FuelCell Energy, Inc. — Q3 FY2022 Form 10-Q
Reporting period: Three and nine months ended July 31, 2022. Amounts below are U.S. dollars; financial figures are in millions unless otherwise stated.
Business context
FuelCell Energy develops and manufactures fuel-cell platforms for distributed power, hydrogen and carbon capture, and owns and operates fuel-cell generation projects. Its principal markets are the United States and Korea. The company reported 41.4 MW in its operating generation portfolio and 34.9 MW in projects under development or construction.
Financial results and liquidity
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Revenue | $43.1 | $26.8 | $91.3 | $55.7 |
| Gross profit (loss) | $(4.2) | $1.1 | $(14.4) | $(7.3) |
| Gross margin | (9.7)% | 4.1% | (15.8)% | (13.1)% |
| Operating loss | $(28.0) | $(10.6) | $(101.1) | $(42.3) |
| Net loss attributable to common stockholders | $(30.2) | $(12.8) | $(102.7) | $(79.3) |
| Loss per share | $(0.08) | $(0.04) | $(0.27) | $(0.24) |
- Revenue increased 61% for the quarter and 64% for the nine-month period. Product revenue was $18.0 million in Q3, primarily from six modules delivered to Korea Fuel Cell (KFC); there was no product revenue in the comparable prior-year periods.
- Quarterly gross loss reflected generation costs, including $6.9 million of Toyota project costs expensed because they were not considered recoverable, and higher manufacturing variances. Nine-month gross loss also included $14.0 million of Toyota project costs.
- Operating expenses rose: nine-month administrative and selling expense was $64.4 million versus $27.3 million, including a one-time $24.0 million payment to outside counsel related to the POSCO Energy/KFC settlement. Research and development expense increased to $22.3 million from $7.8 million, reflecting investment in solid oxide and carbon-capture development.
- Unrestricted cash and cash equivalents were $456.5 million at July 31, 2022, versus $432.2 million at October 31, 2021. Total cash, cash equivalents and restricted cash were $479.6 million; $23.2 million was restricted.
- For the nine months, operating cash use was $88.1 million (prior year: $60.6 million); investing cash use was $39.5 million (prior year: $44.2 million); financing provided $147.3 million (prior year: $406.8 million). Financing included $145.4 million of net common-stock proceeds.
- Debt and financing obligations totaled $83.7 million, including $9.8 million current and $73.8 million long-term. Net debt related to project assets was $70.8 million. Series B preferred stock had a $59.9 million carrying value and $64.0 million liquidation preference.
- Inventories were $85.2 million, up from $71.7 million at October 31, 2021; project assets were $246.0 million, up from $223.3 million.
Material changes and notable items
- Revenue growth was led by new KFC module sales and higher generation revenue, including the Yaphank project entering commercial operation. Service revenue and Advanced Technologies revenue declined year over year for the nine-month period.
- The generation fleet increased to 41.4 MW from 34.0 MW a year earlier. Generation revenue rose, but generation gross loss widened substantially, notably because of Toyota project costs.
- The company received $27.2 million net from shares settled under its new at-the-market (ATM) program during the period. A further approximately $38.4 million net was received in August 2022 for shares sold by July 31 but settled afterward. The program permits sales of up to 95 million shares; additional issuance may dilute existing shareholders.
- The POSCO Energy/KFC settlement narrowed the counterparties’ license rights in Korea and Asia and provided for firm orders for 20 modules at $3.0 million each. Twelve modules had been delivered by July 31. KFC agreed to use commercially reasonable efforts to order 14 more by December 31, 2022; that additional order was not guaranteed.
- The filing states the company corrected prospectively a prior-period classification of the Yaphank tax-equity interest, deeming the error immaterial and not restating prior statements.
Outlook, risks and contingencies
- Management stated that unrestricted cash, expected contracted-backlog receipts and release of short-term restricted cash, less expected disbursements, should fund obligations for at least 12 months from the financial-statement issuance date. The company has not achieved profitability or sustained positive operating cash flow; future liquidity depends on project execution, growing revenue, cost reductions, financing access and commercialization.
- For FY2022, management targeted an annualized production capacity of 40–45 MW by year-end; the reported rate was 38.5 MW. It forecast project-asset expenditures of $40–$60 million, capital expenditures of $20–$30 million, and company-funded R&D expenditures of $30–$40 million.
- Groton commissioning had faced equipment and performance issues. The company expected possible commercial operation by September 30, 2022 at reduced output of about 6 MW, subject to customer and Navy approval. Failure to meet the deadline could give the tax-equity investor a conditional withdrawal right; the remaining $12 million commitment was amended to installments after operations begin, subject to conditions.
- The Toyota project’s renewable natural gas sourcing remains uncertain; $16.8 million of charges had been recorded cumulatively, including $14.0 million in the nine-month period. Derby projects also face natural-gas sourcing and price exposure without fuel-cost pass-through. Continued unfavorable fuel economics could cause further impairment.
- Other material risks include project delays and cost overruns, fuel-cell performance guarantees, supply-chain disruption, reliance on outside project financing, and execution and commercialization risks for new technologies. The company noted that the Inflation Reduction Act was signed on August 16, 2022 and said its impact was still under evaluation.
- POSCO Energy/KFC disputes were broadly settled, but an approximately $1.8 million royalty claim by the company and an unquantified POSCO Energy supply-chain claim remained unsettled. The filing reported no material changes to previously disclosed risk factors.
Investor verification points
- Confirm subsequent progress and actual commercial-operation status, output and financing for Groton, Toyota and the projects under construction.
- Track operating cash burn, inventory growth, project spending and the company’s ability to secure construction and permanent financing without further substantial equity issuance.
- Assess whether generation and product margins improve as Toyota-related charges subside and production volume and cost-reduction initiatives advance.
- Verify fuel sourcing and economics for Toyota and Derby, including any collateral requirements, further impairments or changes to project schedules.
- Monitor delivery, warranty and performance-guarantee obligations on KFC modules, the potential additional order, and the remaining POSCO-related claims.