Revenues of $38.3 million compared to $16.4 million
Gross loss of $(6.1) million compared to $(7.3) million
Loss from operations of $(35.9) million compared to $(28.2) million
Net loss per share was $(0.09) compared to $(0.08)
FuelCell Energy, Inc. -- a global leader in decarbonizing power and producing hydrogen through its proprietary, state-of-the-art fuel cell platforms to enable a world empowered by clean energy -- reported financial results for its second quarter ended April 30, 2023.
“For the second quarter of fiscal year 2023, we reported strong revenue growth, with revenue more than double that of the comparable prior year quarter,” said Mr. Jason Few, President and Chief Executive Officer. “Revenue growth in the quarter was largely driven by revenues from long-term service agreements, primarily relating to the new module exchanges at the plant owned by Korea Southern Power Company (“KOSPO”) in Korea that were completed during the quarter.”
“The Toyota project in Long Beach, for which directed biogas was secured during the quarter via a contract with Anew Climate acting as fuels marketer to Anaergia Inc., is progressing towards achieving commercial operations, and we anticipate that commercial operations will be achieved in our third fiscal quarter. In Derby, Connecticut, both projects being constructed are advancing on schedule, and we expect to achieve commercial operations on the combined 16.8 megawatt installations in the fourth quarter of calendar year 2023,” continued Mr. Few. “We are progressing our manufacturing of solid oxide platforms, including commencing manufacturing of the solid oxide electrolysis unit to be delivered to Idaho National Laboratory, while also working on expanding our footprint in our Calgary facility. We continue to make strategic investments in R&D to support the commercial development of our solid oxide platform and carbon capture solutions, both of which are cornerstone solution offerings under our growth strategy.”
Mr. Few added, “Also during the second quarter, we received an order from an affiliate of ExxonMobil and ExxonMobil Technology and Engineering Company (“EMTEC”) for fuel cell equipment and tooling to be acquired from third-party vendors and engineering support from the Company that would be required in connection with the implementation of a potential carbon capture demonstration. We continue to advance our testing work under our Joint Development Agreement with EMTEC and gain confidence in our carbon capture technology, and we look forward to the expected future commercialization of our technology, which we believe will demonstrate the ability of our technology to address one of the largest environmental challenges of today. In addition, we recently announced that we have executed a memorandum of understanding with Chart Industries to develop opportunities that combine the companies’ complementary strengths in delivering solutions targeting carbon capture, as well as generation and storage of gaseous or liquified hydrogen.”
“We ended the quarter on April 30, 2023, with a total cash and short-term investment position of over $350 million,” added Mr. Few. “Subsequent to the end of the quarter, we further bolstered our balance sheet by entering into an $87 million non-recourse project financing facility through a multi-bank financing agreement with Investec Bank plc, Bank of Montreal, Connecticut Green Bank, Liberty Bank and Amalgamated Bank. The net proceeds from this transaction, including the release of restricted and unrestricted reserve accounts and cash reserves at closing, added approximately $46.1 million to the Company’s unrestricted cash position after repayment of existing project and partial corporate debt obligations. We believe that the seven-year term of the term loan may help the Company to navigate the current volatility in the debt markets and that the addition of new banking relationships will help us secure additional project financing in the future at competitive pricing.”
Mr. Few concluded, “Commercially, we’ve seen a number of trends that drive our confidence in our strategy. For example, customers are increasingly expressing interest in our carbon separation and utilization / capture capabilities, driven by their sustainability goals and effective carbon taxes such as the European Union’s (EU) Carbon Boarder Adjustment Mechanism, and supported by important government policies in countries around the world, such as the Inflation Reduction Act in the United States and the Green Deal in the European Union. We are excited about the significant potential we see to work with our customers to employ these technologies, helping them meet their objectives and delivering on FuelCell Energy’s purpose of enabling a world empowered by clean energy.”
Second Quarter of Fiscal 2023 Results
Note: All comparisons between periods are between the second quarter of fiscal 2023 and the second quarter of fiscal 2022, unless otherwise specified.
Second quarter revenues of $38.3 million represent an increase of 134% from the comparable prior year quarter, driven by higher service agreements revenues, partially offset by slightly lower Advanced Technologies contract revenues recognized and lower generation revenues recognized for the second quarter of fiscal 2023 as discussed below.
Service agreements revenues increased to $26.2 million from $2.6 million. Service agreements revenues recognized during the second quarter of fiscal 2023 were primarily driven by new module exchanges at the plant owned by KOSPO in Korea, which achieved commercial operations in fiscal year 2018. The increase in revenues for the second quarter of fiscal 2023 is primarily due to the fact that new module exchanges occurred during the quarter, while there were no new module exchanges during the comparable prior year quarter. The Company expects a lower level of module exchanges during the balance of the fiscal year.
Generation revenues decreased 6.7% to $8.4 million from $9.1 million, which is primarily a result of the timing of revenue recognition for the sale of renewable energy credits compared to the comparable prior year period.
