Ballard Power Systems Inc. Price & Performance (BLDP)

Thank you, operator, and good morning. Welcome to Ballard's fourth quarter financial and operating results conference call. With us on today's call are Randy McEwen, Ballard's CEO and Kate Igbalode, Chief Financial Officer. [indiscernible] 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 newly filed annual information form and other public filings our complete disclaimer I'll now turn the call over to Randy. Thank you, Sumin, and welcome everyone to today's conference call. 2024 was a difficult year for the hydrogen fuel cell industry. Amidst prolonged policy uncertainty, a multiyear push out in development of hydrogen projects and the deployment of fuel cell applications, in a challenging funding environment and industry rationalization is underway. Notwithstanding this challenging industry backdrop, Ballard achieved important progress in 2024. And I want to highlight four key achievements. Relating to order intake, product shipments, operating cost reductions and product development milestones. First on order intake. Put simply, 2024 was a record breaking year for Ballard for two total new order intake for our power products. We secured new order intake of approximately $113,000,000 during 2024, punctuated by new order intake of $75,400,000 in Q4.

Both were records.

We ended the year with a record year ending order backlog of 173,500,000.0 an increase of 41% compared to the end of Q3. This order backlog includes a twelve month order book of $98,900,000 up 48% compared to the prior year. Now this outcome is particularly noteworthy given the challenging industry dynamics and the contrast with most of our competitors. Underscoring Ballard's technology and market position. We were front and center for most major commercial order announcements in the European and North American markets for PEM fuel cells in our target applications in 2024. We move next to product shipments. Delivery of fuel cell engines in 2024 grew by increasing from over 500 engines in 2023 to more than six sixty in 2024. This marked the fourth consecutive year of engine shipment growth representing a CAGR of approximately 40%. [indiscernible] 2024 deliveries of chem fuel cell engines accounted for over 90% of our total revenue in 2024. We shipped a total of 56.5 megawatts of fuel cell engines reflecting a 10% increase from 51.2 megawatts in 2023. These engine shipment milestones represent new records for Ballard and are critical proof points in our manufacturing execution capabilities. With our shipments in 2024, we continue to grow industry leading field deployments with valuable real world data on the performance of our PEM fuel cell engines in various applications and duty cycles.

This data helps us gain deeper insights and product performance in various operating conditions. This rich field data is another Ballard differentiator and helps inform our next generation product development programs, reliability and warranty models and field maintenance approach. We're pleased to report we had another successful year with our engines deployed with zero reported safety incidents and fuel cell engine availability around 99% in 2024. We move next to operating costs. In 2024, we observed further indicators of slowing hydrogen and fuel cell policy implementation and market adoption. We noted a material weakening of the financial position of certain customers, We also observed a continuing deterioration in the financing environment for our industry. As this context represents a significant headwind to our corporate growth plan, we initiated a global corporate restructuring in September to moderate our investment intensity and pacing to better align with delayed market adoption. We expect our restructuring to reduce total annualized operating costs by more than 30% with a substantial part of the anticipated reductions being realized in 2025. Our restructuring include a sizable workforce reduction, rationalization and consolidation of certain global operations and facilities and a reduction in certain planned capital expenditures. Given the revised industry outlook, there's no business case for production capacity expansion investments for the foreseeable future.

Accordingly, if deferred, any final investment decision on the proposed TEXA Gigafactory to 2026. Pending market adoption and demand indicators. The Weichai Ballard JV And as part of our global restructuring, we also reduced our corporate cost structure in China. And initiated a strategic review of the Weichai Ballard JV. Following this review, we will not be making any additional significant investments in China including in the Weichai Ballard JV for the foreseeable future. As we look to our long term strategic plan, we continue to believe hydrogen and PEM fuel cells will play an important long term role in decarbonizing select heavy mobility and stationary power applications. Believe there are certain use cases where customers will be attracted to the differentiated PEM fuel cell value proposition of long range fast refueling, heavy payload and zero tailpipe emissions. However, given near term market challenges, we failures, restructures and consolidation in 2025. We will continue to closely monitor various factors impacting the commercial adoption of our markets and products and continue to reassess our investment plans cost structure and cash usage based on these factors. We started 2025 with over $600,000,000 in cash and no bank debt. With our reductions in operating costs, and changes to our long term CapEx plans, we have no near or mid term financing requirements.

