Q4 2020 Fuelcell Energy Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
And welcome to the fuel cell energy fourth quarter and fiscal year 'twenty 'twenty conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question. During this time you will need the press Star then one on the telephone.
If you require any further assistance. Please press Star then zero and then I'll break up of come back onto the system.
I would now like to hand, the conference over to your speaker for today. Mr. Johnson. Please go ahead.
Thank you Amy good morning, everyone and thank you for joining us on today's call as a reminder of this call is being recorded.
This morning fuel cell energy released our financial results for the fourth quarter and fiscal year ended October 31, 2020, and the earnings press release is available on the Investor Relations section of number of website at fuel cell energy Dot com.
With our practice in addition to this call and 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 the 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 for the company's anticipated financial results and statements regarding the company's plans and.
The expectations regarding the continuing development commercialization and financing of its fuel cell technology and its business plans.
These forward looking statements are intended to qualify for safe Harbor from the liability established by the private Securities Litigation Reform Act of 1095.
All statements made on this call today other than statements of historical fact are forward looking statements and 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. We strongly encourage you to review the information in the reports we file with the SEC regarding these risks and uncertainties in particular those that are described in the risk factors section.
On our annual report on form 10-K, and cautionary statements and forward looking statements and our quarterly filings.
You should also review of the section entitled cautionary statements concerning forward looking statements in this mornings.
Earnings press release.
During this call we will use non-GAAP financial measures when talking about the company's performance and financial condition and according with the SEC regulations you can find a reconciliation of these non-GAAP measures to the comparable GAAP measures in this morning's earnings press release and reconciliation document posted on the Investor relations of portion of our web site for.
For our call today I'm joined by Jason for your fuel cell energy as President and Chief Executive Officer, and Mike Bishop Executive Vice President and Chief Financial Officer, and Treasurer. Following our prepared remarks, we will be available to take your questions and be joined by other members of the leadership team I would like to now hand, the call over to Jason for opening remarks, Jason.
Thank you Tom and good morning, everyone. Thanks for joining us on our call today, we truly appreciate your interest in our company.
One year ago I hosted my first earnings call as CEO of fuel cell energy and today I am very proud of what the team has accomplished and the groundwork we are laying for long term sustainable success.
And of year in which all of US face the serious challenges created by the COVID-19 pandemic as well as social unrest in many parts of the world, We made progress toward our long term goals of profitable growth.
Developing and executing our backlog and advancing our clean energy platforms, all of which contribute to the global energy transition.
As we begin the second year of our powerhouse business strategy, we will continue to drive operational excellence by focusing on delivering value to our customers and stockholders by adhering to the prudent capital deployment to support growth.
And decreasing our overall cost of capital.
We are focused on delivering revenue growth by commercializing our proprietary technologies to deliver differentiated value to our customers and capturing some of the significant opportunities in the energy markets that are emerging today and that will continue to develop in the years ahead.
Before delving into results for the quarter. We have included in the overview of our company as shown on slide three and for investors, who may be new to our story.
During the fiscal year 2020, which ended on October 31, we delivered double digit revenue growth achieving approximately 71 million of total revenue across our three largest categories servicing licenses the advanced technologies and generation.
Which together represent a diversified source of recurring revenue under multiyear contracts with investment grade customers.
While we did not have revenue from product sales in fiscal year 2020, we are refocusing our efforts on new product sales and our ongoing market reentry in the largest fuel cell market in the world today, South Korea, as well as other global markets, including near term opportunities in Europe, and the Middle East.
Like many of the car.
But 19 pandemic impacted our operations and timing of our growth prospects throughout the year, but as we turn the page entering 2021.
We're optimistic about the energy transition opportunities before us at.
At the top of the slide we highlight many of our important customers currently using our technology platforms. These include a number of customers with our newest seven year stack life fuel sales many of which integrate integrate combined heat and power capabilities that operate at extremely high energy efficiency levels.
As well as other installations that enable micro grids utilized biofuels, resulting in carbon neutral carbon negative power and can leverage multiple fuel types.
Our share of source of fuel cell platform is capable of directly supply hydrogen and as example of this we are currently installing our first commercial hydrogen production platform in long Beach, California, the power Toyota the zero emission fuel cell trucks and consumer vehicles.
We have the ability to extend our carbonate fuel cell platform to deliver hydrogen through a process known as reforming the <unk>.
Electrolysis, and purification or RTP and with our solid oxide fuel cell platform, we will produce hydrogen through highly efficient electrolysis long duration hydrogen based energy storage and zero carbon hydrogen power generation electrolysis long.
Hydrogen energy storage and zero carbon power generation platform solutions will be commercialized with our solid oxide technology, which we expect to support the increasing penetration of intermittent renewable technologies, such as wind and solar by providing a way to store of the off peak energy generated by renewables.
And produce power at a later date on demand.
Moving to slide for as a company, we remain energized by our purpose of enabling the world's the liberal life empowered by clean energy.
This purpose drives our strategic focus and the work we do.
We believe consumers and businesses around the world will increasingly need always on power.
The electric grid continues to evolve around the world, but grid reliability is critical and.
And fuel cell energy is uniquely positioned to meet this challenge with our broad.
De carbonization product portfolio.
We believe the future of clean energy begins with the field so energy.
Next on slide five there are some key messages, we would like to convey to you today the.
First is the highlight the progress we're making toward completion of projects in our backlog as we execute our powerhouse business strategy for.
For fiscal year, 2020 revenue grew 17% to $70 9 million.
<unk> was primarily due to our expanded generation portfolio and growth in revenues from advanced technology projects. While we continue to maintain an emphasize managing operating expenses and positioning the company for growth.
To put some mile markers behind our generation portfolio.
We had $32 six megawatts of operating power plants, and our on balance sheet generation portfolio at the end of the year, representing 25% growth from 26, one megawatts one year ago.
