Q3 2020 Fuelcell Energy Inc Earnings Call

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At this time, all participants are not listen only mode. After the speakers presentation. There will be a question and answer session ask the question during the session you'll need to press star one on your telephone.

He require any further to think please press star zero.

The only thing in the conference over to your speakers today, Tom Gelston Senior Vice President Investor Relations. Thank you. Please go ahead Sir.

Thank you Julien.

Good morning, everyone and thank you for joining us on our call today.

As a reminder, this call is being recorded.

This morning, Fuelcell energy released our financial results for the third quarter fiscal year 2020, and the earnings press releases are available on the Investor Relations section of our website that Fuelcell energy Dot com.

Consistent with our practice in addition to this call in our press release, we have posted a slide presentation on our website. This webcast is being recorded and will be available for replay on the company's website approximately two hours. After we conclude this call.

Before we begin our prepared comments please direct your attention to the disclosure statement on slide two of the presentation and the disclaimers included in the press release related to forward looking statements.

The discussion today will contain forward looking statements, including without limitation statements with respect to the company's anticipated financial result, and statements regarding the company's plan and expectations regarding the continuing development commercialization and financing of its fuel cell technology and its business plan.

These forward looking statements are intended to qualify for the safe Harbor from liability established by the private Securities Litigation Reform Act of 1995.

All statements made on this call today other than statements of historical facts are forward looking statements that include statements regarding our anticipated financial and operational performance.

Forward looking statements made on this call represent management's current expectations and are based on information available at the time such statements are made forward looking statements involve numerous known and unknown risks uncertainties and other factors that may cause our actual results to differ materially from any results predicted assumed or implied by the forward looking statements.

I strongly encourage you to review the information in the reports we file with the FCC regarding these risks and uncertainties in particular those that are described in the risk factor section of our annual report on form 10-K, and the cautionary statement concerning forward looking statements disclosures in our quarterly reports on form 10-Q.

It also review the section entitled cautionary statements concerning forward looking statements in this morning's earnings press release.

During this call will use non-GAAP financial measures when talking about the company's performance and financial condition in accordance with SEC regulations.

You can find a reconciliation of these non-GAAP measures to comparable GAAP measures in this morning's earnings release and the reconciliation document post on the Investor Relations portion of our website.

Our call today, I am joined by Jason Q.

You will sell Energy's President Chief Executive Officer, and Mike Bishop Executive Vice President Chief Financial Officer, and Treasurer. Following our prepared remarks, we will be available to take your questions.

I would like now hand, the call over to Jason for opening remarks, Jason.

Thank you Tom and good morning, everyone. We appreciate you joining us on our call today.

I am pleased with our third quarter performance as we continue to execute on our powerhouse business strategy that we first announced in January this year.

Despite the ongoing challenges of code 19, and resultant economic uncertainty the Fuelcell energy team continues to operate.

As our number one priority, while continuing to execute on the projects in our backlog.

Delivering on our customer service and support obligations and moving business development opportunities forward.

Each quarter. We include the overview of Fuelcell energy shown on slide three for investors, who may be less familiar with our business.

During fiscal year 2019, which ended on October 30, Onest, we recorded approximately 61 million of total revenue.

Merrily across our three largest categories.

Service and license advanced technologies and generation.

Which together represent a diversified source of recurring revenue under multi year contracts.

During the first nine months of fiscal year 2020, we've generated approximately 53.9 million in revenue for 88% of total revenue generated in 2019.

Near the top of the slide we highlight many of our well recognized customers.

We are using our technology platforms, including our extended stack like fuel cells and combined heating power systems that enabled microgrids and leverage multiple fuel types, including carbon neutral bio fuels.

The same low carbon fuel cell platform is capable of providing distributed hydrogen which is what we will implement for Toyota at the port of long Beach, California.

We are working toward commercializing, our solid oxide platform capabilities to deliver hydrogen production through highly efficient electrolysis long duration hydrogen based energy storage and zero carbon hydrogen power generation.

Which will support the increasing penetration of intermittent renewable technologies around the world by providing a way to store the power generated by renewables for used when needed.

I would also like to note that since the commercialization of our first fuel cell power platform, we have delivered more than 10 million megawatt hours of clean power.

