FuelCell Energy, Inc. — FY2014 Form 10-K
Reporting period: Fiscal year ended October 31, 2014. This is an annual report, not a standalone quarterly filing; selected fourth-quarter results are included below. The company designs, manufactures, installs, operates and services stationary fuel-cell power plants, with major markets in the United States and South Korea.
Financial results and liquidity
| Metric | FY2014 | FY2013 |
|---|---|---|
| Revenue | $180.3 million | $187.7 million |
| Gross profit / margin | $13.7 million / 7.6% | $7.1 million / 3.8% |
| Operating loss | $27.3 million | $29.8 million |
| Net loss | $38.9 million | $35.3 million |
| Net loss attributable to common shareholders | $41.3 million; $0.17 per share | $37.6 million; $0.20 per share |
| Cash used in operating activities | $57.5 million | $16.7 million |
| Cash and cash equivalents, including restricted cash | $108.8 million | $77.7 million |
| Total debt | $10.8 million | $54.0 million |
FY2014 fourth-quarter revenue was $54.4 million, gross profit $6.0 million, operating loss $5.0 million and net loss $4.9 million. At year-end, working capital was $142.0 million and current liabilities were $75.1 million. Cash included $25.1 million of restricted funds. Separately, redeemable Series B preferred stock had a $64.0 million liquidation preference ($59.9 million carrying value); the Series 1 preferred obligation was also outstanding.
Revenue fell 4% year over year, mainly due to fewer multi-megawatt turnkey projects and related engineering and construction services. Gross margin doubled as production increased and product costs and service performance improved. Net loss increased, principally reflecting an $8.4 million make-whole charge associated with conversion of $38.0 million of convertible notes. Common shares issued and outstanding rose to 287.2 million from 196.3 million.
Business developments, outlook and risks
- Product sales were $136.8 million, down 6%; product gross margin improved to 7.3% from 5.6%. Service and license revenue declined to $26.0 million, but its gross result improved to $2.9 million profit from a $1.5 million loss. Advanced-technology contract revenue rose to $17.5 million.
- Contract backlog was approximately $333.9 million, including $196.8 million of service agreements. POSCO Energy accounted for 69% of FY2014 revenue; South Korea represented 69% of sales. The top five customers contributed 88% of revenue.
- Management said available cash, operating cash flows, credit facilities and capital-market access were expected to cover needs for at least 12 months. This depends on continued financing access and execution of sales and cost-reduction plans. Operating cash use rose sharply to $57.5 million.
- Management targeted average quarterly revenue of $50–$60 million at the 70 MW annual production run-rate and cash-flow break-even measured by EBITDA at that run-rate, subject to sales mix, order timing and delivery schedules. These are targets, not assurances.
- The company reported an approximately $13/kWh LCOE at $7/MMBtu natural gas without incentives, and targeted $9–$11/kWh at annual global production of 210 MW and gas prices of $6–$8/MMBtu. The U.S. fuel-cell investment tax credit was scheduled to expire December 31, 2016 unless extended.
- Plans included a 90,000-square-foot Torrington facility expansion, with construction expected to be completed by early 2016, and eventual capacity expansion to at least 200 MW annually as demand supports. Planned FY2015 capital expenditures were $8–$15 million; the overall expansion investment could reach $65 million over five years.
- Key risks include continued losses and negative operating cash flow; dependence on cost reductions, incentives and market adoption; customer and geographic concentration; project-financing and working-capital demands; performance guarantees and future module replacement costs; and competition from grid power, combustion generation and other fuel-cell technologies. Accounts receivable included $53.0 million unbilled, while year-end inventory was $55.9 million.
- Financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting. The filing reported no material legal proceedings.
Most important facts for investors to verify
- Whether backlog converts to billed and collected revenue, particularly the $53.0 million in unbilled receivables and the substantial POSCO-related exposure.
- Whether operating cash use improves and the company can fund operations and planned expansion without further material dilution or financing constraints.
- Whether margins, service-contract economics and module life improve as management expects, without higher-than-reserved warranty, performance or replacement costs.
- Whether management achieves its revenue and EBITDA cash-flow targets at the stated production rate, and whether incentives and project financing remain available.