Mr. Randy MacEwen reports

BALLARD REPORTS THIRD QUARTER 2016 RESULTS

Ballard Power Systems Inc. has released its consolidated financial results for the third quarter ended Sept. 30, 2016. All amounts are in U.S. dollars unless otherwise noted and have been prepared in accordance with international financial reporting standards (IFRS).

"We had a solid Q3, highlighted by continued year-over-year and sequential quarterly revenue growth and gross margin expansion," said Randy MacEwen, Ballard's president and chief executive officer. "Revenue of $20.6-million in Q3 represented a year-on-year increase of 29 per cent, driven by a 54-per-cent increase from our power products platform. We also achieved 31-per-cent gross margin in Q3, up six points from Q3 2015."

Mr. MacEwen continued: "Ballard achieved important progress on a number of strategic fronts during the quarter as well. On our China strategy, we announced and closed a manufacturing licence and joint venture transaction valued at a minimum of $170-million over five years and entered into a strategic alliance framework agreement and MOU with Broad-Ocean. Audi AG accelerated certain development activities under our long-term technology solutions program. In addition, we signed an agreement with Toyota Tsusho for the distribution of Ballard products in Japan."

Tony Guglielmin, chief financial officer, added: "We expect to end 2016 with year-over-year revenue growth and a strengthened balance sheet. On revenue, we anticipate significant full-year top-line growth given performance to date and the strength of our order book. On cash, our balance sheet was appreciably strengthened in Q3, as we ended the quarter with $68.1-million in cash reserves, fortified during the quarter by the successful close of a $28.3-million strategic investment by Broad-Ocean. Subsequent to the quarter, we also closed our joint venture transaction with Synergy, with payments totalling $10.9-million received as of closing."

Third quarter 2016 financial highlights (all comparisons are with third quarter 2015 unless otherwise noted):

• Total revenue was $20.6-million in the quarter, an increase of 29 per cent resulting primarily from growth in heavy-duty-motive product shipments and the addition of portable power.
• The power products platform generated revenue of $14.7-million in the quarter, an increase of 54 per cent:
  • Heavy-duty-motive revenue was $7.5-million, an increase of 34 per cent from third quarter last year, resulting from shipments of fuel cell stacks and power modules to fulfill orders in support of clean energy buses in China, as well as power module shipments to the United States.
  • Revenue from the new portable power market was $3.1-million, driven by delivery of Squad Power Manager (SPM-622) special operations kits to end customer U.S. Special Operations Command under the Nett Warrior program.
  • Material-handling revenue was $3.3-million, a decrease of $100,000 or minus 2 per cent, due primarily to slightly higher stack shipments to plug power, offset by a lower average selling price resulting from product mix.
  • Backup-power revenue was $800,000, an increase from $500,000 in third quarter 2015, due to an increase in the shipment of stacks to CHEM in Taiwan for backup-power systems.
• The technology solutions platform generated revenue of $6.0-million in the quarter, a decrease of 9 per cent due to a minor decline in Volkswagen service revenues primarily as a result of program timing.
• Gross margin was 31 per cent in third quarter, an improvement of six points due primarily to higher revenue and a shift in product mix toward higher-margin heavy-duty-motive and portable-power products.
• Cash operating costs (2) were $8.4-million in the quarter, a 25-per-cent increase primarily due to the inclusion of the Protonex subsidiary operating costs.
• Adjusted earnings before interest, taxes, depreciation and amortization (2) were ($1.5-million) in third quarter, an improvement of 37 per cent, due to increases in both revenue and gross margin.
• Net income was ($4.2-million) in the quarter, an increase in loss of 1 per cent from third quarter 2015.
• Adjusted net income (2) was ($3.9-million), an increase in loss of 6 per cent.
• Adjusted net loss per share (2) was (two cents), a 10-per-cent improvement.
• Cash used by operating activities was ($500,000), an improvement of 88 per cent, reflecting cash operating loss of ($2.4-million) and use in working capital of $1.9-million.
• Cash reserves were $68.1-million at Sept. 30, 2016, which includes $28.3-million received from the strategic equity investment in Ballard made by Zhongshan Broad-Ocean Motor Co. Ltd. Subsequent to the quarter, Ballard closed the transaction with Guangdong Nation Synergy Hydrogen Power Technology Co. Ltd. to establish a joint venture for fuel cell stack production in China and received related cash payments totalling $10.9-million as of closing.