Growth in advanced technologies stems from our joint development agreement with Exxonmobil Research and Engineering company as we work towards commercializing our proprietary of carbon capture solution.
We continue to make progress against our circle of $1 $3 billion in contracted revenue backlog, including completion of our two eight megawatt project until area of California, utilizing our proprietary gas cleanup skid technology. This facility utilizes one of 100% onsite renewable biogas.
From the wastewater treatment facility to produce clean power for the San Joaquin Valley in California, one of the most productive agricultural regions in the world.
We are near completion of construction on our next biofuel power platform in California at the San Bernardino municipal waste water treatment department extend need our platform portfolio utilizing onsite biofuels to produce carbon neutral power.
You also energy sure source power platform will use methane rich biogas that would otherwise be flared wasting energy and producing emissions to produce clean renewable carbon neutral power.
We are proud to note that our power platform is the only fuel cell power platform sort of by by car of the California Air Resources Board for operations on biogas.
We are also nearing mechanical completion of our microbial project at the Naval submarine base in Groton, Connecticut.
<unk> third party interconnect once third party interconnections and other safety related work is complete the platform will be ready for commissioning and commercial operations.
We are excited to have the opportunity to deploy our microgrid platform in support of the United States Federal governments defense critical electrical infrastructure objectives.
We recently began early stage construction activity on 24, five megawatts of additional projects, including the two three megawatt Tri Gen platform that will deliver carbon neutral electricity green hydrogen and produced water to Toyota at the Port of long Beach in California and.
Our utility scale deployments in the Outback, New York in Derby, Connecticut.
The Derby, Connecticut project is expected to deliver competitively price class, one renewable energy and renewable energy credits from a compact footprint by Remediated and Repurposing of the municipal brownfield and the city of Derby.
Managing through COVID-19 may 2020 of challenging year.
First I want to offer our prayers of support for the millions of families around the world the lost loved ones and for those who are currently battling COVID-19.
I also want to thank health care workers first responders and the frontline workers at our company and around the world for their selfless sacrifice to show up to work every day.
Thank you.
As the company we are proud of the actions we took to safeguard our team members and our communities during the pandemic by temporarily shutting down our manufacturing facility and requiring all employees, who are capable to work from home, while maintaining full wages and benefits for team members unable to work from home due to their <unk>.
Job functions.
We made a number of improvements in our manufacturing processes and capabilities, while implementing of applicable social distancing protocols and restarting production in late June at an annualized production rate of 17 megawatts. Despite these challenges we increased production after recommencing operations and <unk>.
Spec to increase our production to an annualized production rate of 45 megawatts during 2021.
The second key message I want to highlight is the progress we've made towards bolstering our financial foundation, strengthening our liquidity and creating an opportunity to reduce our cost of capital.
Mike will go into more details. So I will just provide a few highlights starting with our current balance sheet position.
During fiscal year 2020, and early fiscal year 2021, we raised over 325 million in capital and.
In the fourth quarter, we completed an equity offering resulting in net proceeds to the company of approximately $98 3 million net of expenses, we had strong institutional and retail demand for our shares and subsequent to the fiscal year end, we completed an additional equity offering resulting in net proceeds to the company.
Of approximately $156 3 million after deducting expenses.
The subsequent proceeds allowed us to repay 87 3 million, representing all amounts owed to lenders and the agent under the Orion credit agreement as well as pay 21 5 million owed to Enbridge under our series one preferred share obligation.
As a result of these activities, we significantly reduced our corporate debt and our unrestricted cash balance on a pro forma basis increased to approximately $209 million.
$11 2 million of which represents cash formerly restricted by Ryan that was released upon the payoff.
Altogether the results of these offerings provide us with the opportunity to reduce our cost of borrowing going forward and enables us to have significant liquidity to execute our project backlog.
And accelerate commercialization of our advanced technologies.
And third I want to highlight our goal of extending our leadership in sustainability and environmental stewardship.
<unk> around the world are increasingly looking for de Carbonization solutions that drive the transition to clean energy address climate challenges and enhance grid reliability the <unk>.
The transition has been further driven by regulatory support.
Based on the initial policy objectives outlined by the New White House administration, we expect clean energy and climate policies in the U S to be a significant focus and received broad support which is consistent with what we're seeing in markets across the world.
To meet the growing need of clean energy fuel cell energy remains focused on developing and deploying our de carbonization of product portfolio of solutions for some of the largest global energy opportunities.
One distributed Baseload generation, which is provided by our current share of source platform.
Two distributed hydrogen generation using our carbonate platform.
Our solution has the advantage of the clean water delivery capability utilization of multiple fuel types, while delivering hydrogen that can then be used as a feedstock and industrial applications as a fuel for transportation and for Decarbonising and or Repowering existing gas turbine power generation infrastructure.
Our blending down the carbon intensity of low carbon natural gas.
This is the technology platform, we plan to deploy at our facility in long Beach, California.
And it is first of this time.
Yes.
And is the first of its kind of in the U S. We are also developing a hybrid reforming electrolysis solution.
RMP based on our carbonate platform to produce hydrogen from fuels and power when power coal production is not needed.
Three low.
Long duration hydrogen energy storage power generation and electrolysis using our solid oxide platform.
The generation of hydrogen through electrolysis can enable a zero carbon energy storage platform, our hydrogen energy storage system is a closed loop platform and is designed such that when it operates in reverse mode. It can leverage stored hydrogen to produce carbon free power.
Our differentiated technologies positioned fuel so energy to capture meaningful opportunities in the growing hydrogen in the economy around the world at the.
For increased penetration of intermittent renewable technologies.
And fourth.
Carbon capture sequestration and utilization.
We believe the carbon capture is key to making material reduction to the world's carbon footprint, enabling existing power generation infrastructure to remain in place and avoiding the need for much of the world to forego economic development.