Advanced Technologies contract revenues decreased 20.8% to $3.7 million from $4.7 million. Compared to the second quarter of fiscal 2022, Advanced Technologies contract revenues recognized under the Joint Development Agreement with EMTEC were approximately $0.3 million higher during the second quarter of fiscal 2023 and revenue recognized under government and other contracts were approximately $1.3 million lower during the second quarter of fiscal 2023 as a result of the allocation of engineering resources during the period.
Gross loss for the second quarter of fiscal 2023 totaled $6.1 million, compared to a gross loss of $7.3 million in the comparable prior year quarter. The gross loss decreased for the second quarter of fiscal 2023 due to favorable service agreement gross margins, partially offset by higher gross loss for generation resulting from a project asset impairment and a decrease to gross profit for Advanced Technologies.
Operating expenses for the second quarter of fiscal 2023 increased to $29.8 million from $20.9 million in the second quarter of fiscal 2022. Administrative and selling expenses were higher during the second quarter of fiscal 2023 compared to the second quarter of fiscal 2022 primarily due to an increase in headcount. Research and development expenses increased to $14.7 million during the second quarter of fiscal 2023 compared to $7.7 million in the second quarter of fiscal 2022. The increase in research and development expenses is primarily due to an increase in spending on the Company’s ongoing commercial development efforts related to our solid oxide power generation and electrolysis platforms and carbon separation and carbon capture solutions compared to the comparable prior year period.
Net loss was $(33.9) million in the second quarter of fiscal 2023, compared to net loss of $(30.1) million in the second quarter of fiscal 2022.
Adjusted EBITDA totaled $(26.0) million in the second quarter of fiscal 2023, compared to Adjusted EBITDA of $(21.2) million in the second quarter of fiscal 2022. Please see the discussion of non-GAAP financial measures, including Adjusted EBITDA, in the appendix at the end of this release.
The net loss per share attributable to common stockholders in the second quarter of fiscal 2023 was $(0.09), compared to $(0.08) in the second quarter of fiscal 2022.
Cash, Restricted Cash and Short-Term Investments
Cash and cash equivalents, restricted cash and cash equivalents, and short-term investments totaled $353.5 million as of April 30, 2023, compared to $481.0 million as of October 31, 2022. Of the $353.5 million total as of April 30, 2023, cash and cash equivalents and restricted cash and cash equivalents totaled $277.1 million as of April 30, 2023, and short-term investments totaled $76.4 million. Short-term investments represent the amortized cost of U.S. Treasury Securities purchased by the Company during the first and second quarters of fiscal year 2023 as part of the Company’s cash management optimization effort, all of which are expected to be held to maturity.
As of April 30, 2023, unrestricted cash and cash equivalents totaled $246.8 million compared to $458.1 million as of October 31, 2022.
As of April 30, 2023, restricted cash and cash equivalents totaled $30.2 million, of which $4.8 million was classified as current and $25.5 million was classified as non-current, compared to $23.0 million of restricted cash and cash equivalents as of October 31, 2022, of which $4.4 million was classified as current and $18.6 million was classified as non-current.
As of April 30, 2023, our short-term investment in U.S. Treasury Securities maturing in 2023 totaled $76.4 million, and there was no comparable short-term investment as of October 31, 2022.
As previously disclosed, subsequent to the end of the quarter, on May 19, 2023, the Company closed on an $87 million non-recourse project financing facility. In addition to diversifying the Company’s access to capital, the proceeds from this facility were used to repay some of the Company’s existing indebtedness and may be used to accelerate commercialization of its hydrogen fuel cell technologies, for strategic initiatives, and for other general corporate purposes. Net proceeds to the Company from this transaction following repayment of existing project debt and partial corporate debt obligations, as well as the release of restricted and unrestricted reserve accounts and cash reserves at closing, were approximately $46.1 million of unrestricted cash and $14.5 million of restricted cash to fund performance reserves.
In-flight projects: During the quarter, the Company continued to make progress on projects for which we have executed power and/or hydrogen purchase agreements, with updates regarding certain current projects provided below.
Toyota - Port of Long Beach, CA. This 2.8 MW Tri-generation platform is expected to produce electricity (at an expected net output of 2.3 MW), hydrogen and water. We have completed the construction work on this Tri-generation project at the Port of Long Beach for Toyota (the “Toyota project”), and the fuel cell platform has advanced to the commissioning phase of project deployment. Effective as of May 31, 2023, the Company entered into an amendment of its Hydrogen Power Purchase Agreement with Toyota (as amended, the “Toyota HPPA”), pursuant to which the contractually required commercial operations date has been extended from July 8, 2023 to October 11, 2023. In the event that we do not achieve commercial operations on or before the deadline of October 11, 2023, Toyota will have the right to terminate the Toyota HPPA. However, we anticipate that the remaining commissioning activity will be completed and commercial operations will be achieved in the third fiscal quarter of 2023.
Derby, CT. On-site construction of this 14 MW project continues to advance and the Company has largely completed the foundational construction and the installation of the majority of the balance of plant components on site. Four of the ten modules required for the project have already been delivered for installation. The remaining six fuel cell modules are currently in production and slated to be completed in our Torrington manufacturing facility over the next two fiscal quarters. This utility scale fuel cell platform will contain five SureSource 3000 fuel cell systems that will be installed on engineered platforms alongside the Housatonic River. To date, the Company has invested approximately $39.9 million into the project, and our current expectation is that this project will commence commercial operations in the fourth calendar quarter of 2023.