Third quarter 2016 sales and operations highlights:

China strategy:

• Closed an equity investment in Ballard made by Broad-Ocean through a subscription and purchase of 17.25 million Ballard common shares issued from treasury at a price per share of $1.64 (U.S.) (based on a 20-day volume-weighted average price calculation). Broad-Ocean is now Ballard's largest shareholder, with a 9.9-per-cent ownership position.
• Signed a memorandum of understanding with Broad-Ocean, having a goal of producing fuel cell modules for use in buses and commercial vehicles in select cities and regions in China. Key regions contemplated in the MOU include Wuhan (the capital of Hubei province), Chongqing (or Chengdu, the capital of Sichuan province), Shandong province and Beijing (the Chinese national capital city). The MOU is the result of a previously announced strategic collaboration framework agreement entered into between Ballard, Broad-Ocean and Synergy.
• Signed definitive agreements with Synergy for the establishment of an FCvelocity-9SSL fuel cell stack production operation in China, to power buses and commercial vehicles. This transaction closed subsequent to the quarter, on Oct. 25. The agreements establish a minimum transaction value of approximately $170-million over five years, representing the largest fuel cell transaction in Ballard's history. The deal includes the following key terms:
  • Ballard is expected to receive $20-million in technology solutions revenue for training and support.
  • Ballard will be the exclusive supplier of membrane electrode assemblies (MEAs) for each fuel cell manufactured in China, with minimum annual MEA take-or-pay volume commitments yielding a value of at least $150-million over the five-year term from 2017 to 2021.
  • FCvelocity-9SSL fuel cell stacks will be manufactured through a joint venture established in China, with Ballard holding a 10-per-cent ownership position in return for a contribution of approximately $1.0-million.
• As of closing, Ballard received payments totalling $10.9-million, primarily related to the fuel cell stack assembly licence and technology transfer agreements.
• Hosted the party secretary of China's Guangdong province, Hu Chunhua, and his delegation on a tour of the future site of Ballard's joint venture with Synergy in the Foshan (Yunfu) industrial transfer park in Yunfu, Guangdong province.
• Announced that the aforementioned joint venture will provide fuel cell stacks to Synergy to be used in the assembly of engines for 10,000 commercial fuel cell vehicles ordered by Broad-Ocean from Chinese automotive OEMs (original equipment manufacturers) Dongfeng Special Vehicles and FAW. Ballard will provide all MEAs for these fuel cell stacks on an exclusive basis and will receive licensing revenue and royalties in relation to engine assembly and deployment.
• Signed a definitive agreement with Synergy for a technology solutions transaction to enable Synergy to manufacture and sell Ballard's direct hydrogen FCgen-H2PM fuel cell backup power systems in China. Synergy prepaid a $2.5-million upfront licence and technology services fee in second quarter and will make additional royalty payments to Ballard for each unit sold, subject to annual minimums, starting in 2018. Ballard will also be the exclusive supplier of air-cooled fuel cell stacks to Synergy for use in FCgen-H2PM systems.
• Received a purchase order from Shenzhen UpPower Technology Co. Ltd., a fuel cell bus systems integrator in China, for the supply of 10 FCveloCity-MD 30-kilowatt fuel cell power modules. UpPowerTech plans to integrate the modules into clean energy buses manufactured by Gaungxi Yuanzheng New Energy Co. Ltd. for deployment in the city of Nanning in the province of Guangxi.
• Announced commissioning and deployment of the first 12 fuel cell buses powered by Ballard FCveloCity power modules in the city of Foshan, as part of an order from Synergy for 300 power modules, that was announced in September, 2015. The 11-metre buses were manufactured by Foshan Feichi Bus, with system integration managed by Shanghai Reinventing Fire Technology Co. Ltd. and with Zhangjiagang Furui Special Equipment Co. Ltd., expected to provide fuelling infrastructure.
• Subsequent to the quarter, completed the commissioning and deployment of 12 fuel cell buses in the city of Yunfu, bringing the total number of fuel cell buses deployed to 24, as part of the Chinese government's plan to address air quality issues in urban centres.

Other commercial progress:

• Received purchase orders from automotive OEM Audi AG to accelerate certain key development activities under the current long-term technology solutions program with Volkswagen Group. Volkswagen Group recently transferred responsibility for fuel cell development to its Audi luxury brand and is also accelerating the timeline for series production, with a focus on reconfiguration of the current fuel cell stack and acceleration in the development of a next-generation fuel cell stack.
• Signed a distribution agreement with Toyota Tsusho for the Japanese market. Toyota Tsusho will distribute Ballard products within the Toyota group of companies and to other companies in Japan.
• Ballard subsidiary Protonex received notification from the U.S. Department of Commerce that its family of fuel cell propulsion systems is now designated as EAR99 compliant (export administration regulation 99), creating a path for commercial export and deployment in a variety of civilian unmanned vehicle applications. These systems are an extremely strong fit for both civilian and military uses, offering a number of advantages over incumbent power solutions for all types of unmanned vehicles.