Let me repeat that. We have no near or mid term financing requirements. And now we move to product development milestones. 2024 was a banner year at Ballard for product innovation. Including our programs on product cost reduction. We made important progress against our technology and product roadmap with the execution of high impact development programs. We launched our ninth generation high performance fuel cell engine named FC Move XD resetting the industry standard for PEM fuel cell engine performance for heavy duty mobility. FC Move XD delivers significant improvements in reliability, durability, efficiency, power density, scalability, serviceability and total cost of ownership. We have programs underway to drive down the cost of next generation modules through simplifying system design reducing part count and joint supplier balance of plant component development. For our fuel cell stacks, we realized important milestones on our development programs for membrane electrode assemblies bipolar plates and stack compression hardware. We also successfully completed the initial development phase of Project Forge, Our high volume bipolar plate manufacturing line we've talked about before. This is a key achievement on our ongoing efforts to substantially lower bipolar plate costs and increased pipe plate manufacturing capacity without expanding our Burnaby manufacturing footprint.

Taken together, our product cost reduction initiatives are valuable levers to enable gross margin expansion. Next, I'd like to move to some comments on key verticals. Starting with bus. The bus vertical was a standout in 2024. Driven by growing demand for fuel cell buses in both Europe and North America. Industry wide, in Europe, three seventy eight fuel cell buses were registered in 2024, marking an impressive 82% increase from the previous year. Additionally, in The U. S, Federal Transit Administration loan awards was the most successful for fuel cell buses to date showing an increase of over 150% above the twenty twenty three year awards. Ballard's bus market revenue was approximately $44,000,000 in 2024, a 51% increase compared to 2023. And this represented over 60% of our total revenue for 2024. Bus engines account for almost half Indeed, over the past year, we've secured orders from seven bus OEMs for more than 1,600 fuel cell engines totaling around 130 megawatts. For city transit buses across Europe and North America. This is roughly triple the number of engines currently in operation today in those regions. Notably, these orders include the largest fuel cell bus contracts on record in both Europe and North America.

For example, early in 2024, Solera signed a long term supply agreement for 1,000 fuel cell engines. A new flyer in North America increased its order significantly doubling from the previous year with a purchase commitment for 200 fuel cell engines slated for delivery in the North American market in 2025. [indiscernible] also are collaborating with Gilek another leading heavy duty transit bus manufacturer in The U. S. To expand their zero bus lineup. Zero emission bus lineup. We move next to truck, Now the truck market is disappointed with adoption timelines being materially pushed out. There's also been several business failures of smaller integrators of zero emission trucks which has caused challenges in this market. While we continue engagements with multiple large truck OEMs, as they consider long term development and commercialization of fuel cell trucks. We don't anticipate any material volumes in the truck market in the near term. Turning next to rail. We're excited indeed very excited about the market which is a market defined by long, heavy, high powered trains operating on non electrified long distance routes. Hydrogen fuel cells present a transformative opportunity to replace traditional diesel engines with cleaner, low emission powertrain solutions. CPKC a leading North American rail operator is at the forefront of this innovation.

Leading the way in the adoption of fuel cell powered locomotives. In December, Ballard signed a landmark long term supply agreement with CPKC to provide 98 fuel cell engines totaling approximately 20 megawatts for delivery in 2025. This order represents the largest PEM fuel cell engine contract ever placed for use in freight locomotives globally. Underscoring the significant role Ballard is playing in this transition to sustainable and low emission freight rail We also marked additional engine sales for passenger rail applications with eight megawatts to Stadler to support low carbon transit in California rounding at a positive year of order intake for the rail vertical. Also want to highlight in Germany, six Siemens Mareo plus H trains powered by Ballard Fuel Cell Legends have recently entered into passenger service in the Berlin area. We moved to stationery and similar to the rail sector, while the stationary market remains in its early stages of adoption, we made significant progress and saw notable advancements throughout the year. We secured a 15 megawatt order from the repeat customer, specializing in renewable off grid power generation Additionally, we formed a strategic partnership partnership with Vertiv, to develop a backup power solution for data centers.

Co development work is underway and tracking to plan. In Q4, we divested our small backup power business which was non core to our strategy going forward. This allows us to focus more sharply on high power station applications aligned with our core product strategy. We next provide some comments during the of hydrogen policies in the dynamic U. S. Market. First, from September to January, the U. S. Department of Energy was extraordinarily busy with various funding awards related to the hydrogen industry. Including hydrogen hubs, grants, credits and loans. [indiscernible] And second, in early January, the Department of Treasury and IRS released at long last the final rules for the 45V Clean Hydrogen Production Tax Credit These rules were an improvement from the draft proposed in December 2023. But fortunately, following that and with a flurry of executive orders, from the White House, what we've seen is a temporary pause on IRA and IIJA funds. Including the issuance of new awards and disbursement of federal funds under open awards. Now we've seen a strong reaction to its proposed pause including legal challenges. These developments likely mean The U. S. Hydrogen fuel cell industry will experience continued policy uncertainty Of course, we're closely tracking the dynamic tariffs context and the implications for our business.

