercial order, so we anticipate more progress in that market over the next year. You can expect to see more orders coming in. In the Marine market, we will begin to see actual deployments in the water, which is crucial for demonstrating those products. For instance, we expect progress with Norled in Norway. It's essential to have the first deployments, not just selling the engines but also integrating them into vessels and providing propulsion for a duration. By the end of 2023, we should have three or four different marine projects that show significant progress on the water. In the truck market, we are on parallel paths with MAHLE, which will achieve important technical milestones by the end of 2023 as we begin engaging with OEM customers. Additionally, we are collaborating with upfitters and systems integrators like Quantron, who are showcasing trucks equipped with a fuel cell engine from Ballard and moving toward long-term sales relationships with such customers. We are seeing similar developments with other companies, including Wisdom Motor in China.

The next question is from Chris Souther with B. Riley Securities. Please go ahead.

Can you discuss the order momentum? It seems like it's not quite where you expected. Could you provide some insight into where the improvement from the low order levels is occurring? Is it mainly in China, or are there other activities, such as in the European bus market or with Linamar, that might be contributing? I'm trying to understand the disconnect between order activity and what seems to be a pipeline that is nearing an inflection point.

Yes, Chris, thank you for your question. On the Bus side, we anticipated receiving orders for two cities with over 100 fuel cell buses this year. However, the process has taken longer due to various factors, including delays in funding and fueling infrastructure. Nevertheless, we still have solid sales leads and expect to convert those into orders. Another point of interest is in the rail sector, where we were hoping for significant orders from some customers that can be announced soon. I believe we will see those in the second half of the year. Additionally, we have been engaging with customers in the stationary power markets for some time. These are substantial project opportunities, albeit with some complexity involved. It is a matter of assisting customers through their project development phases and progressing to order placements. Some of these opportunities have taken longer than anticipated, but they are all still viable and have high probabilities of success. The main issue is timing, and we expect to see considerable progress in the next 12 months.

And maybe just within the backlog, could you break it down a little bit more by their segment or end market or geography? It sounds like the Stationary Power is growing, but I wanted to get a sense of how that changes in the mix as well as kind of the existing bus customers?

Yes, just trying to find the data for you. But we've seen the Stationary market total backlog increased 33% year-over-year for Q2. I don't have my finger on the bus market at the moment. But a lot of the order intake, I think 60% of the order intake in Q2 was for bus and stationary, including some new customers as well. So seeing positive, very positive growth in those segments.

And maybe the last one here. Just China, we've seen kind of fits and starts throughout the time there, kind of both market and COVID-specific shutdowns more recently. Can you talk a bit about what the visibility looks like for the second half within China?

Yes. To add to the question about the backlog, I appreciate the diversity we see in our backlog, even though it isn’t as solid as we would prefer. Our sales pipeline is also diverse across various applications, regions, and customers. This richness sets us apart from many others in the fuel cell industry. It's noteworthy that there hasn't been a significant regional change in the last quarter. Regarding China, the visibility for the latter half of the year remains quite limited. Currently, there are just under 11,000 buses and commercial trucks operating in China, with approximately 3,500 of those using Ballard fuel cell technology, giving us over 30% market share and more than 125 million kilometers of on-road service. This is a substantial indicator of our real-world experience in China. Interestingly, despite policy uncertainties, more hydrogen fueling stations are still being established. There are over 200 operational hydrogen refueling stations in China and an additional 63 under construction. While there have been significant delays with these 63 stations for various reasons, the ongoing development of fueling stations amidst uncertainty is encouraging. We expect to share more updates at the year's end. Recently, Aaron asked about Alfred in China, who has just arrived and is currently going through quarantine but has important meetings coming up in the market.

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

Just wanted to follow up on the European bus order activity. What's sort of driving that increase in units being deployed in there? And is that happening, I guess, is there a sales pipeline in other cities of that kind of change in order rates?

Yes, Rob, great question. I think this is really a situation where you're seeing those transit operators that have trialed fuel cell technology and have, in some cases, trialed battery electric technology and have seen the challenges with both technologies and the opportunities with both technologies. And are deciding for their routes, for their duty cycles and load profiles, that fuel cells meet the market requirements. And so that's the transition I think that's occurring. Those operators that have seen the reliability and durability proven out have seen the performance of the vehicles in the field, and now are amping up their zero-emission requirements and selecting fuel cell technology. And this is not limited to these two cities where we now have visibility on over 100 fuel cell buses. There are a number of other cities that are really scaling up their plans in the European market. I think the macro context in Europe is only going to accelerate this over the coming years.

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

First question is on getting customers over the line. Is infrastructure the biggest gating factor there, like you just kind of touched on with buses? Or is it mostly wrapped up in supply chain, or maybe something else?

Yes, it varies depending on the market application. However, I would say that when government funding requirements are linked to deployments, that often becomes a key factor. Additionally, hydrogen refueling infrastructure is another major consideration.

And then back to the PTC, does that at all change your outlook on getting into electrolyzers? And then if so, can you remind us would first priority be to do that organically or potentially inorganically?

Yes. We anticipated that there would be skepticism regarding the return of a slimmed-down version of the Build Back Better bill and the IRA. We actually expected it to materialize this year, so it wasn't a surprise to us. Regarding electrolyzers, we have the capability to assist in designing MEAs to enhance performance and reduce costs internally. We believe we can add value to an electrolyzer company. However, the market has a limited number of opportunities, and many are already heavily priced, making it difficult to find suitable investments that align with our criteria. Additionally, we are not looking to be a hydrogen fuel supplier; our focus is more on the sale of electrolyzer equipment. Therefore, while having capabilities in that area would be beneficial, it is not a necessity. Our customers are not currently demanding that we support their electrolyzer or green hydrogen production needs. If we encounter a valuable opportunity where we can contribute technically, that could lead to success, but without those factors, we are unlikely to pursue that direction. We would not engage in this organically. Many companies have been expanding from their fuel cell technologies, such as PEM or solid oxide, into electrolyzers, but we view this as a complex and demanding transition with no complete overlap in technology. Thus, we believe it is crucial to concentrate on opportunities within the fuel cell market. Therefore, this would only pursue through M&A, not organically.

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

Great. And thank you, everyone, for joining us today. Paul, Kate and I look forward to speaking with you in the next quarter. Thanks again.

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