In addition, the on-site civil construction of the 2.8 MW project located in Derby, CT is advancing. Our current expectation is that this project will also commence commercial operations in the fourth calendar quarter of 2023.
Manufacturing Output, Capacity and Expansion: We have made progress in advancing our carbonate and solid oxide platform capacity expansion plans.
Carbonate Platform: During the six months ended April 30, 2023, we operated at an annualized production rate of approximately 33.4 MW, compared to an annualized production rate for the six months ended April 30, 2022, of 39.6 MW. This reduction in annualized production rate is primarily due to decreased staffing levels in our Torrington facility during the first half of the fiscal year. Our annualized production rate has recently increased, and we are planning to operate at a higher annualized production rate in the second half of the fiscal year in support of project backlog and service requirements.
At this time, the maximum annualized capacity (module manufacturing, final assembly, testing and conditioning) is 100 MW per year under the Torrington facility’s current configuration when fully utilized. The Torrington facility is sized to accommodate the eventual annualized production capacity of up to 200 MW per year with additional capital investment in machinery, equipment, tooling, labor and inventory.
The Company continues to invest in capability with the goal of reducing production bottlenecks and driving productivity, including investments in automation, laser welding, and the construction of additional integrated conditioning capacity. The Company also constructed a SureSource 1500 in Torrington during fiscal year 2022, which operates as a testing facility for qualifying new supplier components and performance testing and validation of continued platform innovations. During fiscal year 2023, the Company is investing to add engineered carbon separation capability to the onsite SureSource 1500. This product enhancement will allow potential customers to observe the operating plant and, given the targeted market of food and beverage companies, will allow for the sampling and testing of separated CO2 to verify quantity, quality or purity requirements.
Solid Oxide Platform: During the six months ended April 30, 2023, Versa Power Systems Ltd. (“Versa”), a subsidiary of FuelCell Energy, entered into a lease expansion, extension and amending agreement which expanded the space to be leased by Versa in Calgary, Alberta, Canada, to include an additional approximately 48,000 square feet, for a total of approximately 80,000 square feet of space. The Company took possession of part of the additional space on April 1, 2023, and took possession of the rest of the additional space on June 1, 2023, after certain leasehold improvements were made to support increased manufacturing. In addition, long-lead process equipment has been ordered to facilitate the expansion of manufacturing capacity for the solid oxide platforms in Calgary. Upon the completion of the Calgary capacity expansion, the Company expects that it will be able to increase annual production capacity and that it will be capable of delivering up to 40 MWs of annualized solid oxide electrolysis cell production per year. As part of this expansion, the Company has hired and trained additional staff for a three-shift production operation.
During calendar year 2023, our Calgary manufacturing operation is expected to build and deliver four units: two units that will run internally for advanced testing and two first article production units for delivery externally. Of these commercial units for external delivery, one will be our electrolysis platform for delivery to Idaho National Laboratory, and the other will be our distributed power platform for delivery to Trinity College in Hartford, Connecticut, for use under a long-term power purchase agreement.
The expansion of the Calgary manufacturing facility is phase 1 of the Company’s planned operational expansion of production capability. While this expansion is expected to increase our production capacity from 4 MWs per year to 40 MWs per year of solid oxide electrolysis cells, the Company also plans to add an additional 400 MW of solid oxide manufacturing capacity in the United States. Early facility design and engineering requirements have been developed, and the Company has engaged in an extensive search in the United States for a potential location for a new manufacturing facility. We anticipate announcing more details regarding our plans for solid oxide production expansion into the United States later this fiscal year.
Lastly, the Company is in the process of examining or actively applying for various financial programs offered by both Canada and the United States to provide subsidies, investment tax credits and other assistance with the goal of expanding capacity for clean energy manufacturing.
Backlog decreased by approximately 23% to $1.022 billion as of April 30, 2023, compared to $1.326 billion as of April 30, 2022, as a result of a reduction in generation backlog due to the decision to not move forward with certain generation projects during the fourth quarter of fiscal 2022, and also due, in part, to the timing of revenue recognition under Product, Generation and service agreements since April 30, 2022.
Backlog represents definitive agreements executed by the Company and our customers. Projects for which we have an executed power purchase agreement (“PPA”) or hydrogen power purchase agreements (“HPPA”) are included in generation backlog, which represents future revenue under long-term PPAs and HPPAs. The Company’s ability to recognize revenue in the future under a PPA or HPPA is subject to the Company’s completion of construction of the project covered by such PPA or HPPA. Should the Company not complete the construction of the project covered by a PPA or HPPA, it will forgo future revenues with respect to the project and may incur penalties and/or impairment charges related to the project. Projects sold to customers (and not retained by the Company) are included in product sales and service agreements backlog, and the related generation backlog is removed upon sale. Together, the service and generation portion of backlog had a weighted average term of approximately 17 years, with weighting based on the dollar amount of backlog and utility service contracts of up to 20 years in duration at inception.