Now a few final comments before handing the call over to Kate to walk through our financial results. In 2024, while our financial results including revenue and margins, faced challenges from broader industry headwinds, we made significant progress in several important areas. Including order intake, product shipments, operating cost reductions and product milestones. We started 2025 with an exciting position for expected deliveries for the year. Our twelve month order book stood at $98,900,000 up 48% compared to the prior year. [indiscernible] Based on our order book and sales activity, we expect a solid year for production and shipment of fuel cell engines for the bus, rail, and stationary markets in 2025. [indiscernible] Our 2025 focus is on our customers and our controllables. Including prioritized product development and product cost reduction programs while also maintaining disciplined spending and balance sheet strength for long term competitiveness and sustainability. With that, I'll now pass the call over to Kate. Thank you, Randy. Amidst challenging market conditions, particularly the delay in the availability of low cost low carbon hydrogen which has led to a slower adoption of hydrogen technology compounded by materials removed from our order book that were communicated in Q3, Ballard reported $24,500,000 in revenue for Q4, reflecting a 42% decrease compared to the same period last year. [indiscernible] the full year, revenue totaled $69,700,000 representing a 32% decline compared to 2023.

Ballard reported a Q4 gross margin of negative 13%, an improvement of nine percentage points compared to Q4 twenty twenty three. However, lower annual revenue, and a product mix heavily weighted towards power products placed pressure on our gross margins for full year 2024, [indiscernible] decreased by 11 percentage points from 2023, reaching negative 32%. We reported total operating expenses of $161,300,000 for the year, which included a $17,000,000 restructuring provision of which $700,000 was incurred in the fourth quarter. Excluding these one time costs, underlying total operating expenses were 144,300,000.0 at the lower end of our guidance range of $145,000,000 to $165,000,000 Looking ahead to 2025, we expect total operating expenses to range between $100,000,000 and 120,000,000 representing an approximately 30% reduction or $45,000,000 from 2024. [indiscernible] 2024 capital expenditures were $27,600,000 also at the low end of our 2024 guidance range of $25,000,000 to $40,000,000 We expect 2025 capital expenditures to fall between $15,000,000 and 25,000,000 representing a reduction of approximately 38% or $12,500,000 from 2024. Our 2024 cash usage of $147,000,000 was down 10% from the prior year due to only a portion of the restructuring benefit being realized in year. We expect to see the full benefit of our cost reduction initiatives to be achieved in 2025 with lower overall operating costs and capital investment.

As of year end, we had approximately $6.00 $4,000,000 in cash a reduction of 20% from the previous year. Given the current macroeconomic environment, and in the context of our 2025 operating plan, we remain disciplined in our spending, ensuring we continue to invest strategically in our growth while maintaining a robust balance sheet. Accelerating our path to profitability and extending our cash runway. Randy highlighted, as a result of these initiatives, we have no near or mid term financing requirements. With that, I'll turn the call over to the operator for questions. Thank you.

We will now begin the question and answer session. First question comes from Rob Brown with Lake Please go ahead. Good morning.

Just starting with kind of the order activity, seems to be quite strong in the quarter. How does the order book look into 25? Is there is sort of continuing activity or is the uncertain weighing on things and it's too early to say kind of how 25 orders are shaping up? Yes, good question. I think first of all, perhaps comment just on the overall order backlog. So $173,500,000 I guess, notably roughly half of that is in the bus market. But interestingly, about 40% is in the rail market. And then when you look at the geographic split, roughly 60%, 40% Europe and North America, And so I do expect that split Europe North America likely to continue as we move forward. Terms of new order intake in 2025, there are a couple of opportunities we're working against right now that we would expect to close out likely in the April, May timeframe. But I would say whether it's April, May, September, etcetera, historically what we've seen is that Q4 is typically a large order intake month or quarter. We've seen that the last two years. And I do say there's volatility from quarter to quarter and we are seeing you kind of step back in 2024 and even a little bit in 2023, in Q4 of twenty twenty three, we are seeing some larger chunkier orders coming in and so that does wait the order book in those quarters when they land.

