Q3 2021 Fuelcell Energy Inc Earnings Call
Okay.
Good day, and thank you for standing by welcome to the fuel cell energy third quarter 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask.
Any question during the session you will need to press star one on your telephone to withdraw your question press the pound or hash key.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to your Speaker today, Tom Gjelten Senior Vice President of Finance and Investor Relations. Please go ahead.
Thank you Carol good morning, everyone and thank you for joining us on today's call. As a reminder, this call is being recorded this morning fuel cell energy released our financial results for the third quarter of fiscal year 2021 and the earnings press release is available on the Investor Relations section of our website at fuel cell energy Dot com.
Consistent with our practice in addition to this call and our press release, we will post slides a presentation on our website. This web cast 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 <unk>.
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 results and statements regarding the company's plans and expectations regarding the continued development commercialization and financing of its fuel cell technology and business plans. These.
Forward looking statements are intended to qualify for 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 and include statements regarding our anticipated financial and operating performance.
Forward looking statements made on this call represent maintains its current expectations and based on information available at such time 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 of our annual report on Form 10-K, and cautionary statement language concerning forward looking statements disclosure in our quarterly report on Form 10-Q.
You should also review the section entitled cautionary statements concerning forward looking statements in this morning's earnings press release <unk>.
During this call we will use non-GAAP financial measures when we talk about the company's performance and financial condition in accordance with SEC regulations, you can find a reconciliation of the non-GAAP measures and the comparable GAAP measures in this morning's earnings release and the reconciliation document posted on the Investor relations portion of our website.
For our call today I'm joined by Jason few fuel cell Energy's, President and Chief Executive Officer, and Mike Bishop Executive Vice President.
Chief Financial Officer, and Treasurer following their prepared remarks, we will be available to take your questions and be joined by other members of the leadership team I'll now like to hand, the call over to Jason for opening remarks, Jason.
Thank you Tom and good morning, everyone. Thanks for joining us on.
On our call today.
We had a number of successes during the third quarter as we continued executing against our powerhouse business strategy.
Before getting into the business highlights I will give a brief company overview shown on slide three.
Looking at our last full fiscal year ended on October 31, 2020, we delivered revenues of approximately $71 million.
Comprised of our three largest revenue categories servicing licenses advanced technologies and generation all of which represent diversified sources of recurring revenue under multiyear contracts. In addition to those three revenue categories. Just mentioned, we are confident that we will regain meaningful incremental revenue from products.
In the near term, we see opportunities developing in international markets, including Asia, Europe and target customer segments domestically.
We have been taking steps to rebuild our business development and go to market capabilities as an essential step in strengthening pillar of our powerhouse business strategy to ultimately support growth. We've also been adding experienced strategic talent as we continue to focus on market segments that deliver long term growth opportunities, which we believe will position.
US to reenter targeted global markets expand client relationships and build new ones by focusing on customer segments.
Our company head Count is currently 380 team members and growing.
We've had many global customers, who are utilizing our multi feature fuel cell platforms. Many of these systems integrate combined heat and power capabilities, creating high energy efficiency levels. Other installations enable micro grids enhancing grid resiliency and reliability some of our applications utilize biofuel is resulting in.
Carbon neutral to carbon negative power and eliminating onsite flaring.
Now turning to slide four.
As a company we are committed to our purpose of enabling the world to live a life empowered by clean energy.
The World will always need reliable power created in an environmentally responsible manner, we are periodically and increasingly reminded by fires hurricanes and other extreme weather that grid reliability remains a critical issue that can't be taken for granted.
We are committed to providing solutions that deliver on our commitment to addressing climate change and deliver clean baseload power ultimately around the world.
Today, According to the W. H O more than 1 billion people are without access to reliable power.
With our broad product portfolio. The also energy is uniquely positioned to assist customers with de carbonization goals leverage a wide range of feedstock and to meet the challenge of ensuring energy reliability and infrastructure resiliency.
Our customers can and should be able to achieve each of these objectives.
We believe the goal of de Carbonization does not require de industrialization and that developing countries around the world should also participate in economic development alongside industrialized nations instead of non onsite solutions that rely heavily on credits or offsets our technology provides authentic and local.
Solutions for clean energy and has the future promise to Decarbonize industries less suited for electrification.
We believe strongly in the ability for customers to make a direct impact in the communities in which they operate directly reduce the need to rely on offsets that can originate thousands of miles away.
And as we look to the future.
We plan to deploy our unique and differentiated energy solutions to generate hydrogen through electrolysis, Andrew fuels store that hydrogen and utilize that hydrogen to firm up intermittent renewables repower transportation power existing combustion generation assets with hydrogen and provide clean hydrogen as a source of energy.
The industrial sector.
We do this in a manner, which supports high standards.
And economic growth, while protecting the environment.
And adapting to new resource challenges. This purpose continuously drive our strategic focus and the work we are passionate about doing.
Next I would like to turn your attention to some key messages for the quarter shown on slide five.
I am very pleased to announce that during the quarter. We began commercial operations at the one four megawatt biogas project at the San Bernardino, California wastewater treatment facility.
On the seven four megawatt project at the U S. Navy submarine base in Groton, Connecticut, we have achieved mechanical completion and execute at the interconnect agreement during the commissioning process. The final stage prior to commercial operation of localized and contained elevated temperature was observed inside a component of one of the two installed plant.
And as a result, the commissioning process was suspended this has delayed the overall commissioning timeline for the platform as we repair the gasket seals and installation our team has identified the root cause and it is in the process of applying improvements and preventative upgrades as well as implementing the necessary repairs to the plant.
We expect to resume commission on this project in late September, but timing is dependent on non fuel so energy related activities on Navy base, our intent is to achieve commercial operations as expeditiously as possible.
We're also continuing to make significant progress on other new projects in our backlog totaled $24 five megawatts.