Fuel cell energy carbon capture technology is the only solution that we know of that concentrates and captures carbon while simultaneously producing more energy and has the ability to deliver hydrogen from a single platform.
Together with Exxonmobil research and Engineering company, we continued to develop our fuel cell technology that has the ability to concentrate C. O two across the industrial applications, such as coal and gas fired power plants industrial and chemical processing.
Also producing power from.
From the fuel cell stack.
Our technology also has the ability to extract and deliver carbon dioxide from our fuel cell platforms for utilization in a number of applications, such as food processing and carbonated beverages dry ice production water purification and more.
In fiscal 2021, we plan to focus on commercially advancing new applications of our technology, including the demonstration of our solid oxide electrolysis platform, while continuing to execute on our backlog of projects by delivering our traditional distributed generation platforms.
Said simply we booked for our technologies will position fuel so energy to be a leading energy platform solutions provider for the worlds energy transition.
And now I will turn the call over to Mike to discuss our financial results in more detail Mike. Thank.
Thank you Jason let's begin by reviewing the highlights of our results shown on slide seven I'll start with fourth quarter results total revenue increased 54% year over year to $17 million, primarily reflecting increases in service and license and advanced technology contract revenues, partially offset by a decrease in generate.
Remedies breaking down total revenues service and license revenues increased to $5 4 million from 800000 during the fourth quarter of fiscal 2019 due to revenue recognized from module exchanges at three plant locations generation revenues decreased to $5 1 million due to plant maintenance activities primarily related to down.
Time, while upgrades were performed at our 2014 nine megawatt Bridgeport fuel cell Park project advanced technology contract revenues increased 48% $6 4 million due to revenues recognized from connect in connection with our joint development agreement for GTA with Exxonmobil Research and engineering company or <unk>.
Memory, which was executed early in fiscal year 2020.
Cost of service and license revenues in the quarter increased to $8 1 million from $3 8 million in the fourth quarter of fiscal year 2019, as the company performed module exchanges for three projects there were no module exchanges in the prior year period.
Cost of generation revenues decreased to $10 3 million from $22 6 million in the prior year period due to lower impairment charges results for the fourth quarter of 2019 included a noncash impairment charge of $17 5 million.
As a result of decisions made by the company to operate the Triangle Street project under a merchant model kind of use the project is the development platform for the company's advanced applications as well as the termination of the Bolthouse farms project due to unfavorable regulatory changes in the fourth quarter of fiscal 2020, we took a further impairment charge.
On the Triangle Street project of $2 4 million as a result of output and revenue projections, given our current development plans.
Operating expenses decreased 5% to $9 1 million compared to $9 6 million in the prior year period.
This decrease was driven by a reduction in administrative and selling expenses.
As a result of restructuring activities implemented in 2019 slightly offset by an increase in research and development expenses.
Loss from operations totaled $17 1 million compared to 33 million in the prior year period, the fourth quarter of fiscal 'twenty was impacted by the timing and mix of advanced technology activities higher service costs during the quarter and the impairment charge relating to our triangle Street project net loss for the quarter totaled $18 nine.
$10 million compared to a net loss of $35 2 million in the fourth quarter of fiscal 2019 net loss attributable to common stockholders for the quarter totaled $19 7 million for eight per basic and diluted share compared to a net loss of 36 million or <unk> 23 for basic and diluted share in the prior year.
The period, the Noah the lower net loss per common share for the quarter ended October 31, 2020 is primarily due to higher of weighted average shares outstanding due to share issuances since October 31 2019.
Adjusted EBITDA improved to negative $8 6 million compared to negative of $11 million in the prior year period.
Now turning to the full fiscal year revenues increased 17% to $70 9 million, primarily due to increases in generation and advanced technologies revenues service and license revenues decreased 6% to $25 1 million in fiscal year 2020 included.
Revenues of 4 million recorded in connection with the joint development agreement that was entered into with Emory early in fiscal year 2020, compared with the 10 million $10 million of revenue recorded in the prior fiscal year related to a separate license agreement entered into with Emory. In addition, the prior fiscal year included revenue Ricky.
<unk> for the Bridgeport fuel cell Park service agreements revenue.
Are no longer being recognized under the service agreement as a result of the purchase of the project by a subsidiary of the company in May of 2019.
Generation revenues increased 42% to $19 9 million, reflecting revenue from electricity generated under our ppas, including the Bridgeport fuel cell Park project acquired in May of 2019, and the <unk> biomass project, which commenced operations in December of 2019.
Advanced technology contract revenues increased 31% to $25 8 million due to revenues recognized in conjunction with the company's J D. A with Emory.
Operating expenses for fiscal year, 2020 decreased 31% to $31 4 million compared to $45 7 million in fiscal year 2019, reflecting the decrease in research and development expenses from restructuring initiatives implemented in fiscal 2019, and the reduction of resources being allocated to.
Internal research and development activities as resources were instead allocated to funded advanced technology projects administrative and selling expenses decreased in fiscal year 2020, the decrease primarily relates to proceeds.
From a legal settlement of $2 2 million received during the year ended October 31, 2020, which was recorded as an offset to it.
Administrative and selling expenses and higher legal and consulting costs incurred during the year ended October 31, 2019 in conjunction with the restructuring and refinancing activities undertaken by the company in fiscal 2019.
Loss from operations in fiscal year, 2020 totaled $39 2 million compared to a loss of $66 9 million in fiscal year 2019 net loss for the fiscal year totaled 89.
$1 million compared to a net loss of $77 6 million in the prior year net loss includes a negative noncash impact related to the change in fair value of of common stock warrant liability of $37 1 million <unk>.
Adjusted EBITDA in the fiscal year, 2020 improved 44% to negative $17 7 million compared to negative $31 4 million in fiscal year 2019. Please see the discussion of non-GAAP financial measures and adjusted EBITDA in the appendix of our earnings release net loss per basic and diluted.
Sure it's true.