Third quarter 2016 corporate platform highlight:

• Changed the name of Ballard's Denmark subsidiary from Dantherm Power A/S to Ballard Power Systems Europe A/S. The name change reflects an expanded role being undertaken by the subsidiary in support of fuel cell market development and customer support throughout Europe.

                                     THIRD QUARTER FINANCIAL SUMMARY
                                        (millions of U.S. dollars)

                                                         Three months ended           Nine months ended 
                                                              Sept. 30,                   Sept. 30,
                                                         2016          2015          2016          2015
Growth
Fuel cell products and services revenue (1)
Heavy duty motive                                        $7.5          $5.6         $15.5          $7.9
Portable power                                           $3.1           n/a          $8.5           n/a
Material handling                                        $3.3          $3.4          $9.9          $8.6
Backup power                                             $0.8          $0.5          $2.8          $4.1
Subtotal                                                $14.7          $9.5         $36.7          20.7
Technology solutions                                     $6.0          $6.5         $17.9         $15.8
                                                    =========     =========     =========     =========
Total fuel cell products and services revenue           $20.6         $16.0         $54.6         $36.5
                                                    =========     =========     =========     =========
Profitability
Gross margin $                                           $6.4          $4.0         $14.8          $6.2
                                                    =========     =========     =========     =========
Gross margin %                                             31%           25%           27%           17%
                                                    =========     =========     =========     =========
Cash operating costs (2)                                 $8.4          $6.7         $26.2         $21.3
                                                    =========     =========     =========     =========
Adjusted EBITDA (2)                                     ($1.5)        ($2.4)       ($11.6)       ($12.3)
                                                    =========     =========     =========     =========
Net income (loss) (3)                                   ($4.2)        ($4.1)       ($20.0)        ($4.5)
                                                    =========     =========     =========     =========
Earnings per share                                     ($0.03)       ($0.03)       ($0.13)       ($0.03)
                                                    =========     =========     =========     =========
Adjusted net (loss) (2)                                 ($3.9)        ($3.6)       ($18.4)       ($18.9)
                                                    =========     =========     =========     =========
Adjusted net (loss) per share (2)                      ($0.02)       ($0.03)       ($0.11)       ($0.14)
                                                    =========     =========     =========     =========

For a more detailed discussion of Ballard Power Systems' third quarter 2016 results, please see the company's financial statements and management's discussion and analysis, which are available at the Ballard website, SEDAR and EDGAR.

Conference call

Ballard will hold a conference call on Oct. 26, 2016, at 8 a.m. Pacific Time (11 a.m. Eastern Time), to review its third quarter 2016 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 investor presentations and events area of the investors section of Ballard's website.

(1) The company reports its results in the single operating segment of fuel cell products and services. Its fuel cell products and services segment consists of the sale and service of fuel cell products for its power product markets of heavy-duty motive (consisting of bus and tram applications), portable power, material handling and backup power, as well as the delivery of technology solutions, including engineering services and the licence and sale of its extensive intellectual property portfolio and fundamental knowledge for a variety of fuel cell applications.

(2) Note that cash operating costs, earnings before interest, taxes, depreciation and amortization, adjusted EBITDA, and adjusted net loss are non-generally accepted accounting principle measures. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and therefore are unlikely to be comparable with similar measures presented by other companies. Ballard believes that cash operating costs, EBITDA, adjusted EBITDA and adjusted net loss assist investors in assessing Ballard's operating performance. These measures should be used in addition to, and not as a substitute for, net income, cash flows, and other measures of financial performance and liquidity reported in accordance with GAAP. For a reconciliation of cash operating costs, EBITDA, adjusted EBITDA and adjusted net loss to the consolidated financial statements, please refer to Ballard's management's discussion and analysis.

Cash operating costs measure operating expenses, excluding stock-based compensation expense, depreciation and amortization, impairment losses or recoveries on trade receivables, restructuring charges, acquisition costs, and financing charges. EBITDA measures net loss attributable to Ballard Power Systems, excluding finance expense, income taxes, depreciation of property, plant and equipment, amortization of intangible assets, and goodwill impairment charges. Adjusted EBITDA adjusts EBITDA for stock-based compensation expense, transactional gains and losses, asset impairment charges, finance and other income, and acquisition costs. Adjusted net loss measures net loss attributable to Ballard from continuing operations, excluding impairment losses or recoveries on trade receivables, transactional gains and losses, asset impairment charges, and acquisition costs.

(3) Includes gain of $14.2-million in the first quarter of 2015 on sale of intellectual property to Volkswagen Group.

We seek Safe Harbor.