Onsite civil construction activity has advanced on our 14.8 megawatt utility scale platform in Derby, Connecticut, and our two eight megawatt utility scale share clean energy project is in early stage development.
In addition, the construction of our seven four megawatt project and yet Pink long Island, which is shown on the right hand side of the slide continues.
Our two three megawatt Tri Gen hydrogen platform, which is being built at the port of long Beach in California has advanced our early site civil construction.
Its completion this multi feature platform will deliver carbon neutral electricity green hydrogen and pure water, helping our customer Toyota avoid water consumption in a region experiencing extreme drought conditions and provide a central distributed hydrogen fueling infrastructure to enable the continued growth of.
Hydrogen fuel cell electric vehicle transportation.
Second we have further enhanced our balance sheet to achieve an overall lower cost of capital across our platform and subsidiaries to strengthen our liquidity and financial flexibility in June we commenced an at the market offering program with Jefferies and Barclays capital to offer up to $500 million of our common stock.
Through July 31, 2021, we sold approximately 44 million shares under the open market sales agreement generating net proceeds to the company of approximately $369 million.
We plan on using the net proceeds from this offering to accelerate the development.
And commercialization of our advanced technology products and foot product financing working capital support and general corporate purposes.
Additionally, we recently closed on two tax equity transactions, one is a tax equity sale leaseback financing transaction with crest Mark equipment finance for the one four megawatt biofuels fuel cell project with the city of San Bernardino Municipal water Department in California. This.
<unk>, our second deal with CROSSMARK. The transaction total was two point $12.0 million through a 10 year sale leaseback structure and demonstrates what we believe is a continued interest from the financial markets and fuel cell Energy's differentiated technologies.
And we closed on a tax equity partnership flip financing transaction with East West Bank for the seven four megawatt fuel cell project located on the U S. Navy submarine base in Groton, Connecticut East.
East West bank's tax equity commitment totaled $15 million the ability to utilize these financing solutions enables us enables us to recycle capital for additional clean energy projects and commercialization initiatives.
And the third key message today is our focus on strengthening our leadership in sustainability, we have increased our commitment to research and development focused on the commercialization of our solid oxide power generation hydrogen storage and hydrogen electrolysis platforms as well as growing our commercial capabilities, our Doa supportive programs continue.
To advance the design of our solid oxide stacks stacks modules and balance of plant systems. We are also executing programs to develop reversible solid oxide systems for energy storage and very high efficiency solid oxide power generation systems.
Through our technology portfolio, we are developing solutions intended to address major global issues as society looks for ways to address climate challenges, while at the same time combating grid reliability issues.
He also energy remains focused on developing and deploying our distributed generation distributed hydrogen electrolysis hydrogen energy storage and hydrogen power generation and carbon capture product portfolio of solutions for some of the largest global energy opportunities.
Turning to slide six.
So energy is positioned to deliver de carbonization solutions across the energy delivery value chain. We believe energy must be delivered in distributed networks, where it is needed which will decrease dependencies on less efficient and less environmental Lee friendly centralized resources helped to harden grid infrastructure around the world.
And lower the dependence on costly long distance high voltage transmission.
Our distributed platforms offer clean baseload alternatives to traditional generation sources avoid more emissions on a 24 by seven basis than wind and solar and as we commercialize our hydrogen solutions or platforms were offered the opportunity to extend the life of existing investments in traditional generation assets by <unk>.
With high Green hydrogen and are capturing carbon from those generating assets.
At the local distribution level, we enhanced grid resiliency by delivering microgrid applications, signing generation closer to where it is consumed and providing onsite solutions for commercial applications ranging from power generation hydrogen thermal energy and carbon is a product ingredient for utilization.
The multi feature capabilities of our product and proven ability to operate using a variety of fuel sources supports distributed base degeneration and growing demand for hydrogen carbon capture and energy storage.
Fuel cell energy is ready to transition power delivery around the world.
And now I will turn the call over to Mike to discuss our financial results in more detail Mike.
Thank you, Jason let's begin by reviewing financial highlights for the quarter shown on slide seven in the third quarter of fiscal year 2021, we delivered revenues of $34.0 million compared to $25.0 million in the third quarter of fiscal year 2020.
Looking at revenue drivers by category service agreements and license revenues increased 102% to $17.0 million. The increase was primarily due to the fact, there were more module exchanges during the quarter onto exchanges generated approximately $17.0 million of revenue in the current year quarter compared to revenue of six.
In the prior year quarter.
Generation revenues increased 32% to $8.0 million for the quarter from $11.0 million, primarily due to higher operating output of the generation fleet portfolio as a result of investments and maintenance activities and an increase in our fleet size.
Advanced technology contract revenues for the quarter decreased 9% to $8.0 million from $15.0 million advanced technology contract revenues recognized under the joint development agreement or J D. A with Exxonmobil research and engineering company, or Emory, where approximately $100000 higher than in the comparable prior year.
Order, reflecting continued performance under the GTA. This increase however was offset by $800000 less revenue recognized under government contracts.
Compared to the prior year period.
Gross profit for the third quarter of fiscal year, 2021 totaled $2.0 million compared to a gross loss of $4.0 million in the comparable prior year quarter higher gross profit for the quarter was the result of higher service gross margin, primarily due to more new module exchanges for projects with higher margins during the current year quarter.
<unk> improved generation gross margin related to an increase in revenues and a decrease in depreciation expense and lower manufacturing variances, primarily as a result of increased production volumes.
These were partially offset by lower advanced technology gross margin primarily related to the mix of government contracts in the quarter.
Operating expenses for the third fiscal quarter of 2021 increased to $18.0 million from $13.0 million in the third quarter of fiscal 2020 components of our operating expenses, our administrative and selling expenses totaled $15.0 million in the third fiscal quarter of 2021 and <unk>.