Our goal the last number of years has been to secure long term supply agreements kind of platform wins with customers. Lock them up, get our products into their infrastructure and into their platforms And in some cases, those orders will effectively be burnt off over the next year or two depending on how long those orders are for. So in some cases it will take a period of time before those customers come back for follow on orders. But we're very excited about the order intake we've really seen since Q4 twenty twenty three in Q1 twenty twenty four and Q4 twenty twenty four, and we expect to see a couple of good quarters this year as well. Okay, great. Thank you. And then on the stationary business, where do you are you seeing the demand growth? I know you talked about focusing the higher power up part of the market, but give some color on kind of the stationary market growth you're seeing?

Yes, that's been one of the markets that I think surprised us with some of the orders and some more significant orders from stationary in 2025. A couple of areas that we see is kind of I'll call it, weak grid or micro grid applications Think about things like filming sites, or event sites or construction sites where you need power and there may not be high grid reliability. Similarly, we're seeing opportunities for EV charging. Where there are some weak grid applications So there are a few customers that are pulling on those market opportunities and we're seeing demand from. And then the I think the data center market is still very early stage. We completed an important program or trial, I should say, with Microsoft and Caterpillar and now we're looking at next opportunities And of course, we've announced the AVERTIV development plan that we're working on. It's an interesting market opportunity, but we need to validate the value proposition for PEM fuel cells in that application.

So that's kind of the landscape We're not really focused on small stationary applications. We're really looking at things that are typically 100 kilowatts, 200 kilowatts and up. And we have some customers that are looking at opportunities in the one megawatt plus range as well. Yes. Thanks, Rob.

The next question comes from Bhushti Yilani with Jefferies. Please go ahead.

Hi, thanks for taking my question. Just I guess the first one on the platform customers that you talked about. Could you share what percentage of your backlog or order book is are those long term platform customers new customers?

Yes. The way I would think about it is that roughly if you kind of look at our revenue last year and our revenue this year and our order book, we have probably eight customers that account for 70% to 80% of the business And all of those eight customers are effectively repeat business. So we've done a very good job once we're getting into platforms to helping customers transition from development to trials and ultimately to more scale deployments. And so we've seen customers progress through that.

There are additional customers that are on that journey as well.

Understood. Thank you. And then just on the OpEx guide, the one hundred and one hundred and twenty could you talk about what are some of the levers you can pull to maybe kind of trend below that or towards the low end of the guide Basically, just trying to figure out if there's any more room stem the cash burn?

Yes. I think that's an excellent question, particularly in light of the restructuring in September. I think Ravi spoke to it very effectively in the script when we're looking at our overall program prioritization activities and the rationalization of our product portfolio. I think as we're moving kind of away from our legacy products and into our next generation of core products, that are going to be introduced in the later part of this year and into next year. I think that's really an opportunity for us to find additional efficiencies. Thank you.

The next question comes from Jordan Levi with Truist. Please go ahead.

Good morning, all and thanks for all the details. Just going back to some of the earlier comments on kind of cadence of orders in 4Q. Great to see that tick up. I'm just I think you mentioned that these timing of orders can be lumpy in 4Q. I'm just wondering if at least in The U. S, we should expect that to be a little more lumpy this time around given some of the expiration of the fuel cell ITC and some of that [indiscernible] I don't think so. I think when we look at kind of the key market we have in The U. S. Is the bus market and we continue to see strong interest in that marketplace. And we're going to be delivering 200 engines at least in that market this year. And we're working with the key players in that market and we're seeing that they've got sales pipelines that they're working against. And the funding that that typically relates to the low no funding is really kind of not in the hydrogen space, if you would, more in zero emission buses. So we're not seeing any retraction from that initiative. Of course, everything is very dynamic and things could change, but right now, we're seeing kind of consistent type of growth opportunities in The U. S. On the bus side.

Great. And then maybe just a follow-up on Project Forge. I know you all kind of continue to make good progress on that. Can you just remind us one maybe on the timing of that? And then two kind of what the ultimate kind of impact you all expect from a margin per volume ramp is sort of the biggest lever, but I know that this is kind of another way to chop at some of that margin here.

Yes. Well, I mean, this is a really critical initiative on the cost reduction for our bipolar plates, which we're looking at a potentially 70% cost reduction. This is pretty significant.