<unk> to common stockholders for the fiscal year 2020 was <unk> 42, compared to $1 82 in fiscal year 2019.
Next please turn to slide eight for additional detail on financial performance and backlog the.
On the left hand side of the slide graphically displays of the numbers I walked through in the fourth quarter and we are pleased with the improvement of net loss attributable to common stockholders net loss from operations and adjusted EBITDA when compared to the fourth quarter of fiscal 2019.
Looking at the right hand side of the slide we finished the fiscal year with backlog of $1 two 9 billion.
Backlog decreased two 5%, reflecting the continued execution of backlog and adjustments to generation backlog.
Primarily resulting from the decrease in fuel pricing, which has lowered estimated future revenue par.
Partially offsetting these decreases is an increase in advanced technologies backlog, primarily the result of a of the GTA with Emory total backlog consists of approximately $1 1 million in generation backlog of $169 million in service and license backlog and $49 million and advanced technology.
Contract backlog.
Turning to slide nine I would like to highlight the steps.
Taken to provide additional liquidity with the goal of enabling us to focus on the execution of our business plan, including building out our backlog of generation projects.
In commercializing our advance hydrogen the technologies.
During fiscal 2020, we raised $173 2 million of net proceeds through common stock sales of warrant exercises as of October 31 2020.
The restricted cash restricted cash and cash equivalents totaled $192 1 million.
Of which $42 2 million was restricted cash represented by the gray bars.
We also had cash as of October 31.
<unk> had cash as of October 31, 2020 totaling $149 million of unrestricted cash that is represented by the dark blue bar at the bottom of the chart.
After the fiscal year end, we completed an additional equity offering resulting in net proceeds to the company of approximately $156 $3 million. These proceeds were partially used to extinguish our senior secured credit facility with the Orion energy partners by paying all amounts owed totaling $87 three.
And to pay in full the $21 5 million owed to Enbridge under the series one preferred obligation of one of our subsidiaries. The remaining $47 5 million of proceeds from the offering is unrestricted cash and may be used to accelerate the development and commercialization of our solid oxide platform for project.
Development project financing working capital support and general corporate purposes. As a result of these activities, we had pro forma cash restricted cash and cash equivalents totaling $239 6 million as of October 31, 2020 of which $208 6 million was unrestricted cash.
Cash.
Consistent with prior periods. The company does not provide quarterly or annual revenue or EPS guidance. We did however provide spending ranges for fiscal 2021 in our 10-K as follows.
As of October 31, 2020, the company had 47 megawatts of projects under development and construction some of which are expected to generate operating cash flows of the beginning in fiscal year 'twenty, one and 'twenty two to build out this portfolio for fiscal 'twenty, one we forecast project assets expenditures to be in the range of.
The $50 million to $75 million compared to $31 5 million for fiscal year 2022.
The funds such expenditures, we expect to use unrestricted cash on hand and to seek sources of the construction financing. Once these projects underdevelopment become operational we will seek to obtain permanent financing, including tax equity and debt, which would be expected to return cash to the business cash.
Capital expenditures are expected to be in the range of $5 million to $10 million for fiscal year 'twenty, one compared to capital expenditures of 400000 in fiscal year 'twenty as we make investments in our factories laboratories and business systems.
The company funded research and development activities are expected to increase to $18 million to $20 million in fiscal year, 'twenty, one compared to approximately $4 8 million in fiscal year 'twenty.
We expect to accelerate commercialization of our advanced technology solutions, including distributed hydrogen hydrogen based long duration energy storage and hydrogen power generation income.
In closing we are pleased with the progress that we have made under our powerhouse business strategy, our enhanced liquidity positions the company to execute on our business plan and deliver on our project backlog, while accelerating commercialization of our advanced technology platforms and applications I will now turn the call back over.
The Jason Jason.
Thanks, Mike.
As mentioned previously we made progress executing on our project backlog in 2020, including completion of our biogas power platform into Larry California. Additionally, we are near completion on new power platforms at the U S Navy base in Groton, Connecticut.
And at the wastewater treatment facility in San Bernardino, California.
We also began early stage construction activity on projects in New York.
Connecticut, and the Toyota project in long Beach, California.
We completed value stream teamwork and made a number of improvements in our manufacturing processes and capabilities, focusing on increasing throughput and simplifying and streamlining production operations, while enhancing health and safety protocols related to COVID-19.
As a result of these improvements we have the capability to increase our annualized production rate up to 45 megawatts on a single production shift.
Production process innovations lean manufacturing and other optimization initiatives the elimination of waste coupled with lean direct labor resources management are just a few examples of ways in which we strive for operational excellence.
Further our production operations are well positioned for further capacity expansion and will generate operating leverage as we increase our production rate in support of future business growth.
Next on slide 11, I want to provide an update on our powerhouse business strategy, which we announced one year ago based on our initial success. We are evolving the three core pillars of transform strengthen and grow.
The first phase of our plan was to transform the company to build a durable financial foundation and enhanced financial results.
As we have just detailed we have taken a number of important steps to strengthen the balance sheet can build liquidity to fund the delivery of our backlog of generation projects.
And accelerate commercialization of advanced technologies, we are now positioned to seek low cost long term financing that one projects are delivered can be recycled to finance the completion of new projects.
Currently we are focused on the strengthening stage of our strategy by driving operational excellence throughout the business.
As we think about capital deployment opportunities, we intend to prioritize investments in our power generation portfolio to enhance operating performance maximize uptime and reduce costs. Additionally.
Operational excellence continues to be a key enabler of success as we strive to execute on project backlog delivery Manny.
Manufacturing efficiency, extending sales stack life and customer service and satisfaction.
Help us on our journey of continuous improvement in January we started the deployment of a new business operating framework across our organization known as objectives and key results are okay, ours, which we intend to become the operating rhythm by which we run our company.