<unk> legal expenses associated with the tax equity financings as well as additional share based compensation of $500000 due to noncash grants made in August and November 2020, under our long term incentive plans and increased compensation expenses as a result of an increase in staff compared to the prior year period.
Research and development expenses totaled $3 million in the third fiscal quarter of 2021 and reflect increased spending in the companys hydrogen commercialization initiatives compared to the comparable prior year period.
Net loss from operations totaled $16.0 million in the third fiscal quarter of 2021 compared to $18.0 million in the comparable period in the comparable prior year period net loss improved to $12 million in the third fiscal quarter of 2021 compared to a net loss of $18.0 million in the comparable.
Prior year quarter due in part to higher gross margin for the third fiscal quarter of 2021 compared to the comparable prior year period. Additional contributing factors included lower interest expense as a result of the early repayment of the Orion facility and the fact, there was no charge for the change in fair value of the common stock warrant liability.
Partially offset by higher operating expenses for the period and the fact, there was no gain on extinguishment of finance obligation recorded in the quarter as there was in the comparable prior year period, the net loss attributable to common stockholders in the third quarter of 2021 was for <unk>.
Third to seven cents in the third fiscal quarter of 2020, the lower net loss per common share was due to higher weighted average shares outstanding due to share issuances. Since July 31, 2020, and the lower net loss attributable to common stockholders adjusted EBITDA totaled negative $7.0 million in the third.
Fiscal quarter of 2021 compared to adjusted EBITDA of negative $11.0 million in the third quarter of 2020. Please see the discussion of non-GAAP financial measures, including adjusted EBITDA in the appendix of this deck in our earnings release.
Next please turn to slide eight for additional details on our financial performance and backlog.
The chart on the left hand side of the slide graphically shows the numbers. We just reviewed for the third quarters of fiscal years, 2020 one.
Looking at the right hand side of the slide we finished the quarter with backlog of approximately $4.0 billion, reflecting the continued execution of backlog and adjustments to generation backlog, primarily resulting from the decrease in fuel pricing, which lowered estimated future revenue offset by the inclusion of the project with United Illuminating in Derby.
Netiquette, which was awarded in the second quarter of this fiscal year.
Now turning to slide nine I will build upon Jason's comments on our enhanced liquidity as he mentioned our at the market sales of common stock resulted in net proceeds of approximately $369 million during the quarter subsequent to quarter end, we closed a tax equity sale leaseback financing transaction with CROSSMARK equipment finance.
For the San Bernardino project, and a tax equity partnership flip transaction with East West Bancorp for the U S. Navy Navy submarine base project in Groton, Connecticut. These financings will further enhance our liquidity position.
All of these actions are consistent with our powerhouse business strategy to strengthen liquidity with a goal of enabling us to focus on our on executing our business plan, including building out the backlog of generation projects commercializing advanced technology platforms, including our solid oxide platform carbon capture and separation solutions.
And expanding our go to market activities as of July 31, 2021, we had total cash and cash equivalents of approximately $494 million. This total includes approximately $474.0 million of unrestricted cash represented by the Blue bar on the chart in the center of the slide and $25.
5 million of restricted cash and cash equivalents represented by the Green bar.
On the right hand side of the slide is a chart illustrating our total project assets, which make up our company owned generation portfolio. We intend to continue to develop construct and grow project assets investments to date reflect capital spent on completed operating projects represented by the gray bars and capital spent on <unk>.
<unk> currently in development and construction represented by the light Blue bars at the end of the third quarter of fiscal year 2021, our gross project assets totaling approximately $241.0 million as detailed on slide 19 independent of this presentation, our generation portfolio totaled $76.
One megawatts as of July 31, 2021. This includes 34 megawatts of operating assets and 42.1 megawatts of projects in process.
Projects in process begin commercial operation they are expected to contribute higher revenue and adjusted EBITDA.
Generally as these future projects come online, we expect to see additional long term tax equity financing such as the examples I previously discussed.
In closing we are pleased with the progress made this past quarter and from a financial perspective, we believe we are well positioned to execute on our near medium and long term business plans I will now turn the call back over to Jason to discuss further.
Thanks, Mike and moving to slide 11.
As we've laid out in our comments today and over the past several quarters, we have been successful in increasing liquidity and an attractive cost of capital, which we intend to reinvest to achieve sustainable growth.
We will continue to execute against our project backlog and as projects are completed this will expand our generation portfolio, which we expect will generate higher revenues and EBITDA.
As I have already discussed we are also making investments toward advancing our solid oxide platform and carbon capture solutions to commercial deployment.
To facilitate growth across all of our platform technologies, we are working toward the goal of achieving an annualized manufacturing production rate of 45 megawatts at our Torrington facility by the end of the calendar year up from 17 megawatts at the end of fiscal 2020.
With our focus on manufacturing excellence, we have made strides and continued adoption of lean manufacturing principles and implementation of advanced automation technologies, where feasible.
This increased production rate has also been facilitated in part by.
While our effort to bring in additional talent and expertise across several key areas of the business.
In addition to manufacturing personnel, we have recruited for key capabilities and support functions business development and engineering, while also improving our retention capabilities.
Next on slide 12, I'd like to give further details specifically regarding our investment and strategic talent.
Because advancing and elevating human capital management is critical for the next phase of our growth.
In particular, I would like to highlight some additions to the leadership team.
This summer Betsy Schafer assumed the role of Chief marketing Officer, and she brings with her considerable fortune 50 experience.
And corporate communications marketing and brand management.
We believe that she will help us articulate our value proposition to customers and prospective customers alike, as well as educate national and local policymakers and the value of fuel cell technology and its a central role in the energy transition.
We have also brought onboard.
Andrew Jones, our Chief people officer, she will play in a central role in helping us recruit develop and retain.
GAAP to a new work model and enhance our human capital resources as we continue on our journey of growth and ensure we are well positioned to compete for talent.
