FuelCell Energy, Inc. — Form 10-Q Summary
Business context and reporting period. FuelCell Energy develops, manufactures and operates fuel-cell power platforms, and pursues hydrogen, energy-storage and carbon-capture technologies. This unaudited filing covers the quarter and six months ended April 30, 2021 (the second quarter of fiscal 2021); comparisons are with the corresponding 2020 periods. Financial amounts below are in U.S. dollars.
Key financial metrics
| Metric | Three months ended April 30 | Six months ended April 30 |
|---|---|---|
| Revenue | $14.0m, down 26% from $18.9m | $28.8m, down 18% from $35.1m |
| Gross profit (loss) and margin | $(4.8)m; (34.1)%, versus $0.2m and 0.9% | $(8.4)m; (29.0)%, versus $3.4m and 9.8% |
| Operating loss | $(17.4)m, versus $(8.1)m | $(31.8)m, versus $(11.3)m |
| Net loss | $(18.9)m, versus $(14.8)m; common-stockholder loss was $(19.7)m | $(64.9)m, versus $(54.9)m; common-stockholder loss was $(66.5)m |
| Loss per common share | $(0.06), versus $(0.07) | $(0.21), versus $(0.27) |
| Operating cash flow | Not separately reported for the quarter | $(41.2)m used, versus $(14.7)m used |
| Investing cash flow | Not separately reported for the quarter | $(22.2)m used, including $21.2m of project-asset spending |
- Cash and liquidity: At April 30, unrestricted cash was $139.1m, down from $149.9m at October 31, 2020. Restricted cash was $32.1m; total cash, cash equivalents and restricted cash were $171.2m. Current assets were $245.6m and current liabilities $56.2m.
- Debt and equity: Total debt and financing obligations were $82.9m, down from $165.4m at October 31, 2020; the Orion facility and PPP loan were repaid. Redeemable Series B preferred stock was $59.9m, with a $64.0m liquidation preference. Stockholders’ equity was $309.0m. Common shares outstanding rose to 322.5m from 294.7m at October 31, 2020.
- Operations and assets: Project assets were $187.2m, including $97.9m under development or construction. Inventory was $63.5m. The operating portfolio was 32.6 MW and generated $11.1m of revenue over six months.
Material changes versus the prior period
- Second-quarter revenue fell mainly because service and license revenue declined to $0.7m from $7.0m: there were no new module exchanges in the quarter, and estimates for future exchanges reduced recognized revenue. Generation revenue rose to $6.2m, but higher maintenance costs drove a larger generation gross loss.
- For the six-month period, service and license revenue declined 56%, while generation revenue increased 10%. Total costs of revenue rose 17%, turning the prior-year gross profit into a gross loss. Service results were affected by fewer exchanges, performance guarantees and residual-value charges; generation costs reflected maintenance and depreciation.
- Administrative and selling expenses and R&D spending increased. R&D rose to $4.8m for six months as the company funded hydrogen commercialization; the prior-year period included a $2.2m legal settlement that reduced administrative expense.
- Six-month net loss included an $11.2m loss on extinguishment of debt and a $0.9m loss on extinguishment of the subsidiary preferred-share obligation. A $16.0m warrant fair-value expense also affected the period; these noncash or financing-related items complicate comparison of underlying operating performance.
- Financing actions included a December 2020 stock offering that generated $156.4m net proceeds. The company used $87.3m to repay Orion and approximately $21.5m to settle Enbridge’s Series 1 preferred shares, and repaid the $6.5m PPP loan in February 2021.
Outlook, management commentary and risks
- Management stated that unrestricted cash, expected receipts from contracted backlog and release of short-term restricted cash, net of expected disbursements, should fund obligations for at least 12 months from issuance of the financial statements. The company had not achieved profitable operations or sustained positive operating cash flow.
- Management targeted an annualized manufacturing rate of 45 MW by fiscal year-end, versus 32 MW at April 30. Fiscal 2021 forecasts called for project-asset expenditures of $65m–$90m, capital expenditures of $5m–$10m, and company-funded R&D of $15m–$18m.
- Backlog was $1.32bn at April 30, down 1.5% year over year. It included $1.1bn of generation backlog, $163.6m of service and license backlog and $45.0m of Advanced Technologies backlog; there was no product sales backlog. The company reported 43.5 MW of projects in development or construction and expected the Groton and San Bernardino projects to reach commercial operation in fiscal 2021.
- Key execution and funding risks include completing projects on time and within budget, securing construction and permanent project financing, increasing generation output and meeting performance guarantees, growing orders, reducing costs and commercializing new technologies. Planned project spending and working-capital needs could pressure cash; $32.1m of cash was restricted, and purchase commitments were $73.9m.
- POSCO Energy disputes: FuelCell Energy seeks more than $200m in arbitration damages and says it terminated the Asian license agreements. POSCO Energy counterclaimed for approximately $880m. Separate warranty arbitrations, court proceedings and attachments affecting KOSPO receivables are also disclosed; $8.0m was due from KOSPO at April 30. The company’s claims and POSCO’s counterclaims are unresolved, and outcomes are uncertain.
- The company discontinued recognition of deferred license revenue relating to the terminated POSCO agreements; $22.2m remained in long-term deferred revenue. It also disclosed an informal SEC inquiry concerning its former PPP loan and application for forgiveness, which it withdrew before repaying the loan. COVID-19-related facility, supply-chain, customer-demand and project-schedule risks remained.
Most important facts for investors to verify
- Whether cash burn, project investment and access to financing remain consistent with management’s stated 12-month liquidity assessment.
- Whether service-fleet performance, module-exchange timing, maintenance spending and generation margins improve as planned.
- Progress, cost and financing for the 43.5 MW project pipeline, and whether targeted production capacity and fiscal 2021 spending plans are achieved.
- Updates to the POSCO Energy arbitration and related proceedings, KOSPO receivable collection, and treatment of the $22.2m deferred license revenue.
- Potential share dilution and preferred-stock claims: common shares increased materially, while Series B preferred stock remains outstanding with a $64.0m liquidation preference.