Our third pillar is achieving growth over the long term by seeking to penetrate markets, where our technology platforms can be the preferred solution.
Where we have the right to win.
To accomplish this we will continue the optimization of our existing core business to drive sales through enhancing the design of existing products and commercializing new technologies.
Our pursuit of commercial excellence is key to our strategy of winning new and repeat business. We are working towards further strengthening customer relationships and building a customer centric reputation.
We are building our sales pipeline by focusing on differentiated applications product sales and geographic markets and customer segment expansions in areas, where we expect our platform to be the preferred solution.
We are investing in industry, leading innovations to continuously increase product life and reliability and deliver one of the cleanest environmental footprint among baseload power generation platforms.
We have commercial products available to meet distributed generation and distributed hydrogen applications. We also intend to develop and commercialize our advanced technology platforms across carbon capture long duration of hydrogen based energy storage and zero carbon hydrogen power generation.
Geographic and market expansion is also an important part of our growth trajectory. We are extremely excited to be back in the Asian markets, particularly South Korea and are now actively pursuing business in these markets, while we have customer interest and inquiries. We expect this growth to take time as projects in Korea typically require an RFP process.
Lasting six months or longer in some cases.
We are already of technical support staff in the region servicing our existing platforms that we will look to increase over time as we grow our project base along with anticipated addition of dedicated sales and marketing teams with a geographic focus on Asia.
We also continue to work with channel partners to build opportunities in Europe and other markets around the world.
Turning to slide 12.
I will summarize the for primary growth opportunities, we are targeting of clean energy and how these are aligned with our product portfolio for.
First it starts with our core platform our core platform enables fuel cell energy to deliver spoke customer solutions across a number of applications.
Multi feature capabilities of our platform delivers power.
Buying heat and power for district heating building heating and cooling hot water and steam for industrial applications carbon capture separation and utilization for beverages food processing water purification dry ice and other applications and hydrogen for transportation industrial usage.
And Repowering.
All of these capabilities are delivered through our fuel cell carbon it platform today.
Today more than 250 megawatts of our carbon of platform is deployed and has delivered more than 10 million megawatts of reliable and clean baseload power, adding to the de carbonization of the electricity grid.
Our generation portfolio is currently delivering utility scale distributed generation to utilities commercial and industrial customers.
Our long term distributed generation power purchase agreements make up all of our approximate $1 $3 billion in project backlog.
Next our Tri Gen <unk> platform. The first commercial installation of which is currently under construction represents of our core distributed hydrogen offering, which we expect to deliver three value streams.
The first.
Carbon negative clean electric energy through the use of Biofuels and hydrogen production offsetting carbon.
Second.
The thermal energy.
And naturally produced water in our platform will be used letting Toyota avoid the need to use water as the natural resource and port car operations.
Third.
Our Tri Gen platform will be used to generate hydrogen.
The generated hydrogen at the port of long Beach will allow toyotas operations to use the hydrogen we produce the power of zero admission fuel cell vehicles in California.
We are also advancing the commercialization of our current carbonate technology to deliver RTP further extending our distributed hydrogen offerings and providing a means to significantly decarbonize natural gas.
Given our view of the importance of the emerging hydrogen economy and the growth of other types of renewable energy. We are also working towards the commercialization of our platform solutions that generate hydrogen through electrolysis and offer long duration hydrogen energy storage to address the growth of the hydrogen economy around the world.
<unk>.
We continue to advance the commercial development of our solid oxide technology, the cooperative research and development agreements with the U S Department of energy and the allocation of capital raised over the last several months. We are excited about our potential to revolutionize long duration of energy storage and better integrate intermittent source.
<unk> of power into the complex grid of tomorrow.
And of course, we also continue to focus on commercializing our carbon capture advanced technologies under our joint development agreement with Emory.
Carbon capture has a strong secular tailwind given the worldwide focus on global warming of sustainability and we feel confident in our ability to deliver integrated scalable carbon capture and hydrogen solutions in the future.
Next on slide 13, we want to reiterate and update our long term targets and goals that we initially provided last year.
Our targets and goals are intended to give context around our long term strategy and we are looking past the current economic uncertainty with our time horizon stretching into the fiscal year 2022 and beyond.
Key to achieving our plan is the continued execution of our project backlog and achieving commercial operation for each of those projects, which are expected to deliver recurring revenue from power generation and long term service agreements. We are also focused on commercializing our advanced technologies hydrogen.
Carbon capture platforms, each of which fall for new growth opportunities for our company.
Turning to slide 14.
I will conclude my remarks today by reviewing key investment highlights for fuel so energy over the past year, we have executed several strategic actions that together have strengthened our balance sheet by repaying debt and enhancing our liquidity, while reducing our cost of borrowing.
Given our enhanced financial profile, we believe we are well positioned to execute on our growth strategy. We have an outstanding organization that is focused on delivering our projects serving customers achieving financial milestones growth and building upon our operational excellence, while adhering to our core purpose are.
Company has a robust portfolio of innovative technologies that are expected to contribute to the global goals of decarbonising the grid advancing the hydrogen economy and protecting existing energy and industrial infrastructure investments with a differentiated carbon capture solution.
We are working to implement our powerhouse business strategy to transform strengthen and grow our company for the long term.
As I have just enumerated, we intend to be a leader in sustainability and environmental stewardship by delivering on sustainability throughout the full circular of life of our platforms. We have made progress over the past year and we look forward to the year ahead.
I will now turn it over to Amy to begin Q&A.
Mike Tom and I are joined by a couple of our colleagues for the Q&A portion of our call, Mike Lisowski, EVP, and Chief operating Officer, and Tony Leo EVP, and Chief Technology Officer Amy.
At this time, ladies and gentlemen, if you would like to ask a question. Please go ahead.
And the number one on the telephone keypad.
Again Thats Star then one to ask a question.
Our first question today comes from the line of Jed <unk> with Canaccord Genuity.