We are also continuing to add expertise across all areas of the company.
To grow the commercial team to build our sales pipeline and product engineering manufacturing and project management capabilities and increase our base service capabilities as our product installed base continues to grow. Additionally.
Additionally, I am delighted to officially welcome our two most recent board members, Cynthia Hansen, and Don assumes Wilson, which expands our board to seven directors six tumor independent Cynthia and Donna our respected executives in business today and will add tremendous value to our company as we execute our strategy.
Next on slide 13 is.
It is our powerhouse business strategy, which is based on three core pillars of transform strengthen and grow.
I won't go through each of these today, but I think it is important that we remain centered around our overarching strategy to penetrate significant market opportunities, where we believe our technology will win.
We introduced the powerhouse business strategy in January of 2020, when I was relatively new to the position of CEO. This strategy was intended to serve as guideposts for our turnaround as we reposition fuel so energy to capitalize on the energy transition and I think it has served us well.
We have built a durable financial foundation and our added liquidity provides the flexibility to fund our growth plans and effectively compete in the marketplace.
We are developing new technologies growing our production capabilities and capacity.
Our backlog continuously striving to improve our operational excellence and deepen customer relationships.
I am energized by the focus and resolve with the fuel cell energy team as we continue to grow our company to attain our vision of a world empowered by clean energy.
Looking at Slide 14, we will continue to drive progress toward our long term targets and goals for fiscal year 2022 that we established with the launch of the powerhouse business strategy, reaching.
Reaching these targets required to successfully execute against our 42, one megawatt backlog achieving combined operations each of those projects and driving new top line revenue and margin and as we invest in commercializing and human capital.
As I've explained throughout my comments today, we are pursuing commercial commercializing our advanced technology around distributed generation distributed hydrogen long duration hydrogen energy storage pure hydrogen power generation electrolysis and carbon capture sequestration and utilization.
Finally to conclude my remarks on slide 15.
We have executed several strategic actions to strengthen our balance sheet enhance liquidity and reduce our cost of borrowing which we believe have positioned the company to execute on our growth strategy.
I am back by an exceptional leadership team and we continue to add to our talent pool across the company.
We're focused on taking care of our customers achieve financial goals and continually building upon our operational excellence, while adhering to our core purpose.
Our technologies have a key role to play in the global bowls Decarbonising the grid developing the hydrogen economy, and supporting existing energy and industrial infrastructure investments with differentiated carbon capture solutions.
We are two years into a powerhouse strategy to strengthen our business maximize operational efficiency and position us for long term growth.
Although we have hit a few bumps along the way we remain on track and confident that we can achieve our plan.
Finally, we intend to be a leader in sustainability and environmental stewardship.
Due to the technology, we deliver and the full circular life of our platforms and.
And we will provide an update on our efforts and evolving strategy during future calls.
I will now turn the call over to Carol to begin Q&A.
Thank you so much Jason.
As a reminder to ask a question you will need to press star one on your telephone to lift.
Draw your question press the pound key.
Keith.
Please standby, while we compile the Q&A roster.
Your first question comes from the line of Jeff Osborne with Cowen.
Hey, good morning, guys I just had two questions for you. Jason One is I was wondering if you can quantify or qualify.
<unk> product sales.
Expected near term there, but could you give us a sense for the quoting activity.
Pardon.
So just in terms of financing.
Challenges that.
We took some of the long lead times, what types of products that they're developing projects.
Projects.
Good morning, Jeff Thanks for joining the call Yeah, Let me try to give you a sense of that.
We spent a lot of time rebuilding our pipeline.
As part of our.
Powerhouse business strategy with that we've talked a lot.
Timeline of the sales cycle for the megawatt scale class products that we actually pursue.
So roughly in the 18 to 24 month type window.
A very good position in terms of that pipeline.
And the opportunities.
Across multiple customer segments, leveraging the multi feature capabilities of our product is really really focused on driving.
So as we look to.
Coming four quarters, we anticipate that we'll have a lot more to say.
Customer wins.
The actual business as you know.
One of the things that we changed shortly after my arrival, while we talk about projects in our backlog and what we've moved to is only putting in our backlog.
Actual signed contracts or in the case of Ppas fully executed ppas.
So as we move things through our pipeline.
Okay.
Okay.
Okay.
More to say about project.
That's good to hear and forward quicker.
Quick follow up.
Increased head count.
Thank you.
Coupled with the changes in fuel prices I was wondering if you could remind us.
Give us some guidance as to what we should think about the breakeven levels are.
Assuming products revenue was zero at the current run rate.
Thanks, a lot portfolio.
Thanks Cody.
It would be helpful.
Yes, good morning, gentlemen, thanks for joining the call.
At the beginning of the.
Yeah.
Hum.
Targets were.
Targeting by the end.
2020.
To get the business to EBITDA positive and really the tenants being.
Being able to do that.
Executing on this strategy building out the backlog.
Project assets that we have and we continue to make progress there.
Bernardino.
Coming online this quarter, so youll continue to see.
The increase from.
From our generation portfolio.
Hum.
Along with that so our expectation is that we're still on track.
<unk> achieved.
And the next year, we can see.
We need to execute on the business.
Okay.
Got it is that at a certain megawatt level or just based on timing.
I didn't know how to think about it it's really just the megawatts.
Building the basket.
Okay.
Provide modules to the fleet.
The production.
We are ramping to today is.
Is 45 megawatts by the end of the calendar year.
And <unk>.
That will support the business plan in front of us as we go forward.
Got it that's all I had and certainly to the extent that there is additional.
Opportunities.
As Jason mentioned.
We have capacity.
Factory.
Up to 100 megawatts, we could continue to ramp those as additional opportunities evolve.
Okay. Thank you.
Okay. Thanks.
Darryl are there any other questions.