In terms of the timing, we've had some challenges with one supplier of equipment that's delayed a little bit a couple of months. They've did some testing and have completed some changes to that appointment and have since shipped those. So they've actually arrived here this week, some of the final pieces to that. So certainly the front end, they were kind of five key steps in our bipolar plate production All five steps have been reimagined with new processes and tuck times, but importantly with new equipment and a lot of automation. And so we'll see a pretty significant increase, a 5x increase in the ability to produce bipolar plate capacity while also seeing that reduction in cost That reduction in cost volume is not the key lever on that It's very much the new processes and new materials. And so we're expecting that to likely really move into production in 2026. As you think about the timing, the additional equipment that's arrived recently here will be commissioned certainly by June. We'll look at some optimization in Q3 and into Q4 and start to see some real benefits from this in the 2026 timeframe.

Sure.

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

Hi, good morning everyone. Thanks for taking the question. If I can start with the rationalization you're seeing in the market, wondering if you can talk about how that impacts your customers and supply chain? And maybe if we can start with the twelve month backlog, if there's any potential for that to be impacted by further rationalization?

Yes. Rupert, great question. Certainly, last year, we saw some dropout of the order book with rationalization We had a few customers last year that when insolvent filed for bankruptcy, you kind of look at the order book that we have this year and the customers we have in that order book, they don't have the same risk profile from a liquidity perspective that those customers some of those customers did last year. So we're not expecting to see that type of duplication. I do think when we look at kind of industry rationalization we have seen some suppliers showing a lot of concern, particularly those suppliers who have invested in production capacity expansion. They're now seeing very low utilization. And some of them thinking about the long term strategy and whether this should be core for them going forward. But overall, a number of the suppliers we've been working with, we've revalidated their commitment and feel pretty strong about key supplier list that we have right now. Not just in the stack material set, but also in the key balance of plant components. I think tariffs will pose another challenge for some supply front, but I think we've done quite a bit of work on that front.

In terms of just the other aspect on industry rash This on the competitive side, does offer opportunity. And what we're seeing is that probably about nine, ten companies in the space went bankrupt last year. We obviously had another one filing for bankruptcy overall in in 2025 already. That's not good for the industry. It's not good for overall landscape. But of course, it does mean there are a few players that we were competing with before that really had very de minimis market share and were putting out very low prices to try and grab market share. We've seen some of those players fall off in 2024. We actually kind of look at a five year outlook on what does the competitive landscape look like five years from now. And with the investments we're planning, with the position we have currently we feel very strongly about our five year outlook in terms of our competitive positioning.

Great. Thanks for the color. And a quick follow-up on that. Does that open up any M and A opportunities or any those competitors that are falling off that maybe have some interesting technology opportunities for you?

Yes. In the cases of some companies that have filed for bankruptcy and solvent [indiscernible] additive to our business.

One of the things we are loathed to do is make an investment that would increase our cash burn.

And so certainly as we look at M and A opportunities in a market that's going through rationalization and we haven't seen a lot of consolidation, but I expect to see some happening. One of the highest criteria for us to assess any opportunity is whether it's cash flow positive contributing as opposed to cash burning.

The next question comes from Martin Malloy with Johnson Rice. Please go ahead.

Good morning. Thank you for taking my question. Just a bigger picture question. Would love to get your thoughts as you look out on availability of hydrogen for your customers and how that might change going forward?

Particularly interested in your thoughts about gray and blue hydrogen potentially becoming more available are some larger projects in that area.

You could just maybe offer your thoughts on that and how you see that developing in the timetable?

Yes, Martin, thanks for the question. We actually spent quite a bit of time in the last sixty days on some European customer trips and industry events and then at the Fuel Cell and Hydrogen Expo in Tokyo, recently as well and have the opportunity to meet with a lot of partners and customers and industry players and exchange thoughts on what's happening in the industry in 2024, what's happening in 2025, or the key trends. And one of the big topics of discussion, of course, Martin, is availability of low cost low carbon hydrogen But as you point out, there's an increasing perspective including in some markets where we we saw really reluctance on looking at what I would characterize as blue and gray hydrogen market opportunities as well. So I do think as you think about the Europe The U. S. Context right now with a new leadership there, There is far more support, I would say, for blue hydrogen than we've seen probably a few years ago. And to us, particularly between now and 02/1930, 02/1935 timeframe, the color of the hydrogen is not too critical for us.

