Mr. John Sheridan reports

BALLARD REPORTS SECOND QUARTER 2014 RESULTS

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

John Sheridan, president and chief executive officer, said: "Our Q2 results continue the performance trend established in the first quarter, with year-over-year progress in all key metrics, including a 27-per-cent increase in revenue and improvements of three points in gross margin, 5 per cent in cash operating costs and 63 per cent in adjusted EBITDA. With this momentum and our strengthening sales pipeline, we are well positioned to deliver a strong second half of 2014, consistent with our full-year guidance."

Second quarter 2014 highlights

Growth (all comparisons with second quarter 2013 unless otherwise noted):

• Second quarter revenue improved 27 per cent to $18.5-million. Second quarter revenue also improved 32 per cent from the previous quarter. Total revenue of $32.5-million for the first half of the year represents approximately 40 per cent of expected 2014 revenue consistent with the company's plan.

Telecom backup power:

• Revenue was $3.7-million, a decrease of 12 per cent. The company continues to expect significant growth in the second half of the year, given the strengthening sales pipeline, as well as anticipated licensing revenue from the Azure Hydrogen transaction announced in June.
• Update:
• • June announcement of a definitive agreement with Azure Hydrogen in China for a licence to assemble ElectraGen systems in that market, with a 2014-2015 value of approximately $6-million Ballard is to be the exclusive supplier of subsystems, including fuel cell stacks and fuel processors, and will receive royalty payments for system sales, if Azure is successful with its business plan.
  • The strengthening sales pipeline is underpinned by:
  • • Opportunities in the Asia region, including India, China, Indonesia, Myanmar, the Philippines and Japan;
    • Opportunities in other geographic regions, including the United States, Australia, South Africa, Europe and the Caribbean.

Material handling:

• Revenue was $4.6-million, an increase of 209 per cent, driven by an increase in fuel cell stack orders from Plug Power together with $500,000 of revenue from the licence of intellectual property to M-Field Energy Corp.
• Update:
• • Continued expansion of Plug Power's order book, with the announcement of orders from Walmart for 286 GenDrive systems, from Central Grocers for 182 GenDrive systems and from Ace Hardware.

Development-stage markets:

• Revenue was $1.8-million, a decrease of 44 per cent, due primarily to a year-over-year reduction in bus module shipments.
• Update:
• • Two bus modules were shipped in the quarter: an FCvelocity-HD6 to BAE Systems for deployment in an El Dorado National bus for the University of California's Irvine campus; and an FCvelocity-HD7 prototype to Solaris Bus and Coach of Poland for a bus to be deployed in Hamburg, Germany.
  • Revenue of $1.0-million was booked in relation to the China bus module assembly licensing contract, signed in September, 2013.
  • Following the quarter, an FCvelocity-HD7 prototype was ordered by New Flyer Industries for delivery later this year, to be deployed in a U.S. fuel cell bus.

Engineering services:

• Revenue was $8.4-million, an increase of 46 per cent, reflecting the growth potential for engineering services.
• Revenue in the quarter was driven by:
• • $5.4-million from the long-term contract with Volkswagen AG;
  • $1.5-million from other automotive contracts;
  • $1.5-million from non-automotive contracts, including bus and backup power activities for the China market and microfuel cell development for the U.S. market.

Path to profitability (all comparisons with second quarter 2013 unless otherwise noted):

• Gross margin of 25 per cent, a three-point improvement;
• Higher gross margin expected in the second half of 2014, based on an expectation of increasing total revenue and an increasing proportion of licensing revenue in the product mix;
• Cash operating costs of $6.7-million, an improvement of 5 per cent, despite one-time legal and transaction costs associated with licensing contracts with United Technologies Corp., Azure and M-Field;
• Adjusted earnings before interest, taxes, depreciation and amortization of ($1.2-million), an improvement of 63 per cent;
• Net income of ($4.5-million) or (three cents per share), improvements of 14 per cent and 35 per cent, respectively;
• Cash used by operating activities of ($2.9-million), an improvement of 37 per cent, driven by improvements in both cash operating loss, as well as working capital changes;
• Cash reserves of $36.4-million, with zero balance outstanding on the company's bank operating line.

Business outlook for 2014

The company has confirmed its full-year guidance for:

• Revenue growth of approximately 30 per cent;
• Approximately break-even adjusted EBITDA.

                SECOND QUARTER 2014 FINANCIAL HIGHLIGHTS
                       (millions of U.S. dollars) 

                                  Three months ended      Six months ended 
                                         June 30,              June 30,
                                     2014       2013       2014       2013
Growth
Revenue
Telecom backup power                 $3.7       $4.3       $6.6      $10.6
Material handling                    $4.6       $1.5       $6.6       $2.4
Development-stage markets            $1.8       $3.1       $3.5       $5.5
Engineering services                 $8.4       $5.7      $15.8       $8.4
Total revenue                       $18.5      $14.6      $32.5      $26.9
Twelve-month rolling order book     $44.8      $42.9
Profitability
Gross margin                           25%        22%        25%        23%
Cash operating costs                 $6.7       $7.1      $13.0      $15.3
Adjusted EBITDA                     ($1.2)     ($3.3)     ($3.0)     ($7.5)
Net income (loss)                   ($4.5)     ($5.2)     ($8.3)    ($13.1)
Earnings per share                 ($0.03)    ($0.05)     ($0.7)    ($0.14)
Normalized net (loss)               ($4.5)     ($4.8)     ($8.1)    ($11.6)
Normalized net (loss) per share    ($0.03)    ($0.05)     ($0.7)    ($0.12)

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

Conference call

Ballard will hold a conference call on July 30, 2014, at 8 a.m. PDT (11 a.m. EDT) to review its second 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 home page. Following the call, the audio webcast will be archived in the quarterly results area of the investor section of Ballard's website.

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