Sure.
Colin.
Okay.
Hey, guys.
I didn't hear that.
Thanks Rami.
I was wondering about the investment in R&D, and what Youre doing to accelerate learning cycles.
I think I kind of hear some of these new products coming to market, but want to understand kind of structurally what you guys are doing with that R&D effort to to help move things along and get those products into the market as soon as possible.
Colin Thank you.
And thanks for joining the call.
Maybe I'll start and then I'll ask Tony our Chief Technology Officer.
Hi, Matt.
But.
Part of what we're doing is really.
Focused on the talent that we're bringing in to help accelerate the commercialization commercialization process. In addition to the investing that we're doing outside of what traditionally in some of our.
It's like our solid oxide platform has been a lot of Doa.
We continue to benefit from.
But we're making more investments there to speed up the commercialization process. The other thing that we're doing is more rapid prototyping and testing and Tony can talk about some of the work that we've already done around electrolysis.
Moving towards the work that we're doing around.
Reversible solid oxide as well.
Yes.
Yes, Colin this is Tony so what we as Jason indicated we're basically utilizing.
Funding in the case of carbon capture the Exxon funding and our internal R&D.
Funds to bring these new technologies to market and the prototyping for example that Jason mentioned as we're operating a solid oxide electrolysis demonstration system right now and our Danbury labs, it's a completely integrated system producing hydrogen from power and water.
It's hitting all of its performance objectives and the plan is to run it for another few months and then convert it to what we call reversible will add hydrogen storage will add some equipment and we will take.
The hydrogen store in the tank and send it back to the same SEC.
Demonstrating our commitment.
Application.
So these initial demonstrations basically trigger larger demonstrations you may recall, we have funding for a 250 kilowatt demonstration.
At Idaho National Labs that were building right now.
And that's.
So we're moving down the demonstrations of prototype path to commercial production with a mix of external funding as well as their own internal funding.
Great. That's super helpful. And then just with the restructured balance sheet.
Congratulations on getting all of that done.
To get a better sense of how that's changing your conversations with customers I think Jeff was getting after it a little bit earlier, but you know with this level of equity relative to your debt position.
And a view towards being EBITDA.
<unk> positive.
Have you been out talking with customers about that dynamic and how is that changing the conversations with folks.
In terms of being able to move things along towards full PFS.
Yeah No Greg.
Question, Yes. It obviously is a big help in the customer conversations one of the things that.
True about the fuel cell business and certainly amongst the stationary fuel cell providers is the uniqueness of the various technologies and so are positioned.
Being in a much stronger balance sheet position is definitely helpful. In terms of customers as they think about.
Selecting our technology because core to that decision is the long term nature of the relationship that we established with the customer.
And that relationship is typically over 20 years on that on each.
Purchase decision that customer makes so.
Being able to demonstrate viability being able to demonstrate strong financial stability and the ability to continue to invest in innovation and obviously in the service and support model is important for customers and it certainly aiding in our conversations.
Okay. Thanks, so much guys.
Thank you.
Your next.
The next question is Laurence Alexander from Jefferies.
Thank you I guess first of all can you give a sense of.
The broader pipeline or range of discussions that you're having I mean or the size of projects changing.
Are the lead times.
Potential projects changing.
Can you give us a sense for just kind of the scope of activity that.
Not yet in your backlog.
Yes so.
Thanks again for joining the call and thank you for the question.
As we look at our the project.
Conversations, we're having are opportunities they really span.
A range of different <unk>.
<unk> opportunities for the company. So we continue to have a number of conversations around biofuels leveraging the unique capabilities of our platform right and that uniqueness is the fact that we can actually leverage onsite biofuels without those biofuels needing to get into pipeline quality or be transported.
On a common carrier pipeline, we can use them right on site that gives us a unique set of opportunities to continue to pursue more opportunities like.
The biofuel projects, we talked about today we're.
We're having conversations around data center applications and continue to have a lot of conversations around education, and health care and in particularly those conversations generally tend to be focused around micro grids and the importance of really shoring up resiliency and reliability just given all the disruptions that are happening across.
The grid today.
And then as we talked about the multi feature capabilities of our product the.
The opportunities we are pursuing around food and beverage to be able to do multiple things in those applications ranging from providing power delivering carbon as a as an ingredient for utilization rather it be in beverage or food processing for example of keeping meets KOL do the process Prost.
Jesse stages as an example, as well as you know providing thermal energy rather that be integration into their absorption chilling and or replacing our adding two boiler capacity in there.
Those facilities, which is generally what you find in those kind of locations and then across either utility landscape. We continue to pursue utility projects and those are largely RFP driven and as you know in the state of Connecticut. For example, there was recently legislation passed for.
30 megawatts of power platforms for fuel cells in the state of Connecticut with.
Manufacturing fuel sales in the state having an advantage in terms of how those RFP responses get evaluated and so we continue to pursue those type of opportunities and from an international perspective, it's the same type of opportunities.
But with a lot more focus as well and conversations around hydrogen and what's happening around hydrogen and carbon and carbon capture those are big focuses in our conversations there.
And we see that customers are making long range plans for projects that may not actually be implemented into till the 2023 type timeframe and forward, but they are interested in making product selections around technology today and so we are actively engaged in those types of conversations.
And I appreciate like lumpy activity is on the sort of micro grid side, but when you think about the larger applications.
Has the has the size of the largest.
Projects in Europe potential scope changed compared to what you were considering a couple of years ago.
It seems through some fairly large projects that I'm seeing in Europe and Asia.
Already be announced and so I'm just curious as to if you're participating in those very large ones.
Yes.
Our platform is a very scalable platform and today.
I believe that still holds true that we have the largest fuel cell platform in the world.
And we also have the largest installed fuel cell platform in the United States.
