FuelCell Energy, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended July 31, 2021; comparisons are to the corresponding 2020 periods. Amounts below are in U.S. dollars, millions, unless stated otherwise.
Business context
FuelCell Energy develops, manufactures, operates and services fuel-cell power platforms, with applications including distributed electricity, hydrogen, energy storage and carbon capture. Its principal markets are the United States and South Korea. The company is investing in project assets and technology development while it continues to operate at a loss and use cash in operations.
Financial performance
| Metric | Three months 2021 | Three months 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $26.8 | $18.7 | $55.7 | $53.9 |
| Gross profit (loss) | $1.1 | $(3.1) | $(7.3) | $0.3 |
| Gross margin | 4.1% | (16.7)% | (13.1)% | 0.6% |
| Operating loss | $(10.6) | $(10.8) | $(42.3) | $(22.0) |
| Net loss | $(12.0) | $(15.3) | $(76.9) | $(70.3) |
| Net loss attributable to common stockholders | $(12.8) | $(16.1) | $(79.3) | $(72.8) |
| Loss per common share | $(0.04) | $(0.07) | $(0.24) | $(0.35) |
- Quarterly revenue growth reflected higher service and license revenue, chiefly from more module exchanges, and increased generation revenue. Advanced Technologies revenue declined year over year; product revenue was zero.
- For the nine-month period, revenue rose 3%, but costs of revenue increased 18%, turning the prior-year gross profit into a gross loss. Service and license gross margin fell to (5.4)% from 16.6%; generation gross margin fell to (34.4)% from (18.8)%. Management cited service-fleet costs, residual-value charges and performance guarantees, as well as generation maintenance and depreciation costs.
- Operating expenses increased to $35.1 million for the nine months, including higher administrative and selling costs and increased R&D spending on hydrogen commercialization. Quarterly operating loss improved slightly as gross profit recovered, but operating expenses also rose.
Cash, debt and liquidity
- At July 31, unrestricted cash and cash equivalents were $468.6 million, versus $149.9 million at October 31, 2020. Total cash including restricted amounts was $494.0 million; restricted cash was $25.5 million.
- Current assets were $574.2 million and current liabilities $43.0 million, implying working capital of approximately $531.3 million. Total assets were $879.6 million and total liabilities $153.5 million. Redeemable Series B preferred stock had a carrying value of $59.9 million.
- Total debt and financing obligations were $81.6 million, down from $165.4 million at October 31, 2020. The $80 million Orion facility was repaid in December 2020; the company also repaid its $6.5 million PPP loan in February 2021. Debt paydown and refinancing-related charges included an $11.2 million loss on extinguishment of debt and financing obligations for the nine months.
- Cash flow from operations was $(60.6) million and investing cash flow was $(44.2) million for the nine months; financing provided $406.8 million. The financing inflow principally reflected net common-stock proceeds, including approximately $369.0 million from the ATM offering and $156.4 million from the December 2020 offering.
- Equity issuance materially expanded the share count: 366.5 million shares were outstanding at July 31, 2021, versus 294.7 million at October 31, 2020. The ATM program allowed sales of up to $500 million; approximately $123.4 million remained available at July 31.
Outlook, developments and risks
- Management said cash, expected contracted-backlog receipts and releases of short-term restricted cash, less expected disbursements, should cover obligations for at least 12 months from issuance of the statements. It also stated that the company has not achieved profitability or sustained positive operating cash flow.
- Management forecast fiscal 2021 project-asset expenditures of $60–75 million, capital expenditures of $5–7 million, and company-funded R&D of $10–12 million. It targeted a 45 MW annualized production rate by year-end 2021; the reported rate was 30 MW at July 31. These are expectations, not guarantees.
- The operating portfolio totaled 34.0 MW and generated approximately $19.9 million in annual revenue, which management said may fluctuate. A further 42.1 MW of projects was in development or construction. Backlog was $1.30 billion, down 2.2% year over year; it included $1.1 billion of generation backlog and no product-sales backlog.
- Groton’s 7.4 MW Navy-base project was in commissioning after a localized elevated-temperature issue required repairs. The company expected to resume commissioning in late September, but commercial operation was subject to a Navy deadline of October 18, 2021, unless extended. A $15 million tax-equity commitment included about $12 million available only after commercial operation.
- POSCO Energy litigation remains a major contingency. FuelCell Energy seeks more than $200 million in arbitration damages; POSCO Energy counterclaimed for approximately $880 million. Attachments on amounts owed by KOSPO delayed collections, and $9.6 million was due from KOSPO at quarter-end. The company says it is vigorously defending the claims. The filing also reports that a Delaware court denied POSCO Energy’s books-and-records demand.
- COVID-19 and the Delta variant could disrupt facilities, suppliers, customers and project schedules; the company instituted facility mask requirements and a U.S. employee vaccination policy. The filing also notes an informal SEC inquiry concerning the company’s former PPP loan application; the loan was repaid after the company withdrew its forgiveness application.
- After quarter-end, the company reported a Crestmark sale-leaseback with approximately $5.3 million of net unrestricted proceeds and a Groton tax-equity financing transaction. The Crestmark transaction includes a company guarantee and a potential tax-credit indemnity; management said the indemnity was not probable based on information then available.
Most important facts for investors to verify
- Reconcile cash-flow reporting: the cash-flow statement reports operating cash use of $60.6 million and a $302.0 million increase in total cash, while the MD&A cash-flow summary reports $61.3 million and $301.3 million, respectively.
- Track quarterly cash burn, project spending and whether the stated 12-month liquidity outlook remains supported by actual collections and financing.
- Monitor Groton commissioning, the October 18, 2021 commercial-operation deadline, and access to the remaining tax-equity funds.
- Assess whether service and generation margins improve, and whether production volume and cost reductions translate into sustained gross profit and positive operating cash flow.
- Follow POSCO Energy arbitration, KOSPO receivable collections and any changes in the associated claims, attachments or contingencies.
- Consider dilution from equity financing: the ATM raised substantial capital but increased common shares outstanding; confirm subsequent share sales and remaining ATM capacity.