Please proceed with your question.
Hi, Thanks for taking my question.
I have a couple of if you don't mind I guess first.
Regarding the.
Kind of Reengagement with the South Korean market.
I'm just curious.
Is that going to be in the form of <unk>.
Product sales.
Historically that that's.
How that was booked.
Or does that.
<unk> in terms of this.
New effort.
Good day. Thank you for the question and thanks for joining our call today.
No. We expect that that will continue to be a product sales market opportunity for the company.
And did you give any timeframe or expectations around.
That or is it still too early in terms of.
In terms of that geography.
Yes, no we haven't given any specific timeframe as I said in my prepared remarks, it's generally an RFP process. Those rfps can go on for for some time six months or longer so.
We've not given any specific time of about when we expect to see the product sales hit the market.
Got it thanks.
You provided a lot of details so apologize if you addressed this but maybe just in simplistic terms if I look at the.
Quarter over quarter in terms of <unk>.
Generation and backlog backlog ticked up only 100 kilowatts, it looks like with the.
Toyota.
So I'm just wondering.
Why.
Why is that flat and we're not seeing that either of the backlog grow or the generation pulled down.
Good morning, Chad, it's Mike Thanks for joining the call. So the backlog we have recognized obviously.
Revenue this year as we executed on the business plan.
We did not we.
We did not add obviously any product sales product sales of zero.
Jason Just said Korea is the big market for that we would expect to see.
Product sales in Europe, as we continue activities there in the future as well as the U S. You did see increases in the backlog year over year related to advanced technology as we brought in the Exxonmobil joint development agreement.
And you would you would expect to see increases in generation backlog in the future as we convert our sales pipeline.
To backlog, but where we sit today, yes, it down a little bit over the prior year.
Okay and then.
I guess just.
With respect to product the Biden administration, President Biden signed.
An executive order one of the clean Air Act or the amendment of the clean Air Act that has a methane component, which it would seem as if if you had the advanced technology ready that that wood.
Be able to capture that value proposition.
Do we need to see of milestone the Ted.
Terms of the availability of the.
The advanced technology before you are able to participate in.
In this effort.
I guess coming back to that product, which it seems like you have a couple of different irons in the fire in terms of that but it also seems like that's.
A year or two out there is that the right way to think about that.
So jed.
As we are as as most people probably are absorbing all of the things that are going on with the new.
Administration, right now, but as I talked about with our product portfolio.
We have the ability to deliver.
Through the use of Biofuels carbon neutral carbon negative power production of day and the Toyota. The case for example, we're going to be delivering green hydrogen so as we look across our product portfolio and what we have commercial today with our carbonate platform, we will look to see how we apply.
Our technology.
Fit the.
The the new rules or.
Things that the current administration is going to do a net as it relates to our ability to deliver electrolysis.
Hydrogen generation with our solid oxide platform, yes, we're.
We announced earlier plans around the demonstration project that we will execute on but.
In terms of commercialization of that.
You'll see that happen.
Outside of our demonstration efforts.
Yeah. So thank you for that I guess, just more specifically if I am.
A utility or.
Our PPA right now and I've just had imposed methane cap on.
My generation and I've got a.
A combined cycle.
Or <unk>.
And I want to look at strategies of addressing that.
Are you able to sell that technology or is there a milestone that needs to be hit for your solid oxide or the.
Which I think Paul the under your advanced technology. So maybe I ask the first question, Rob, but or you need to achieve something.
I will give you. An example, so you could take an example, where you could take our Tri Gen platform today.
Use tri Gen to generate hydrogen to blend down the.
The cash.
Carbon intensity in the natural gas as one way in which you could leverage our technology today to address that if your utility Tony I don't know if you would add anything else to that in terms of existing technology and how we would apply that.
No I think thats exactly right of the trial.
Generation technology can produce clean hydrogen to decarbonize the natural gas.
And.
When you say, they're running up against the methane caps, perhaps talking about carbon dioxide emission caps.
And so efficient power plants that produce less carbon dioxide as well as our current platforms that can be modified.
Extracts the carbon dioxide from their emissions that sort of technology. We have today. It doesn't require a special milestone. So we do have technologies today that can address the CCAR authorization requirements.
Great I'll jump back in the queue. Thanks, guys.
Chad.
Your next.
Comes from the line of Paul Coster with Jpmorgan. Please proceed with your question.
Yes, thanks, very much Jason there's a lot going on and that's quite big.
Moving to <unk>.
The.
It includes career in Europe and 12.
The same one of the competitors.
Partnerships for those.
Just quickly can you talk to us about your strategy for moving into those regions.
So.
In Europe Paul.
We already have a presence there we have customers in Europe today, and what we're doing there is really.
Continuing to expand the work that we're doing with E on and other partners that we're working with from the channel development standpoint, and the market opportunity and addition of adding additional resources to the region.
In Asia.
Asia or across Asia, including Korea.
We are we have an existing team in Korea today that supports our existing.
Platforms that operate in the market.
And we're adding.
The additional resources from the channel development.
Standpoint to help us drive sales in that market and exploring.
Opportunities for <unk>.
Various channel partners in different markets in Asia, where we have of focus. So we will have both the direct sales effort as well as channel partnership efforts in those markets.
Do you think there's more to insurance to the diesel.
All of the ships, where you got some of the district to and maybe just really for.
A large partner in pursuing these opportunities to look for what is it faster than pricing.
All of them.
Yes, no Paul that's a good point I mean, we are we are not foreclosed on opportunities to work with other partners in a more strategic.
Relationship or.
The way of doing that and revenue and that also including attracting capital from those partners and then but things that I look for for that are not only just capital for the partner for does that although that's important that's not the core.
Back to Rick I would look toward in determining a strategic partner I really want to look at strategic partnerships or relationships that create expanded opportunity for the company from a market perspective and door brings.