As well and we are working for an example, and building out our 14 eight megawatt project in Derby as we talked about if the projects are more referred to were all around electrolysis and those type of opportunities our platform. They're on solid oxide the way where are architected that and plan for commercialization is around <unk>.
Been able to deliver gigawatt scale capacity.
And so the way I would answer that question is we're not shying away from those opportunities at the larger scale, even though we haven't announced any awards obviously in that regard.
Great and then two last quick ones just solid oxide when that starts to ramp will that require additional investment.
And if you did scale your production from the 40.45 megawatts up to 100 megawatts. If you flex down with the capacity that you're building what would be the incremental margins on the extra volume.
Yes.
Okay.
I apologize, but I'm going to ask you. If you don't mind to repeat your question only because there was some static on the phone and I didn't catch the first part of your question sure.
Sure. So on the solid oxide is there any additional investment needed to scale up once you get through the demonstration phases.
Okay.
Yes in terms of.
Our need to build out manufacturing capacity for solid oxide there will be investment required because it is it is it's a different technology right. We're going from our car carbonate fuel cell technology, we're adding our solid oxide fuel cell technology.
The stack.
Stack architecture is totally different I mean, so for example.
Our stack in our.
Carbonate platform at 400 sales staff and that module was about 10 feet tall.
Full cell stack height on our solid oxide is about 17 inches. So.
Completely different sale.
<unk> texture and the manufacturing process is different that being said there are.
Leverage points across manufacturing with certain things like tape casting and other processes that are leverages bolo costs, both technologies and we certainly will do that but incremental investment is required to be able to scale capacity for our solid oxide manufacturing.
And Laurence this is Mike and thank you for joining the call on your second question regarding profitability around the carbonate fuel cells and as we leverage the.
The factory here.
Sure.
At these at these current run rates.
We have we still have manufacturing variances coming through because we're below our standard and current quarter that was around $8.0 million that that cost has come down compared to the prior year, which was in the $8.0 million range and as we continue to ramp those manufacturing variances will continue.
To decline.
Which would which would expect to lead to higher profitability as hence the factory ramps.
Thank you.
Thank you Christian.
Your next question comes from the line of <unk> <unk> with Wells Fargo.
Thanks, Good morning, I wanted to ask about the Groton submarine basis project I guess, what happens if the Navy declined.
And are there any workarounds or alternatives that you could pursue to keep the project going.
Good morning, and thank you for joining the call and your question.
We the Navy.
Would need to grant an extension on the project, which we.
Fully expect that the Navy will continue to support <unk>.
<unk> as as they have up to this point and again as we indicated the project was in commissioning.
We identified.
Our high heat condition, and we're making the repairs to that platform and so we hope to be back in commissioning as we talked about later here this month in September.
And then we would fully expect to be able to work through.
The contractual arrangements, we have which is kind of threefold contractual arrangement.
Between us seeing that the navy in Groton utilities to continue to move the project forward.
Got it and then can you just give us a sense of the module exchanges that are expected to occur over the balance of the year should we expect the continued positive year over year impact from this and if so are there any specific dynamics, that's driving the uptick in exchanges this year.
Hi, Good morning. This is Mike I'll take the answer to that question. So.
From an accounting and revenue recognition perspective, the way module exchanges are accounted for essentially.
And these are under our long term service agreements revenue recognition is deferred under the long term service agreements for the portion related to module exchanges, which typically happens every five or seven years, depending on the life of the of the module.
So when you look at our results.
For service it is.
It is variable there's some quarters that.
Module exchanges and like this quarter, we had a higher level and it's really dependent on the on the lifecycle of the players in the field and win.
And when modules are due for replacement, we have not put out specific guidance around around our service revenue.
Would expect it to be variable.
As we've reported in the past.
Got it okay. Thank you.
Yep.
Your next question comes from the line of.
Noel parks with Tuohy brothers.
Hey, good morning.
Moreno.
I just had a couple of things I Wonder if you could talk about with the tax equity financings with the Groton.
Groton project in San Bernardino can you talk a bit about the mechanics of those financing.
I'm curious about what the lead time was involved in the application process and.
Sure.
Yes.
And whether there any prepayment restrictions on those arrangements.
Sure good morning.
Thank you for joining the call so.
Just I guess to give a little bit of overview of what we of what we.
Do when the company creates a generation project assets. These are typically.
That's where we go out and we competitively bid for a power purchase agreement.
Either with a utility customer and those of our larger.
Generation assets or a behind the meter customer like for instance.
Since the San Bernardino project, where we're selling.
We're selling power directly to the mill.
So that's kind of the first step and then the company through our financing operations will go out and solicit competitive bids.
To either finance the project or sell the project and evaluate those bids in and as we've talked about the company's preference for that our current backlog our current portfolio is to build a.
Chunk of assets on balance sheet, so that we can.
Benefit from the recurring cash flows.
So for these two these two projects we went through that process during the during the build out of these assets and we're comfortable with the with the financing terms that were offered by these two counterparties as Jason mentioned this is our second transaction with crest, Mark our first transaction with East West Bank.
The East West Bank transaction was a partnership flip transaction, that's our first <unk>.
<unk> are that first.
Type of tax equity transaction that transaction lends itself also to potentially bringing in back leverage.
That as well and those are.
Things that the company will look look at doing in the future. So I would say there has been good interest in financing our projects and doing that on a repeatable basis and we're looking forward to.
Having further discussions for.
The assets that remain in our portfolio under development and construction.
Great. Thanks for the clarification and I wanted to ask about on the hydrogen front your distributed hydrogen projects.
Could you just talk a bit about sort.
Sort of where those projects are housed in the organization and how they are managed.
So those are definitely going to have a long horizon component to them.
Even relative the terms of your your larger generation contracts. So if you could talk some about about how those are proceeding that would be great.
Yes so.
No the way that that we do development inside the company you can think about it. This way we we have an advanced technology organization in which we.
