Q4 2021 Fuelcell Energy Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to fuel cell energy fourth quarter earnings call. At this time, all that N D serine a listen only mode. After the speaker's presentation, there will be a question and answer session.
I ask a question during the session you will need to press star one on your telephone if you require any further assistance. Please press star zero. Thank you now I would like to welcome Mr. Tom Gelston Senior Vice President of Finance and Investor Relations, Sir the floor is yours.
Thank you Ralph good morning, everyone and thank you for joining us on the call today as a reminder, this call is being recorded this morning fuel cell energy released our financial results for the fourth quarter and fiscal year 2021 and the earnings press release is available on our Investor Relations section of our website at fuel cell energy dotcom.
System with our practice in addition to this call and our press release, we will hope 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 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 its business plans.
These forward looking statements are intended to qualify for safe Harbor from liability established by the private Securities Litigation Reform Act of 1095.
All statements made on this call other than statements of historical facts are forward looking statements and include statements regarding our anticipated financial and operational performance.
Yeah.
Forward looking statements made on this call represent management's current expectations 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 the risks and uncertainties in particular those that are described in the risk factors section of our annual report on Form 10-K, and the cautionary statements concerning forward looking statements.
You should also review the section entitled cautionary statements concerning forward looking statements in this morning's earnings press release.
During this call we will use non-GAAP financial matters measures when talking about the company's performance and financial condition in accordance with SEC regulations. You can find a reconciliation of these non-GAAP measures to the comparable GAAP measures in this morning's earnings press release and the reconciliation document posted on our investor really.
<unk> 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 our prepared remarks, we will be available to take your questions and be joined by other members of the leadership team I will now.
Hand, the call over to Jason for opening remarks, Jason Thank.
Thank you Tom and good morning, everyone. Thanks for joining us on our call today, we've just completed a very important year in which we made continued progress against our powerhouse business strategy. Our fiscal year 2021 was defined by improving execution against our backlog invested in the capabilities of our global team and <unk>.
Working diligently to move technology innovations from the laboratory closer to deployment and commercial applications.
I will share with you today, our updated powerhouse strategy is on target to move us closer to our next phase of long term growth given the milestones we achieved throughout calendar year 2021.
Underpinning our growth.
Growth prospects.
On our quarterly conference calls I always like to provide a brief overview of the company as shown on slide three before getting into the business results for the quarter.
He also energy achieved annual revenue for fiscal year, 2021 of almost $70 million, which came from three revenue categories.
Service and license advanced technologies and generation all of which represent diversified sources of recurring revenue under multiyear contracts on.
On the right hand side of the chart, we have highlighted our marquee customers many of whom are utilizing our multi feature fuel cell platforms.
Over the past two fiscal years, we have had essentially zero revenues from product sales. However.
As we also recently reported we are expecting orders for at least 20 replacement modules in calendar year 2022 to service existing installations in South Korea.
For perspective, the total value of these orders represents roughly 86% of our 2022 revenues. We are optimistic that we will see meaningful revenues from product sales in Korea on a going forward basis.
We are also looking forward to creating opportunities in other Asian markets as well as select countries in Europe, the Middle East and Africa, where we have made it a priority to target product sales.
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 as I have traveled across the globe. Most recently in Korea, and the Middle East, where we're I've engage with prospective customers government officials regulators and investors are purposes, resonating and interest in clean energy is accelerating.
An important macro themes for our company.
Our versatile systems are able to integrate heat and power, creating high energy efficiency levels. While other installations are designed to enable micro grids that enhanced grid resiliency and reliability.
Some applications utilized biofuels, resulting in carbon neutral to carbon negative power.
We anticipate accelerated development of Biofuels renewable natural gas and hydrogen gas blending all of which are usable by our multi fuel feature platforms assuring customers that implementing our technology today provides them a clear path to carbon neutral carbon negative power.
Utilizing the same platform, we think of this as forward compatible sustainability.
The world will always need reliable power created in an environmentally responsible manner.
Grid reliability is an issue of increasing importance around the world and we are periodically reminded that $24 seven power can't be taken for granted.
With our broad product portfolio fuel cell energy is uniquely positioned to assist customers with their goal of decarbonising power and producing hydrogen to meet the challenges of grid reliability.
We believe we can accomplish the goal of de carbonization without harming industry or the economy.
And it is critical that developing countries around the world should also participate in economic development alongside industrialized nations.
Solutions, such as carbon offsets are somewhat disingenuous and in our view do not directly addressed immediate air quality and environmental issues locally where the facilities operate and originate environmentally harmful emissions.
