Mr. Randy MacEwen reports

BALLARD REPORTS THIRD QUARTER 2014 RESULTS

Ballard Power Systems Inc. has released its consolidated financial results for the third quarter ended Sept. 30, 2014. All amounts are in U.S. dollars, unless otherwise noted, and have been prepared in accordance with international financial reporting standards (IFRS).

"Third quarter results reflect continuing progress in the business, including year-on-year improvements of 21 per cent in revenue, 15 per cent in cash operating costs, 40 per cent in cash used by operating activities, in addition to positive adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] of $500,000," said John Sheridan, who retired as president and chief executive officer on Oct. 6.

Randy MacEwen, Mr. Sheridan's successor, added, "The leadership transition has gone very smoothly and now, three weeks into the CEO role, I am fully engaged in driving the Q4 execution priorities together with the 2015 planning process and am excited by Ballard's growth prospects."

Third quarter 2014 highlights

Growth (all comparisons with the third quarter of 2013 unless otherwise noted)

• Third quarter revenue improved 21 per cent, to $20.6-million. The sequential quarter-on-quarter 2014 growth trend continued, with third quarter revenue improving 11 per cent from the second quarter.

Fuel cell product sales:

(i) Telecom backup power

• Revenue of $6.3-million, an increase of 60 per cent. While the shipment of 111 ElectraGen systems in the third quarter represented an increase over the second quarter, this volume was significantly less than the company's expectation for 170 systems, due primarily to a delay in purchase orders from an existing telecom carrier end-customer;
• Update:
  • Announced an order for 13 ElectraGen methanol-fuelled backup power systems to be deployed in Digicel Group Ltd.'s Jamaica network. This will bring the total number of ElectraGen systems deployed in Digicel's Jamaica network to 25;
  • A major U.S. telecom carrier received conditional approval from the New York Fire Department (NYFD) for deployment of ElectraGen systems at rooftop trial sites. Ballard is working with the carrier to meet additional requirements specified by the NYFD.

(ii) Material handling

• Revenue of $3.6-million, an increase of 70 per cent, driven by an increase in fuel cell stack orders from Plug Power;
• Update:
  • Signed a long-term supply agreement for fuel cell stacks used in Plug Power GenDrive systems. The agreement became effective immediately and will run to the end of 2017, with the provision for two one-year extensions beyond that time.

(iii) Development-stage markets

• Revenue of $2.5-million, a decrease of 43 per cent, due to the planned reduction in revenue from the bus module assembly licensing agreement in China and lower revenue from bus module shipments compared with the third quarter of last year;
• Update:
  • Launched a 12-month field trial of a methanol fuel cell home generator system, providing continuous power to 34 off-grid homes in South Africa;
  • Following the quarter:
    • Signed a non-binding memorandum of understanding with Skoda Electric, a Czech Republic bus OEM (original equipment manufacturer), and Rigas Satiksme, a Latvian transit bus operator, in relation to a bus development and deployment program in Latvia;
    • Announced the November launch of a European service and parts centre to be located at the Belgium bus manufacturing facility of Van Hool NV.

Engineering services:

• Revenue of $8.2-million, an increase of 26 per cent;
• Revenue in the quarter was driven by:
  • $4.1-million from the long-term contract with Volkswagen AG;
  • $2-million from other automotive contracts;
  • $2.1-million from non-automotive contracts, including continuing bus and backup power activities for the China market, continued work on microfuel-cell development, and several new aerospace contracts.

Path to profitability (all comparisons with the third quarter of 2013 unless otherwise noted)

• Gross margin of 25 per cent, a three-point decline, due primarily to the effect of lower-than-expected telecom backup power system shipments on manufacturing overhead allocation, together with a shift in product mix and an increase in service-related expenses;
• Cash operating costs of $5.6-million, an improvement of 15 per cent;
• Adjusted EBITDA of $500,000, an improvement of 151 per cent, driven by higher revenue and a lower operating cost base;
• Net income of ($2.4-million) or (two cents per share), improvements of 47 per cent and 60 per cent, respectively;
• Cash used by operating activities of ($2.9-million), an improvement of 40 per cent, due primarily to an improvement in cash operating loss;
• Cash reserves of $32.7-million.

2014 business outlook

While progress in top-line growth has been achieved each quarter in 2014, year-to-date revenue growth of 21 per cent is lower than initially expected. The company is therefore resetting guidance to:

• Revenue growth of approximately 20 per cent;
• Adjusted EBITDA improvement of approximately 65 per cent.

                        THIRD QUARTER 2014 FINANCIAL HIGHLIGHTS
                             (in millions of U.S. dollars)
                                                                                                       
                                                  Three months             Nine months
                                                ended Sept. 30,         ended Sept. 30,
                                              2014        2013        2014        2013
Growth
Revenue
Telecom backup power                          $6.3        $3.9       $12.9       $14.6
Material handling                             $3.6        $2.1       $10.2        $4.5
Development-stage markets                     $2.5        $4.5        $6.0       $10.0
Engineering services                          $8.2        $6.5       $24.0       $14.9
Total revenue                                $20.6       $17.0       $53.1       $43.9
12-month rolling order book                  $43.0       $43.3
Profitability
Gross margin                                    25%         28%         25%         25%
Cash operating costs(1)                       $5.6        $6.6       $18.6       $21.8
Adjusted EBITDA(1)                            $0.5       ($0.9)      ($2.6)      ($8.4)
Net income (loss)                            ($2.4)      ($4.6)     ($10.7)     ($17.7)
Earnings per share                          ($0.02)     ($0.05)      ($0.8)     ($0.18)
Normalized net (loss)(1)                     ($2.4)      ($4.6)     ($10.6)     ($16.2)
Normalized net (loss) per share(1)          ($0.02)     ($0.05)      ($0.8)     ($0.17)
Cash
Cash used by operating activities
Cash operating income (loss)                 ($0.4)      ($2.3)      ($4.9)     ($11.7)
Working capital changes                      ($2.5)      ($2.5)      ($7.5)      ($4.8)
Cash used by operating activities            ($2.9)      ($4.8)     ($12.5)     ($16.5)
Cash reserves                                $32.7       $20.4
Cash reserves, net of operating line         $32.7       $17.7

(1) Non-GAAP (generally accepted accounting principles) measures.

For a more detailed discussion of Ballard Power Systems' third quarter 2014 results, please see the company's financial statements and management's discussion and analysis, which are available on the company's website, SEDAR and EDGAR.

Conference call

Ballard will hold a conference call on Wednesday, Oct. 29, 2014, at 8 a.m. PT (11 a.m. ET) to review its third quarter 2014 operating results. The live call can be accessed by dialling 1-604-638-5340. Alternatively, a live audio and slide webcast can be accessed through a link on Ballard's website. Following the call, the audio webcast will be archived in the quarterly results area of the investors section of Ballard's website.

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