Drive our innovation, there that innovation and has turned into product given our validation of market neat fit for that product.
And the product is developed through that part of our organization.
When we achieve commercialization that product now is on the shelf if you will and.
And available to our sales team or business development organization to offer that product to customers.
For sale.
And that product is commercial then we have an engineering par.
All of our organization that we call our operational engineering organization and the product then really falls into that group in terms of how we.
Maintain the product and service it on an ongoing.
Between that and our customer service.
So.
As we.
Develop products, we then.
Could you hand them off if you will to our commercial organization to then be able to offer those products with customers and working directly with customers on the sell the products.
Did that answer your question.
That's helpful. I guess, we're thinking a little bit more about it's kind of hard to divorce hydrogen from the larger.
Infrastructure issues going forward. So I guess I was thinking about how that piece in your decisions around.
The possibility of of investment in.
Transportation infrastructure.
Might be evaluated in the organization.
Yes, we do I mean, we do a lot of.
You know.
Market research and through engagement with customers, we look at where where should we prioritize our resources from a sales standpoint, where should we prioritize and direct our development efforts in terms of capabilities and as we talked about our platforms have multiple features.
So we even <unk>.
Prioritize which features we flex on first if you will given how we see the market unfolding and where we think we have an opportunity.
Win in the marketplace, how we differentiate and youll be just think about more broadly like you. We're excited about what's happening in the evolving hydrogen economy the amount of interest in dollars being committed by governments across Europe Asia.
And certainly what we're seeing maybe unfold through the infrastructure package and legislation that's being contemplated.
Lastly in the U S.
Our platforms the thing.
It's about our platform capabilities.
Is the fact that we have three different technologies around how we can deliver hydrogen. So if you look at what we're doing with Toyota. That's an example of our Tri Gen platform and that platform allows us to provide power clean water and hydrogen from a single platform and we can do that by using renewable.
Natural gas, so, we're delivering green hydrogen and carbon neutral carbon negative power <unk>.
<unk> as we advance forward in the future we have the ability to do things around carbon capture for example to deliver blue hydrogen.
Secondly, we are working to commercialize our technology around RFP, that's leveraging our current molten carbonate technology and you can really think about that as a hydrogen generation platform because in that instance, we're operating the platform and reverse mode, we're not going to co production of power and we're generating.
The hydrogen which is core and fundamental to our product any way. That's what we do we create electrical chemical reaction, we make hydrogen and we turned that into power in this case, we'd be making hydrogen and we'd be handing that hydrogen off to any number of applications and because of the distributed nature of our platforms.
We can co locate our site that platform just as we're doing in the Toyota case, exactly where that hydrogen is needed. Thus removing the need to think about what's happening on infrastructure investments and pipelines for example, or how youre going to move that hydrogen in a clean way, which today is one of the challenges because.
The way hydrogen gets transported today largely by truck rates. So we can be exactly where that hydrogen is needed and then the work that we're doing are commercialize our solid oxide platform in that instance, right. We have the ability to do electrolysis and we can do that by using.
Only renewable energy like wind and solar or we can use grid related energy or even take advantage of nuclear energy as a way to do electrolysis and to create hydrogen and we have a highly efficient platform with our solid oxide capabilities to do that.
With the use of as we've talked about we're going to wait.
We can actually deliver a 100%.
The efficiency and the conversion of the electricity into hydrogen that hydrogen can be stored.
Or that hydro could you hand, it off again for an application where it might be used as fuel, let's say an industry segment, that's not typically well suited for electrification but needs.
Hi, he as a way to manufacturers products I E steel as an example, and that's an industry. That's working to Decarbonize itself. Our technology can certainly play a role in that as we get to commercialization.
The hydrogen can be stored and serve as the intermittent.
Firm capacity, if you will for intermittent technologies like wind and solar and because we can store that hydrogen in traditional means for example in salt caverns. The way you store natural gas today.
Or in pipelines, Oregon pressurized tanks.
You virtually have endless capacity. So if you say look we want to build a platform that creates an ability for us to store enough hydrogen as the energy source. So in this case hydrogen becomes the energy source and you want that for days weeks months as opposed to <unk>.
Four hours for example, as in the case of like batteries, you have the ability to do that so we think about those three platforms and our ability to address market needs, which come into play around what's the cost of electricity whether fuel.
Fuel availability no fuel was water availability.
So we have a lot of optionality.
We approach the hydrogen market as we get to full commercialization across all three platforms.
Great. Thanks, so much.
Thank you.
Your next question comes from the line of beds.
Boston off with Covid.
Palmer.
Yeah.
Hey, Thank you.
Thank you for taking my question and good morning.
Good morning.
Maybe.
You mentioned about Connecticut, 30 megawatts, so maybe starting with Deere can you help us understand like.
In context, how should we think about EMEA orders.
Ah projects from Connecticut.
This is what we have seen over the last two years.
Yes, so for that specific order that the governor.
Into law requires the utilities to purchase 30 megawatts of fuel cell power generation in the state.
And that's divvied up on a pro rata basis between our two.
Utilities here in the states, so roughly 24 megawatts for one six megawatts for the other.
There is a timeline for that process for which those rfps are posed to be run.
Winners selected on those on those RFP responses.
And for fuel cells manufactured in the state.
Like ours are.
Receive extra.
Consideration in ultimate decision that gets made by the utility in terms of the fuel cell platform that they will elect to choose that.
Bill and that process is one in which will be driven by.
A very open utility RFP process for which we will participate in that process and we're really excited about that and that creates opportunities for us to win the bid.
Got to compete and we got to win.
And we're certainly not.
Got it.
I am doing that.
In EMEA in Connecticut on those opportunities.
Okay.
And.
Thinking back by the end of the year.
Okay.
No I think as you can think about the timeline has laid out that this is really more of a.