We also introduced technologies provide authentic and local solutions for clean energy that deliver real time benefits to the communities in which our platforms operate.
We do this in a manner, which supports high standards of living and economic growth, while protecting the environment and adapting to new resource challenges. This purpose drives our strategic focus and the work we are passionate about doing.
Next I would like to turn the discussion to the results and business development during the quarter summarized on slide five.
First I am very pleased with the progress our team has made advancing our long term goals, including executing on our existing backlog, which should result in growing recurring revenues over time as projects become operational.
On the seven four megawatt project at the U S. Navy submarine base in Groton, Connecticut, we have resumed commissioning activities. After a brief delay to complete some necessary repairs, we expect to complete commissioning and achieve commercial operations by mid January.
Once fully operational incorporation of this platform into a micro grid is expected to demonstrate the ability of fuel cell energy platforms to increase grid stability and resilience, while supporting the U S military's effort to fortify based energy supply and demonstrating the navy's commitment to clean reliable power.
Sure.
Onsite construction of the seven four megawatt utility scale project and yacht Pink long Island is materially complete and the project has achieved mechanical completion the.
Project is expected to achieve commercial operations on or before December 31, 2021.
At our 14 megawatt Derby, Connecticut project, we have largely completed the foundational construction and the balance of plant components have been delivered and installed on site.
This utility scale fuel cell platform will contain five <unk> 3000 fuel cell systems that will be installed on engineering platforms alongside the Hughes Atonic River.
We are working with the local utility on electrical interconnection, which will serve as a gating item on the ultimate commercial operation date for this project.
For the Toyota project at the Port of long Beach, a two three megawatt Tri generation platform will produce electricity hydrogen and water offering a unique set of capabilities from a single platform.
Fuel cell platform equipment has been built and delivered to the site and civil construction work is underway.
When it achieved commercial operations. This power plant will deliver carbon neutral electricity green hydrogen and water, enabling the customer to avoid water consumption in a region experiencing extreme drought conditions.
Second.
We executed a favorable settlement agreement with Posco energy and its subsidiary Korean fuel cell reaffirming our access to sell our differentiated platform for new projects in the Asian markets, including South Korea. After the removal of the litigation cloud caused by Posco Energy's counter claims.
While we believe that we had previously been able to serve this market following our termination of various agreements with Posco energy the litigation with Posco created market confusion for customers, which made it difficult for us to generate product sales. In addition to clarifying our rights in the Korean and Asia markets. The agreement also includes a.
Commitment to order 20 replacement modules from us during calendar year 2022 to serve existing South Korean operating projects generating $60 million in revenue to the company.
My third key message is that our powerhouse business strategy is evolving.
In the two year sets, we developed the three core pillars of transform strengthen and grow we have built the durable financial Foundation to fund our growth plans. We have also made large strides in growing our production capabilities, while constantly working toward improving operational excellence.
During the fourth quarter, we continued our year long effort to increase operational capability and following the end of this fiscal year, we achieved our goal of increasing the annualized production rate at our Torrington manufacturing facility to 45 megawatts annually using only a single manufacturing shift.
Benefiting from our improvement initiatives and other reliability improvements to existing operating platforms. We saw further progress in terms of generation output and uptime across the fleet.
Looking ahead, we are turning our sights toward growing scaling and innovating to attain our ultimate vision of helping achieve a world empowered by clean energy.
As an example of that focus Saget SBA, the Toronto Airport management company and the Sam Group, one of the world's leading energy infrastructure operators based in Italy through its subsidiary renovate which specializes in energy efficiency solutions have signed a term sheet for the construction of our hydrogen ready.
Fuel cell energy fuel cell platform to operate and cogeneration mode with a capacity of one two megawatts at the Toronto Airport.
All of the Sam <unk>.
Renovate and fuels of energy you have not yet finalized our contract. We are pleased to be part of an innovative solution that will bring the first of its kind platform to Italy that can be fueled with variable percentages of hydrogen blended with natural gas for the combined generation of electricity and heat. This.
This is another example of how few also energy Decarbonize power and advances the hydrogen economy.
Fourth.
We're advancing our sustainability positioning to help customers address climate challenges and reached their sustainability goals and we are doing this through our commitment to research and development towards the commercialization of our solid oxide power generation storage and hydrogen electrolysis platform as well as growing our commercial capabilities.
We are developing solutions that address major global climate reliability and resilience issues.
He also energy remains focused on developing and deploying our distributed decarbonize product portfolio solutions for some of the largest global energy opportunities.
And fifth we continue to strengthen our balance sheet, which enables us to fund our growth and achieve an overall lower cost of capital.