Of course, we'd like to see lower emissions. But what is important to us is getting deployment of vehicles and stationary power applications with low cost hydrogen and seeing over the longer term a transition to much lower forms of hydrogen in terms of carbon intensity. I do think the next two or three years will be important on how the hydrogen, the clean hydrogen production tax credit plays out. In The U. S. Marketplace. But we're seeing and just had some discussions with the a key industry participant yesterday on the dynamics in that market There's certainly development going on on that is associated with blue hydrogen opportunities. And I think there's some progress being made on CCUS, and SaaS and certainly some applications where you could see some offtake So I would say kind of mixed report overall. Policies aren't as strong as we'd like to see.

The financing environment is challenged when policy is uncertain. But we are seeing more opportunities on the gray and blue hydrogen side. And in terms of green hydrogen coming online, I do think that the revised forecast put out by the Hydrogen Council in the late fall are kind of forecasts that we think are credible forecasts for 02/1930 and 02/1935.

Great. I appreciate your thoughts. Thank you.

Yes. Thank you.

The next question comes from Craig Irwin with Rob Capital Partners. Please go ahead.

Good morning and congratulations on strong bookings, Randy.

Nice to see the progress there.

So, one thing I was hoping you might be able to do is kind of bridge the disclosures around shipments in '25 versus '24. So today, you said '24 had six sixty engines shipped representing 56 megawatts and that was up 30% over '23. Last year, you said five forty modules and 74 megawatts. Obviously, the module definition is a little bit broader.

Can you maybe close the gap and help us understand if we use the wider definition, what the megawatt ships could have been for 2024? Is this still similar to a 30% growth rate? Or is there something else here that maybe you're deemphasizing to pursue these large orders you're booking? Yes. So Craig, thanks for the question. A couple of things. First of all, we're providing two metrics because they're both critically important. So one is the engine unit volumes And certainly, when we look at our revenue forecast internally, for example, at 2028, 2023, etcetera, The revenue lines are important. But to me, I'm always looking at the engine unit volumes line to see how that is going to impact supply chain cost reduction opportunities, etcetera.

What you do see in terms of the difference between the number of engines that we ship versus the megawatts is which engines we're shipping. So we have 70 kilowatt engines which typically are being shipped for the European bus market for 12 meter buses. We have 100 kilowatt engines that are typically being shipped to The U. S. Bus market plus the European 18 meter bus market.

Then you have 200 kilowatt engines that we're shipping for a variety of applications. Originally designed for marine but we've been able to use the container package solution quite elegantly for some other market applications including for rail, and for stationary power market applications as well. So that's typically what's driving the difference. Think what you'll see this year is we're going to have quite a few 200 kilowatt engine shipping in 2025 given the rail order we have from CPKC, So the total megawatts relative to the number of units will be disproportionately higher, I would say, in 2025 based on that driver. They're both critical numbers because as you scale up the megawatts, certainly that's improving our leverage on the MEAs. Bipolar plates and stacks overall.

And then as you scale up the number of unit volume units on modules, that's really helping on components that go into our engines as well. Understood. Understood.

Then as I look at the forecast out there for adjusted EBITDA for this year, It seems you're positioned for some fairly dramatic improvement over the last couple of years.

Your restructuring activities and then the progress you've made on gross margins, But the point of uncertainty that most of us are looking at right now is not how effectively you budget your frictional costs, right? You've done a good job there. Is gross margin. So maybe can you unpack the puts and takes as far as the gross margin outlook for this year?

Is it feasible for us to see positive gross margins before the end of the year? Is that really an operating priority right now? Given that you are serving several customers at the early stage of a of a multiyear ramp? Yes. So great question and good observation. Before I talk about margins and Kate can supplement as well, just to comment on the cash operating costs. I appreciate the commentary that we've made some progress there. We're still looking though at opportunities additional cost reduction, particularly we're tracking the mark adoption indicators very closely And if we see changes there that we think require changes in our cost structure, we'll take action as well.

When we look at gross margin, and I want to talk about contribution margin first, a couple key really important levers there are pricing and then our total variable costs.

And we have spent quite a bit of time assessing both pricing and total variable costs.

And I think we have strategies on how to improve in some cases or hold the line in some cases on the pricing side. And importantly, reducing our total variable cost on existing modules that we're shipping in 2025 and 2026 etcetera, we have 11 key initiatives underway here that will improve contribution margins in 2025 and into 2026. So I do think we're going to see a nice movement on contribution margins. And it'll drop down to gross margins as well. I did want to highlight though on the gross margin front, the fixed production overhead costs we have there's fairly limited levers to