Moving to slide four.

We are excited about the progress, we're making sure propelling our purpose of enabling the world deliver light and power by clean energy.

This purpose guide for people.

The work, we do our strategic focus and the innovation as we are developing and commercializing.

We believe consumers and businesses around the world revenue in Asia Europe, developing nations are eroding the US we'll continue to demand always on power.

And as the electric grid continues to evolve our technology portfolio will be ready to provide the reliable power.

That the energy greater the future must deliver.

Now, let me highlight key themes that summarize our quarterly progress and where we are today as we continue to execute our powerhouse business strategy.

Slide five please.

First our underlying results for the fiscal third quarter demonstrate successful execution of our public backlog within continued emphasis on managing our operating expenses and positioning fuelcell energy for growth.

At CEO My first conversation with you solidified our commitment as a team to execute from our backlog.

And we continue to do just that in a moment, Mike will review, our quarterly financial results, but to put our results into perspective, we had 32.6 megawatts of operating power platforms and our generation portfolio at the end of the quarter compared to 26.1 megawatts as of July 30.

For 2019, representing a 25% increase.

While we have increased the overall capacity of our generation portfolio, we incurred increased expenses in connection with that early replacement and upgrading of our fuel cell modules at our Tory natural gas plant.

While one of the modeled recall replacement, we took advantage of the opportunity to perform and additional step and upgrade the second fuel cell module at the plant with our new reliable and longer life shore source platform.

The expense associated with this module replacement impacted our operating results. However.

These investments are expected to result in enhance performance lower future maintenance costs and improve margins over the life of the models to better deliver against our contractual commitments.

Second.

We continue to make progress against our project backlog, including our installation Groton, Connecticut. Currently this project is awaiting the completion of a coordination study by third party and electrical interconnection work to be executed by other third parties. We have completed the majority of our scope of work.

Once the third party study and other work is complete the plant will be ready for commissioning and commercial operation.

Also we continue to make progress on constructing our next bio fuel power plant in San Bernardino at the San Bernardino Municipal water Department.

Third as previously reported.

We we resumed factory operations in June at for proactive closure at the onset of the pandemic to ensure the safety of our team members.

In addition to prioritizing the safety of our team members. We made the decision to retain all team members and payroll benefits, which enabled us to quickly and efficiently reopen the facility after making safety enhancements.

Including use of social distancing protocols and the necessary ERP for fall team members.

Fourth.

We terminated our license agreement with Posco energy.

Which had previously been our technology licensee for South Korea, and the broader Asian market.

With that termination of those license agreements, we have permits directly marketing our product and service in those markets.

This is an important development as we position fill so energy for growth.

Our platform is uniquely advantage to deliver combined heat and power inclusive put speed, which our fuel cell competitors cannot deliver.

We are able to offer customers in Korea and across Asia, our full suite of platform offerings, including our hydrogen technology.

Try to and hydrogen platform will provide the Asian market with a distributed hydrogen platform to support transportation and a number of industrial and commercial applications.

Fit to strengthen our liquidity.

In June we executed in open market sale agreement with Jefferies to sell up to $75 million of our common stock to date, we have sold 28.3 million shares generating net proceeds to the company of $70.1 million, which may be used for working capital corporate liquidity the repayment of debt.

And to support the financing the completion of our project backlog.

We had strong institutional and retail demand for our shares and are pleased with the execution of the program.

Finally, consistent with our purpose, we continue to strive to be a leader in sustainability and environmental stewardship.

To this end Fuelcell energy remains focused on four of the largest global energy opportunities one.

Distributed Baseload generation.

Two distributed hydrogen generation.

Our multi feature platforms advantage by it steam delivery capabilities utilization of multiple fuel types and capability of delivering hydrogen through our distributed hydrogen platform.

Hydrogen can then be used as a transportation fuel and industrial applications and for the de carbonization under our repowering of existing gas turbine our generation infrastructure and blending down the carbon intensity of low carbon natural gas.

Our distributed hydrogen platform as a technology, we plan to deploy our facility in long Beach, California.

Three our solid oxide platform, which is capable of providing electrolysis hydrogen generation long duration hydrogen energy storage in zero carbon hydrogen power generation.