To strengthen our liquidity and financial flexibility in November 2021, we closed on a tax equity financing transaction with Franklin Park for the Yapping project Franklin Parks tax equity commitment totaled $12 4 million and we received approximately $3 2 million of this commitment.
In August 2021, we closed on a tax equity financing transaction with east West Bancorp for the Groton sub based project with an equity commitment totaling $15 million.
And as part of the closing, we drew down $3 million on this commitment.
Earlier in the year, we closed on a $10 2 million tax equity sale leaseback financing transaction with <unk> equipment finance for the San Bernardino Biofuel project.
We also increased our generation operating assets, which is expected to contribute to top line revenue growth.
These are just a few transactions we have completed that we believe demonstrate continued support and interest from the financial markets and fuel so energies differentiated technologies and evidence of the strength of recurring revenue from our generation assets. We are committed to disciplined capital allocation to support future growth and market penetration.
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Next on slide six I would like to provide some perspective on our settlement agreement with Posco energy.
The key points of the agreement are that.
Number one as we announced in June of 2020, when we terminated our license agreement with Posco Energy. This settlement agreement clarifies, our exclusive right to sell our differentiated technology in relation to new fuel cell projects throughout Asia.
This resolution unlocks a path forward for fuel cell energy and gives customers in south Korea and across Asia, the ability to evaluate our differentiated technologies without concern or confusion about the legal dispute between fuel cell energy and Posco energy.
It also provides a timely and clear path for fuel cell energy to serve the market for fuel cells amid the growing energy transition within South Korea, and the broader Asian marketplace.
In South Korea, <unk> Energy's differentiated technology is a highly desirable choice for utility scale projects given its high quality thermal attributes that support the district heating requirements in the country.
The South Korean government previously announced an aggressive hydrogen economy roadmap, which should create exciting opportunities in this market.
Further Japan has also announced goals to expand hydrogen usage cost and supply targets, we look forward to bringing our unique distributed generation and distributed hydrogen platforms to the Asian market is Asia looks to lead in the hydrogen transition.
Also under our settlement agreement, we affirm that Posco energy has no rights to new market opportunities utilizing fuel so energy's proprietary technology and we agreed that the licences previously held by Posco had been amended to only allow posco energy the right to service existing.
Posco energy customers to whom they sold fuel cell energy platform technology.
This is an important aspect of the settlement as fuel cell energy has always been committed to ensuring existing posco energy customers receive the platform market exchanges and services, they deserve and pay for it through their long term service agreements with Posco energy.
Finally, the settlement with Posco energy means all current or potential disputes between <unk> energy and Posco energy with respect to the license agreements and the various legal proceedings between the parties are fully and finally settled with the exception of two small disputes, which the parties are working to resolve that.
Has no bearing on the intellectual property rights or market access.
In addition, posco energy must release, its Korean court attachments as part of the settlement and fuel cell energy expects to receive approximately $11 2 million when completed in the near term.
The upshot of all of this is that fuel cell energy will once again be able to compete on an equal footing to deliver differentiated decarbonize power platform solutions to the Korean market and across Asia.
We are extremely pleased to have reached a favorable agreement with Posco energy clarifying full access to the Asian market for fuel cell energy and ensuring the needs of existing Posco energy customers are met we are excited to exchange the marketplace now and and the legal uncertainties have been removed and.
Look forward to expanding our geographic reach throughout Asia.
I have said a lot about the Asian market, but to be clear, we believe there will be growth in all the geographies we serve.
Including North America, and Europe for the four major technology fuel cell energy either currently offers or is in the process of commercializing distributed power distributed hydrogen electrolysis and long duration energy storage and carbon capture.
As Youll see on slide seven we continue to advance our research and development of our existing carbonate fuel cell platforms efficiency and capability to carbon capture from over from our external source, while a lot producing while also producing power.
Criteria carbon capture solution is the only solution that we know of that captures carbon from an external source and produces power rather than consuming it and is also capable of producing hydrogen for distributed applications.
We also can directly capture carbon from our own sure source power platform for carbon utilization <unk> sequestration and when operating in carbon separation mode. Our platform delivers one of the lowest emission profiles of any base load generation platform.
We have increased our commitment to R&D focused on the commercialization of our solid oxide power generation electrolysis and hydrogen storage platforms as well as growing our commercial capabilities.
We are also executing programs to develop reversible solid oxide systems for long duration energy storage and very high efficiency solid oxide power generation systems.
We believe that our hydrogen based energy storage solution is environmentally superior to a mineral based storage systems, such as lithium ion batteries.
We believe that each of these areas is a large total addressable market opportunity for which we are working to position the company to benefit.