Something unique to the to the relationship that allows us to extend our platform and the new when of compelling way.
To create differentiation in the market. So although capital is it is an important factor it's not it's not the only factor that we'll look at it in terms of evaluating the partnership.
Just sort.
For the long duration storage for momentum, particularly about which relates to Wyndham so lots of the dust.
It seems like so true.
So is the way the.
You're pursuing that sort of dropped but those of inspection.
Resources, which the stock of.
Of course some of them.
Through so poorly positioned but despite the merits in terms of of efficiency.
Can you just talk to spell how solid oxide fuel sales.
And with the solar in Switzerland.
As long duration storage solutions.
Yes, I'll, let I'll, let Tony.
Jump in and provide some more color on that but just in general rate electrolysis gives us I mean, our solid oxide platform gives us the ability to implement electrolysis.
The one thing or the biggest problem that.
The technology has is that no one has figured out how to control mother nature, yet so the wind off of blows when you don't need the power of the Sun size. When you don't need it for the reverse right when you need it the wind's not blowing or the first part China. So with all of that excess electricity that is often on the grid. When you talk about it just.
In terms of green hydrogen for long duration of the energy storage electrolysis that we'll leverage to create that.
Hydrogen storage at our platform, which is a closed loop platform, which then will have the ability and of reverse mode to use that same hydrogen and a non demand basis to actually generate power, but all.
I'll, let Tony.
Speak to the yeah, I mean, what solid oxide brings to this application specifically is it's a really really high efficient play.
Electrolysis as compared to the conventional electrolysis is here today. So that's one thing the other thing is the solid oxide sales developed Ken.
The same cell can be an electrolysis cells that can be switched from both.
The operation to be of fuel cell. So that you can create hydrogen store of the hydrogen and then send it back to that stack to make more power because you've got one stack doing both things you are reducing the capital cost of the application. So that's what you mean about solid oxide the ability to be reversible and the very very high efficiency.
So I just want to make sure I understand that because it sounds like you've made the big breakthrough the ability.
Do the immediate switch from the chose the also mode with that.
And the loss of seats.
Because some of these sort of it looks like true sales otherwise took a day.
Clearly the cool down.
If I got that right.
Well, it's the high temperature system. So it does take some time to heat up because of our solid oxide stacks are extremely light weight. So they don't take all of that much of the hero plus you would probably it's easier to keep the things warm so that they can be ready to be from spring into action whenever they're needed.
And one of the maybe Tony you can speak to a little bit about the demonstration.
The project that we announced with the deal.
Yeah.
Right.
You mentioned the breakthrough we've actually been working the test for a long time, making a lot of successes leading up to this.
We're moving from that core R&D activity into the demonstration phase for this technology of never system, that's running here in Danbury now.
<unk> announced the award from the U S Department of energy to do a 250 kilowatt of electrolysis demonstration of Idaho National laboratories.
<unk>.
I have some additional funding to do it.
The testing of our Danbury labs is reversible concept.
One of the past.
It's a steady progression from the R&D phase comfortable that the technology works going into the demonstration phase and marching this towards commercialization.
Okay last question, just capex associated with ramping up so we don't feel so business do you have a handful of Matt yes.
Sure.
Hey, Paul it's Mike the ship how are you so as far as the Capex split what we what we put out there in our 10-K and in our remarks, there's really kind of two things here right. So what we're doing this year is as Tony mentioned is working on.
Funded advanced technology.
<unk> and those those are funded with the Doe. The company is also making additional investments in company funded R&D. So last year. Our company funded R&D was about $4 8 million. This year will be in the range of $18 million to $20 million. We are in addition to that making capital expenditures in our factories.
<unk> and business systems across the company.
That will be in the range of $5 million to $10 million for fiscal 'twenty, one compared to less than $1 million last year.
Sure. Thank you.
Thanks, so much thanks Paul.
Your next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.
Good morning, and thanks, just three quick ones can you talk a little bit about your bandwidth for managing projects I mean, how many projects if you're really flex could you manage at the same time.
And secondly, how are you thinking about grant revenue if any in 2021 and 2022.
And finally, the new run rate for R&D should we think of this as of kind of steady run rate from here or is it reasonable to expect it to continue to increase over the next several years two through keep up with the range of opportunities that are opening up.
Okay, great. Thank you and thanks for joining the call I want to make sure I got all three of the first question was around bandwidth around projects.
Not quite get the second question I know it was something to do with revenue how are you.
About grant revenue from day, one of your other forms of credit by my opening through the P&L.
And then <unk> and R&D spending do we expect that to be.
The kind of the new normal if you will.
So maybe on the first one on bandwidth from projects I'll ask Michael has asked me to speak a little bit about how we manage projects of project management process.
And how we deploy the resources against those efforts. Thank you Jason and thank you Laura for the question. So so really we are well positioned to scale to concurrently manage.
Many many ongoing in flight projects, we we leverage qualified the EPC firms and partners that we work with to execute from the projects. We have a foundational deep supply chain that we leverage for all of the direct equipment and as projects.
Active we engage the EPC firms and our it can very effectively concurrently manage multiple projects at one time, so to be straight away. We really don't have of limits. The I would say as we sit here today on the number of projects that we can concurrently manage.
And we plan to scale, our resources in kind with our project backlog to support that business.
And then Mike can you maybe you could talk about how we think about grant revenues in the R&D and the go forward sure.
Really when you look at our revenues.
Our revenues come in the form of kind of as we sit here today three elements right you have advanced technology contract revenue, which does have an element of Gov.
Government funded R&D and it.
We of generation revenue in generation revenue. There is there is an element of of renewable energy credits that flows through that and for.
From time to time, there is some grant revenue that flows through that and then you have service and license revenue so from a from a grant revenue perspective.
It's kind of nominal but what I would say advanced technology contract revenue you've seen backlog for that increase.
Year over year as we brought in these additional low.