As we look to the future.

Our hydrogen generation capabilities through electrolysis can enable zero carbon energy storage platform for the future.

The Fuelcell energy hydrogen energy storage system is a closed loop platform when operating and reverse mode that leverage is stored hydrogen to produce carbon free power.

These technologies position Fuelcell energy to capture meaningful opportunities and the growing hydrogen economy around the world.

And fourth.

Carbon capture.

We continue to believe that carbon capture is key to meeting global goals for reducing the world's carbon footprint.

Thus, enabling much of the existing power generation infrastructure to remain in place.

And since energy is the linchpin of modern development and industrialization, providing developing nations with an opportunity to foster economic growth without sacrificing the environment.

This requires affordable abundant energy.

We believe that Fuelcell energys carbon capture technology is currently the only known method.

Concentrates and captured carton, while simultaneously producing more energy.

Together with Exxon Mobil Research and Engineering company, we continue to develop our fuel cell technology that has the ability to concentrate seo to across industrial applications, such as coal and gas fired power plants, which also producing power from the fuel so that.

And now I will turn nickel per over to Mike to discuss our financial results in more detail Mike.

Thank you, Jason and good morning, everyone.

Let's start by reviewing the highlights of our results shown on slide seven.

Total reported revenue in the third quarter was $18.7 million, a decrease of 18% year over year recall that the third quarter of 2019 to include a $10 million of revenue related to the Exxon Mobil Research and Engineering company license agreement.

Taking down total revenues service and license revenues decreased 38% to 7.1 million from 11.5 million in a year ago period service from license revenues for the prior year period.

Included revenues of 10 million recorded for the aforementioned license agreement that was entered into with Exxon Mobil Research and engineering company.

The servicing license revenues for the three months ended July 30, Onest 2020 include revenues recorded for motto replacements ever and routine maintenance activities. There were no module replacement revenues recorded in the prior year quarter.

Generation revenues decreased 13% to 4.7 million from 5.4 million due to plant maintenance activities, primarily related to downtime, while upgrades will performance at our 14.9 megawatt Bridgeport, Connecticut facility.

Advanced technology contract revenue increased 20% to 6.9 million from 5.8 million as results of revenues recognized stay tuned in connection with our joint development agreement with Exxon Mobil Research and Engineering company, which was executed during the first quarter of fiscal 2020.

And timing of activity under other existing contracts.

Cost of service and license revenues increased $7.7 million to $8.8 million for three months ended July 30, Onest 2020 from 1.1 million.

For the three months ended July 30, Onest 2019, due to the fact they were module replacements in the three months ended July 31st 2020 compared to no matter replacements in the prior year period, and also due to a $2.8 million increase in our loss accrual. During the three months ended July 30, Onest 2020 to reflect.

Charges expected change has an expected timing of future monitor placements at one plant in order to improve operating performance.

Specific issues at one of the company's plants required and earlier than expected masha replacement and accompany opted to replace another module earlier than expected at the same time in order to maximize plant efficiencies.

Gross loss totaled $3.1 million compared to a gross profit of 8 million. This change is partly due to the fact that the quarter ended July 30, Onest 2019 included 10 million of revenue recognized under a license agreement with Exxon Mobil Research and Engineering company, while there was no comparable revenue or profit recognized during the three.

It's ended July 31st 2020. Additionally, the results reflect the $2.8 million increase in our loss accrual recorded during the quarter ended July 30, Onest 2020 to reflect changes in the expected timing of future monitor placements results were also negatively impacted by manufacturing variances primary.

Really related to low production volumes, and unabsorbed overhead costs, which totaled approximately $2.6 million.

Of which approximately 1.1 million his related to the factory shutdown due to the cobot 19 pandemic in the quarter ended July 30, Onest 2020.

Operating expenses decreased 16% to $7.6 million compared to 9 million in the prior year period. This decrease was driven by a reduction in research and development expenses to 1 million from 2 million in the prior year period.

Reflecting the reduction in spending from restructuring initiatives implemented in 2019, and the reduction in resources being allocated to research and development versus revenue generating engineering activities.

We also recognized a reduction in administrative and selling expenses to 6.6 million from 7.1 million in the prior year period.