And now I would turn the call over to Mike to discuss our financial results in more detail Mike.
Thank you, Jason and thanks to all that have joined our call today.
<unk> now had the opportunity to hear from Jason about our strengthened foundation and a product portfolio that is well positioned for future growth with a significant market opportunity I am now going to walk through our financial results for this quarter. Please turn to the financial highlights shown on slide nine.
In the fourth quarter of fiscal year 2021, we reported revenues of $13 9 million compared to $17 million in the fourth quarter of fiscal year 2020.
Looking at revenue drivers by category service and license revenues decreased to a loss of $100000 from $5 4 million in the comparable prior year quarter. The decrease in revenue is primarily due to the fact there were no module exchanges in the fourth quarter of fiscal 2021. The company also recorded a $1 million reduction.
<unk> and service revenues as a result of higher future cost estimates related to future module exchanges compared to the company's prior estimates, which were which more than offset revenue recognized in the quarter generation revenues increased 31% to $6 7 million from $5 one.
$1 million, primarily due to higher operating output of the generation fleet portfolio as a result of investments and maintenance activities and an increase in the size of the fleet and advanced technology contract revenues increased 14% to $7 3 million from $6 4 million revenues recognized under the joint development.
With Exxonmobil research and engineering company or Emory increased by approximately 0.4 million, reflecting continued performance under our carbon capture research joint development agreement with Emory during the quarter. The increase in advanced technology contract revenues also reflects an increase in revenue recognized.
Under government contracts of zero point $5 million.
Gross loss for the fourth quarter of fiscal year, 2021 totaled $8 4 million compared to a gross loss of $8 million in the comparable prior year quarter. The higher gross loss was a result of impairment charges of $2 8 million related to the Toyota project $1 8 million related to development costs of two projects no longer being pursued.
<unk> and $400000 related to the Companys Triangle Street project, we also incurred cost estimate adjustments related to future module replacements, which resulted in a negative margin impact of approximately $2 $6 million.
Offsetting these charges and adjustments or improved generation gross margin primarily related to an increase in revenues a decrease in depreciation expense and higher advanced technologies gross margin primarily related to the mix of funded contracts in the quarter.
Operating expenses for the fourth quarter of fiscal 2021 increased to $14 2 million from $9 1 million in the fourth quarter of fiscal 2020 administrative and selling expenses in the fourth quarter of 2021 included higher legal expenses associated with tax equity financings and additional share based compensation expense.
Due to grants made under our long term incentive plan.
Research and development expenses of $3 5 million in the fourth quarter of 2021 reflect increased spending on the companys hydrogen commercialization initiatives compared to the prior year period.
The net loss from operations totaled $22 6 million in the fourth quarter of 2021 compared to $17 $1 million in the comparable prior year period.
Net loss was $24 2 million in the fourth fiscal quarter of 2021 compared to a net loss of $18 9 million in Q4 2020 due to higher operating expenses and a higher gross loss for the fourth quarter of 2021 compared to the fourth quarter of 2020, the fourth quarter of 2020 included.
$2 2 million favorable adjustment for the fair value of common stock warrants issued to the lenders under the under the company's now extinguished credit facility with Orion Energy partners investment agent and its affiliated lenders in the fourth quarter of 2021 included lower interest expense as a result of the <unk>.
Early repayment of all amounts owed under the Orion credit facility.
The net loss per share attributable to common stockholders in the fourth quarter of 2021 was seven <unk> compared to eight in the comparable prior year quarter. The lower net loss per common share was prior primarily due to higher weighted average shares outstanding due to share issuances. St is October 31 2020.
Partially offset by the higher net loss attributable to common stockholders adjusted EBITDA totaled negative $11 9 million in the fourth quarter of 2021 compared to adjusted EBITDA of negative $8 6 million in the fourth quarter of 2020.
Please see the discussion of non-GAAP financial measures, including EBITDA, and adjusted EBITDA as well as applicable reconciliations in the appendix at the end of our earnings release now turning to the full fiscal year revenues decreased 2% to $69 6 million, primarily as a result of lower search.
<unk> revenues, which were partially offset by higher generation revenues service and license revenues decreased 21% to $19 8 million in fiscal year 2020. It included $4 million of license revenues associated with the MAA Joint development agreement and license revenues of 0.7 million.
Related to the now amended Posco energy license agreements, while there was no comparable license revenues recognized in this fiscal year 2021 to.
To generation revenues increased 20% to $24 million, reflecting a larger operating portfolio improved operating output at the generation fleet and sales of renewable energy credits.