22 activity.
The utilities, making decisions final decisions around that.
Got it.
Maybe switching to international markets, we haven't tried.
Alright.
Got it.
Goodbye.
Going back into Europe.
Students desktop.
What how are the conversations progressing how should we be thinking.
Okay.
Yes.
So I'll start.
Europe.
That's a market that's obviously.
Very exciting to us not only with our traditional technologies, but just how aggressive in Europe.
Countries are looking at the opportunities around hydrogen.
As a significant way for them to transition their energy infrastructure and then the interest that exist there.
Carbon capture as well.
Okay.
The number of opportunities.
We are pursuing.
Various countries in Europe, and again, we talk about typically.
Given the size of opportunities on <unk>.
Generally opportunities that are even worse.
No.
Hi, Denise.
Good afternoon.
Okay.
Okay.
Those are typically 24 months sales cycle.
We anticipate that given the amount of time that we've been in market now.
We've added resources.
Business development resources.
We will start to see opportunities.
Move on to <unk>.
<unk> committed contracts.
And as I said.
That's when we will.
State that we are firmly won those projects and we'll move them into backlog.
Okay.
Again, if you think about that.
The same timeline.
We as a company.
Really reentered the Korea market in July.
Okay.
<unk>.
And have been actively engaging with customers in that market.
So again kind of thing.
Yeah.
View around the ability to convert pipeline opportunities into signed committed contracts.
We'd be around the same timing as we think about those opportunities, but again also very excited about what's happening not only in Korea, but Asia.
More broadly.
Round around hydrogen in the energy transition as well.
And.
Maybe if I can squeeze one last thing.
So.
Think about the competitive dynamics are increasing in Korea.
One of your competitors announced up.
Fracking operations in Germany can you just help us frame, if we think about applications.
I did just scale applications.
You and your competitors idling inmate that.
Liberty has made it themselves.
Or are there different applications different end markets that you guys are.
Getting versus your peers.
Yes, so as we think about our platform.
The word platform is important right because we think about the multi feature capabilities of our product and how we leverage that.
To differentiate against the competition.
And the competition.
We think about that being more broadly than just other fuel cell providers right in terms of different generation decisions that a customer could make.
If I think about a market like Korea, there were some clear areas, where we are advantage for example.
In Korea, the ability to deliver.
<unk> is an important attribute of.
Opportunities in that market.
If we narrow that discussion do stationary Joseph providers right.
Yes.
Clearly differentiate ourselves in our ability to deliver seeing versus our competitors.
As we look at more energy transition type opportunities and if we just took hydrogen as an example around that.
The fact that we have three different platforms, we think gives us an advantage given the breadth of our portfolio.
And the ability for us to apply the appropriate technology to the market dynamic and so what do I mean by that in a market where energy prices might be.
A factor right in terms of being able to drive revenues from the sale of electricity a platform like our <unk>.
Platform may be the best fit because you can drive.
Generation revenue and you can deliver hydrogen and the more you can drive from generation revenues.
So less you need to achieve.
Achieve from a pricing standpoint for <unk>.
Hydrogen as an example.
Virtually if fuel prices are low.
Energy prices are low and a customer is looking to.
Capture hydrogen.
Something like our product like our EP platform that we're working to commercialize is a great opportunity for us to compete quite differently than maybe our competitive set and then our ability to do carbon capture alongside of that to deliver blue hydrogen for example, if we reach the natural gas we think it puts us in an advantageous.
Disposition and then our efficiency on electrolysis, we think will differentiate us in the market. Both in terms of conversion of electricity and water into hydrogen, but then the reverse ability of our platform to utilize the exact same stack that converted that electricity into hydrogen.
<unk> would be the platform that would produce power, we think that round trip efficiency is also going to play.
The advantage column for us.
So.
<unk>.
We think we're well positioned there in terms of our presence from.
Manufacturing standpoint or for capabilities that we also have the capability from a manufacturing standpoint and in Germany. So we feel good about.
How we're positioned to address global markets.
That's very helpful. Thank you for taking my questions.
Yes.
Your next question comes from the line of Eric Stine with Craig Hallum.
Hey, good morning, everyone, Hey, good morning.
Good morning, I'll, just sneak in a few here at the end.
Just curious on the in advanced technology on the milestone payment side.
I know you get I think you've averaged probably one a year.
And that's tied to the development work underway with Exxonmobil just curious.
Is that anything you can provide in terms of timing and then maybe.
You know what that next milestone.
What that maybe represents or what that means in terms of the process youre working through there.
Good morning, Eric This is Mike so on the Exxonmobil contract. There are two technical milestones in the contract of $5 million each.
Once the company.
Achieves a certain achieves the technical milestone.
That we will get paid and that will be revenue, we have not put out any guidance around the timing of when.
We expect to achieve those milestones.
Okay.
Got it and then maybe just just to confirm something on the fiscal 'twenty two targets.
When you talk about positive EBITDA positive free cash flow et cetera are you talking about that that's a year year end run rate or are those levels that you anticipate meeting for the entirety of the year.
Yes, so year end run rate expect to expect to get there by the by the end of 'twenty two based on continuing execution of the business plan, which does include <unk>.
Building out project assets and continued activity.
In advanced technologies and across the business.
Okay. Thank you.
Alright, thanks, Sir Thank you Eric.
That concludes.
Today's Q&A portion of today's call I will now turn the call back over to Jason <unk> for closing remarks.
Carol Thank you.
And thank you all again for joining US today, we will continue to execute on our powerhouse business strategy working to deliver profitable profitable growth and optimizing returns.
The <unk> energy team is excited about our work to deliver on our purpose to enable the world to live a life empowered by clean energy and we are committed to delivering long term shareholder value.
Thank you for joining and I hope, everyone stays safe and healthy and have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Okay.
Okay.
Yes.
[music].
Okay.