Projects as well as.
As well as.
The exxonmobil the contract so youll continue to see.
Hi, advanced technology contract revenue kind of if you go back fiscal 2019, where you are in the $20 million range.
This past year in the $25 million range, so with a strong and growing backlog. In addition, you will see our generation revenue continue to increase as these projects come online and we get the benefit of electricity sales and renewable energy credit sales is as we as we continue.
Two.
That into an operating portfolio and Thats what drives R. R.
Our targets for fiscal 'twenty.
<unk> 22, as we bring the company to EBITDA positive.
As far as R&D spending I mentioned that on the as.
As an answer to the last question you will see that increase this year as as we execute our commercialization plans.
Around our advanced technologies, including distributed hydrogen and hydrogen based long duration of energy storage.
And the spending targets that we put out is that will be between $18 million to $20 million compared to about $4 $8 million in fiscal 2020.
Thank you.
Thank you.
And the color if you'd like to ask that you. Please limit yourself to one question due to timing.
Your next question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your.
Thanks, so much.
Can you give us a sense of whats.
Inventory levels are you guys. The carrying amount of go forward basis. It sounds like you've got lots of finished goods inventory relative to understand how that flows through the the.
The balance sheet over the next next year or so.
Hey, good morning, it's Mike Thanks for joining the call so.
So when you think about inventory.
We've obviously had some transition during during fiscal 2020, where we came into the fiscal year were operating at around 20 megawatts, we actually brought the factory back down to zero during during.
During the Covid shutdown.
And as Jason said in his remarks, we have now obviously the factories came back online in the June July timeframe, and we're now ranked ramping the factory up to 50 megawatts. So what youll see from an inventory position.
Sorry of up to 45 megawatts during during fiscal year 2021, So what youll see from an inventory position, you'll see inventory start to grow a little bit.
As we bring in additional raw materials work in process from.
From that ramp activity.
Curious is really a function of deploying assets into our into our generation portfolio. So as assets of finished we'll deploy those into the generation portfolio. They will become project assets on the balance sheet. So.
As projects get closer to COPD and as we're in construction Youll see finished goods come down, but I would say that will more than likely be replaced by raw materials and work in process inventory probably be.
Consistent or higher from where we sit today just given the production ramp.
That's super helpful. Thanks, guys.
Thank you.
Your next question comes from the line.
Your next question comes from the line of Eric Stine.
Craig Hallum. Please proceed with your question.
Good morning, everyone.
Hey, Eric how are you this morning.
Manuel I guess for me I'll keep it brief but.
Could you give a little more color on the on the product sale opportunities.
Given you know I mean, I know that's been an objective.
Had some headwinds there and would just love to know when you think about your fiscal 'twenty two objectives, I mean, what kind of contribution are you anticipating or.
Baking into that to reach those objectives.
Yes, Eric.
We have not traditionally given projections to that level, what I will say, though is as we think about some core markets, where we're seeing strong activity in our pipeline for example, like Europe.
We expect.
A significant number of those opportunities will be.
Product sales as opposed to Ppas and if you look at the relationship we have with the ER and that relationship is effectively set up to drive that type of.
<unk> business model.
And as we as a company we had a pretty focused effort on.
Winning project opportunities in developing those projects is on balance sheet projects, largely because of our integrated business model and the decision that we've made corporately.
Continue to have engineering manufacturing.
Sales and marketing all of as an integrated company and so now that we built a backlog in the set of opportunities for the company that will get us to a point to where we'll get to <unk>.
Adjusted positive EBITDA.
Through 2022, it gives us a lot more flexibility in terms of how we think about the project development opportunity rather than the PPA or a product sale.
So we expect that to become a bigger part of our mix as we move forward.
Okay I'll take the rest offline. Thanks, thanks, Sir.
Your last question for today comes from the line of Noel Parks with Tuohy Brothers. Please proceed with your question.
Good morning.
Good morning, how are you.
Real good thanks.
Just was wondering.
As far as of the expenses that you you.
Recognize for module exchanges.
As you have more projects implemented over time do you have any visibility into our modeling for sort of the expected timing of likely module exchanges.
Yes.
Hi, good morning to all of this is Mike I'll take that one in just the just to provide a little bit of background on how revenue and cost is recognized for our service portfolio and our service portfolio.
Is is assets owned by third parties, but we have long term service agreements, where the company essentially operates the assets for the for the owners of the projects that revenue is bifurcated into two streams.
Routine maintenance is essentially amortized over the over the life of the agreement and these are typically 20 year agreements.
The major maintenance activity as the module exchange today our modules.
Our seven year or seven year life. So the company defers revenue recognition and cost recognition until those modules are actually deployed into the platform.
So if youre thinking about modeling these out.
You would you would essentially model every seven years theres going to be of major.
Revenue element when you look at our service agreements generally.
The nature of maintenance piece is about half and in the.
And the routine maintenance is the other half so that's that's how.
You would think about modeling this out.
Great. Thanks, a lot.
Sure.
And I appreciate you joining the call.
And I will now turn the call back to Jason for you for closing remarks.
Amy Thank you.
Thank you again for joining US today, we continue to execute on our powerhouse business strategy working to strengthen fuel cell energy with the goal of delivering profitable growth and optimizing returns.
Encouraged by the teamwork I see on display in our organization day in and day out and I am excited about our work and the opportunity we have to deliver on our purpose to enable the world to live a life empowered by clean energy.
We are committed to delivering long term shareholder value and appreciate your continued interest in fuel cell energy.
In closing I want to wish God's blessings from President, Joe Biden, Vice President Kamala Harris and the United States.
Please stay safe and healthy.
For joining.
And have a great day.
This concludes today's conference call. Thank you for your participation you may now disconnect.
[music].
The.
Yes.
[music] zone.
Okay.
True.
All of them.
The.
Yes.
[music].
Okay.
[music].
True.
[music].