FuelCell Energy, Inc. — Q1 FY2021 Form 10-Q
Reporting period: Three months ended January 31, 2021; comparisons are with the three months ended January 31, 2020 unless noted. FuelCell Energy develops, manufactures and operates fuel-cell power systems and is pursuing hydrogen, energy-storage and carbon-capture applications. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial results and position
| Metric | Q1 FY2021 | Q1 FY2020 / prior date |
|---|---|---|
| Revenue | $14.9 | $16.3 |
| Gross profit (loss) and margin | $(3.6); (24.3)% | $3.3; 20.2% |
| Operating loss | $(14.4) | $(3.1) |
| Net loss | $(46.0) | $(40.2) |
| Net loss attributable to common stockholders; loss per share | $(46.8); $(0.15) | $(41.1); $(0.20) |
| Cash used in operating activities | $(30.3) | $(6.5) |
| Cash used in investing activities | $(4.6) | $(8.3) |
| Cash provided by financing activities | $52.4 | $49.0 |
| Unrestricted cash at period end | $178.6 | $149.9 at October 31, 2020 |
| Total cash, cash equivalents and restricted cash at period end | $209.6 | $192.1 at October 31, 2020 |
| Total debt and financing obligations | $91.3 | $165.4 at October 31, 2020 |
- Revenue mix: service and license $4.9 million, generation $4.9 million, Advanced Technologies $5.1 million; product revenue was zero.
- Margins varied materially: service and license gross margin was (3.8)% versus 71.2%; generation margin was (45.5)% versus (2.1)%; Advanced Technologies margin was 22.8% versus 27.2%.
- Operating cash outflow widened, with working-capital uses including $8.6 million for inventory and $3.5 million for unbilled receivables. Cash flow benefited from substantial noncash adjustments.
- At January 31, current assets were $278.4 million and current liabilities $53.1 million. Restricted cash totaled $31.0 million and is not all available for general use.
- Series B preferred stock remained outstanding, with a $64.0 million liquidation preference and $0.8 million of quarterly dividends recorded.
Changes and unusual items
- In December 2020, the company issued 25.0 million shares for net proceeds of approximately $156.4 million. The offering materially increased cash and common shares; weighted-average shares rose to 312.1 million from 202.2 million.
- The company repaid the Orion secured facility in December for $87.3 million, including a $4.0 million prepayment premium. It recorded an $11.2 million debt-extinguishment loss, including write-off of deferred financing costs and debt discount. The repayment released $11.2 million of restricted cash and liens on collateral.
- The company also paid approximately $21.5 million to extinguish Enbridge’s Series 1 preferred-share obligation, recording a $0.9 million extinguishment loss. These repayments reduced debt and preferred obligations but used a significant portion of offering proceeds.
- A $16.0 million warrant fair-value expense related to Orion warrants exercised during the quarter was a significant noncash charge. The comparable prior-year quarter included a $34.2 million warrant fair-value expense.
- Gross loss reflected higher service costs, including module replacements and residual-value charges, and weaker generation margins. Prior-year service revenue included $4.0 million from an EMRE license agreement; no comparable license revenue was recorded in the current quarter.
Outlook, liquidity and risks
- Management said unrestricted cash, expected receipts from contracted backlog and expected release of short-term restricted cash, less anticipated disbursements, should cover obligations for at least one year from issuance of the financial statements. The company nevertheless reported it had not achieved profitable operations or sustained positive operating cash flow.
- For FY2021, management expected an annualized production rate of 45 MW. It forecast project-asset expenditures of $50–$75 million, capital expenditures of $5–$10 million, and company-funded R&D of $18–$20 million. The company reported a 22.4 MW annualized production rate during the quarter.
- At quarter end, the operating portfolio was 32.6 MW, with 40.7 MW of projects in development or construction. Backlog included $1.1 billion of generation, $163.9 million of service and license, and $44.1 million of Advanced Technologies; there was no product sales backlog. Backlog is not equivalent to recognized revenue or cash receipts.
- Management cited project completion and cost control, performance of generation assets, securing construction and permanent project financing, increasing orders and commercialization, cost reductions, working-capital management and access to capital as key liquidity dependencies. The company had 15.1 million authorized common shares available for issuance, excluding treasury shares, with 5.2 million reserved; it sought shareholder approval to increase authorized shares.
- Major contingencies include the POSCO Energy/Korea Fuel Cell disputes. FuelCell Energy seeks more than $200 million in arbitration; POSCO Energy counterclaimed for approximately $880 million and also brought other legal proceedings. Attachments sought against KOSPO receivables have delayed collections; $6.4 million was due from KOSPO at quarter end. The company stopped recognizing deferred revenue associated with the terminated POSCO license agreements; $22.2 million remained recorded as long-term deferred revenue.
- The company withdrew its PPP loan-forgiveness application and repaid approximately $6.57 million on February 11, 2021. It disclosed an informal SEC inquiry relating to its PPP loan disclosures and noted possible SBA review and enforcement risks.
- COVID-19 risks included possible production or project delays, supply-chain disruption, customer investment changes and additional costs. Manufacturing had resumed in June 2020; a phased return to office work was planned from March 15, 2021.
Most important facts for investors to verify
- Whether revenue growth, product sales and backlog conversion can improve, and whether segment margins can recover from the quarter’s gross loss.
- Whether operating cash burn moderates and management’s one-year liquidity assessment remains supportable after planned project, capital and R&D spending.
- Whether projects under construction reach commissioning on schedule and within budget, and whether project financing and permanent financing are obtained on acceptable terms.
- The outcome and financial exposure of the POSCO Energy proceedings, the status of delayed KOSPO collections, and any effect on Asian market access or deferred license revenue.
- The potential consequences of the PPP loan review and SEC inquiry, and whether shareholders approve the proposed increase in authorized shares.