FuelCell Energy, Inc. — Q1 FY2022 Form 10-Q
Reporting period: Three months ended January 31, 2022. Financial amounts below are in U.S. dollars; unless stated otherwise, amounts are in millions.
Business context
FuelCell Energy develops and manufactures fuel-cell platforms for distributed power generation and related services, and is investing in hydrogen, solid-oxide and carbon-capture technologies. Its principal markets include the United States and South Korea. The company reported 41.4 MW of operating generation capacity and 33.9 MW of projects in development or construction.
Financial performance and liquidity
| Metric | Q1 FY2022 | Q1 FY2021 / prior balance-sheet date |
|---|---|---|
| Revenue | $31.8 | $14.9 |
| Gross loss / margin | $2.9 loss / (9.1)% | $3.6 loss / (24.3)% |
| Operating loss | $44.8 | $14.4 |
| Net loss | $46.1 | $46.0 |
| Net loss attributable to common stockholders; loss per share | $41.4; $0.11 | $46.8; $0.15 |
| Cash used in operating activities | $47.8 | $30.3 |
| Cash used in investing activities | $15.8 | $4.6 |
| Cash provided by financing activities | $8.8 | $52.4 |
| Unrestricted cash | $377.0 | $432.2 at October 31, 2021 |
| Restricted cash | $28.5 | $28.0 at October 31, 2021 |
| Total debt and financing obligations | $86.2 | $87.7 at October 31, 2021 |
| Current assets / current liabilities | $509.0 / $75.3 | $543.4 / $52.8 at October 31, 2021 |
Revenue increased 114%, led by $18.0 million of product sales to Korea Fuel Cell (KFC), with generation revenue also higher. Product sales were near break-even, while generation remained loss-making. Service revenue fell because there were no module exchanges in the quarter. Advanced Technologies revenue and gross profit also declined. Operating expenses rose sharply, primarily due to a $24.0 million POSCO-related legal fee and increased selling, marketing, consulting, compensation and hydrogen R&D spending.
Operating cash use increased year over year, reflecting the net loss and higher receivables and unbilled receivables, among other working-capital needs. Cash and restricted cash together declined $54.8 million during the quarter. Management stated that unrestricted cash, expected contracted-backlog receipts and expected release of short-term restricted cash, less expected disbursements, should fund obligations for at least 12 months from issuance of the statements. The company has not achieved profitable operations or sustained positive operating cash flow.
Material changes and notable items
- Total revenue rose from $14.9 million to $31.8 million. Product revenue was zero in the prior-year quarter; the current period included delivery of six KFC modules for $18.0 million. Total gross loss narrowed, but operating loss widened substantially as operating expenses increased.
- Common-stockholder loss improved from $46.8 million to $41.4 million, and loss per share from $0.15 to $0.11. The comparison includes prior-year warrant fair-value and debt-extinguishment charges that did not recur; the current period included the $24.0 million settlement-related legal expense.
- The POSCO Energy/KFC settlement was signed December 20, 2021. It reallocates the company’s technology rights in Korea and Asia, preserves limited service rights for PE Group’s existing customers, and requires KFC firm orders for 20 modules in total. Six were delivered in January; the company reported $18.0 million in product revenue. KFC may seek to order 14 more modules, but that additional order is not firm.
- The company sold approximately 44.1 million shares under its $500 million at-the-market program through January 31, 2022, receiving $369.7 million net. There were no ATM sales in the quarter; approximately $122.8 million of program capacity remained. Common shares outstanding were approximately 366.7 million at January 31, 2022.
- Generation backlog was $1.1 billion, and total backlog was reported as $1.31 billion, up about 3% year over year. Product backlog was $60.2 million, service backlog $123.7 million and Advanced Technologies backlog $31.7 million. Backlog includes long-duration contracted revenue and is not equivalent to near-term sales or cash receipts.
Outlook, risks and contingencies
- Management expected an annualized production rate of 45–50 MW during FY2022, versus 38.3 MW in the quarter. It forecast FY2022 project-asset expenditures of $40–60 million, total capital expenditures of $40–50 million, and company-funded R&D of $45–55 million. Remaining investment estimated for the 33.9 MW project pipeline was approximately $97 million.
- Groton commissioning was delayed by mechanical-component repairs. The Navy and tax-equity investor had extended the commercial-operation deadline to May 15, 2022; further extensions were not assured. The remaining approximately $12 million of Groton tax-equity funding depended on commercial operation.
- The Toyota project was expected to miss its June 30, 2022 commercial-operation date, requiring an extension from Toyota. Availability and pricing of renewable natural gas remain a concern; the company had already expensed approximately $3.0 million of Toyota project costs in the quarter and recorded a $2.8 million project-asset impairment in FY2021.
- Fuel procurement and price exposure affect Toyota and two Derby projects. The company estimated that a $1/MMBtu natural-gas price increase could raise annual costs by approximately $1.4 million, and a $10/MMBtu RNG increase by approximately $2.0 million, assuming the exposed projects were operating.
- Other principal risks include project completion and cost overruns, financing availability, working-capital demands, manufacturing cost reductions, performance guarantees, and commercializing new technologies. The company had $85.4 million of unconditional purchase commitments and $28.5 million of restricted cash, including performance security.
- The settlement resolved most POSCO/KFC disputes but left an approximately $1.8 million company royalty claim and an unquantified POSCO supply-chain claim unsettled. The company was also recovering approximately $11.2 million of KOSPO receivables previously attached by court order. Settlement terms include module warranties and potential output-penalty reimbursements subject to contractual limits.
- Management reported no material changes to previously disclosed risk factors. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Progress on Groton repairs, commissioning, the May 15 deadline and release of the remaining tax-equity commitment.
- Toyota’s extension decision, RNG sourcing and economics, and the schedule and fuel arrangements for Derby projects.
- Whether reported backlog converts to contracts, deliveries, billings and cash collections on expected timelines.
- Cash burn, receivables and unbilled receivables, project spending, and the availability of project-level and corporate financing.
- Realized margins on KFC module sales, ongoing warranty and potential settlement-related penalty costs, and any additional firm module orders.
- Potential dilution from any further ATM issuance and developments in the remaining POSCO-related claims and KOSPO receivable recovery.