Technology contract revenues of $25 8 million were consistent with the revenues of the prior fiscal year loss from operations in fiscal 2021 totaled $64 9 million compared to a loss of 30 to $39 2 million in fiscal year 2020 net loss in fiscal 'twenty one totaled 101.
Million compared to a net loss of $89 1 million in fiscal year 2020, adjusted EBITDA in fiscal 'twenty, one was negative $35 7 million compared to negative $17 7 million in fiscal 2020 net loss per basic and diluted share attributable to common stockholders for 2021 was <unk>.
<unk> 31, compared to <unk> 42 in fiscal 2020.
Next please turn to slide 10 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 fourth quarters of fiscal years, 2020 one.
Being at the right hand side of the slide we finished the quarter with a backlog that was largely unchanged year over year at approximately $1 two $9 billion, reflecting continued execution and adjustments to our generation backlog, primarily resulting from module exchanges with higher future output and expected revenues and.
The inclusion of the two eight megawatt Derby, Connecticut project, which was awarded in fiscal 'twenty. One advanced technology backlog reflects new contracts from the U S Department of energy, partially offset by work performed under our joint development agreement with Emory.
Turning to slide 11, I will build upon Jason's comments R&R enhance liquidity in the fourth fiscal quarter of 2021, we closed the tax equity sale leaseback financing transaction with craft market.
Equipment financing for.
For the San Bernardino project any tax equity partners ship flip transaction with East West Bancorp for the U S. Navy submarine base project in Groton, Connecticut.
Subsequent to the end of the fourth fiscal quarter, We also announced a tax equity financing transaction with Franklin Park for our LIFO <unk> project. These financings further enhance our liquidity position also as discussed last quarter, we had at the market sales of our common stock in the third and fourth fiscal quarters of 2020.
One which resulted in net proceeds of approximately $369 $7 million.
All of these actions are consistent with our powerhouse business strategy to strengthen liquidity with the goal of enabling us to focus on executing our business plan.
As of October 31, 2021, we had total cash and cash equivalents of approximately $462 million. This total includes approximately $432 2 million of unrestricted cash and cash equivalents rapid represented by the Blue bar on the chart in the center of the slide and $28 million.
Strictly a cash and cash equivalents represented by the Green bar.
On the right hand side of this 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 our portfolio of project assets investments to date reflect capital spent uncompleted operating projects.
Scented by the Gray bar and capital spent on projects currently in development and construction represented by the Blue bar at the end of the fourth quarter of fiscal year 2021, our gross project assets totaled approximately $243 1 million, which excludes accumulated depreciation.
As detailed on slide 21 in the appendix of this presentation. Our generation portfolio totaled 70 75 three megawatts as of October 31, 2021. This includes 34 megawatts of operating assets and 41 three megawatts of projects in process as projects in process.
Begin commercial operation they are expected to contribute higher revenue and adjusted EBITDA. Additionally, as these future projects come online we expect to seek additional long term tax equity financing such as the examples I previously discussed as well as back leverage debt transactions to further recycle capital back into.
The business. We are pleased with the progress we have made this past quarter and from a financial perspective, we believe we are well positioned to invest in capabilities to support the near term growth and product commercialization opportunities I will now turn the call back over to Jason to further discuss these initiatives Jason.
Thanks, Mike.
Next on Slide 12 is our powerhouse business strategy that we introduced in January of 2020, when I was relatively new to the position of CEO.
This strategy was originally developed to provide guideposts for our turnaround as we reposition fuel cell energy to capitalize on the energy transition.
And I think it has served us well.
Because we have made substantial progress in achieving the key initiatives reflected in the transformed and strengthened phase of our strategy. It is time for the powerhouse business strategy to evolve.
On slide 13 allow me to present, the next iteration of powerhouse our strategy to use.
The next phase of the company's journey towards long term growth.
Grow we want to pursue growth in markets and customer segments, where we see significant opportunities and where we expect to win.
Scale to achieve growth, we plan to scale, our existing platforms by investing extending and deepening our leadership and total human capital across the organization.
Innovating.
Over our 50 year history, we have never stopped innovating we plan to continue to innovate for the future to enable our participation in the growth of the hydrogen economy and carbon capture.
Slide 14, hopefully we have been clear today and over the past several quarters about the importance of directing some of our improved liquidity toward investments to achieve future growth.
Key areas for investment include continuing to execute against our project backlog as we complete projects and expand our generation portfolio, we expect to generate higher revenue.
We are also keenly focused on making investments toward advancing our solid oxide platform and carbon capture solution to commercial deployment.
In order to be ready for expected demand, including the product orders discussed during our call today.
We met our annualized production rate target of 45 megawatts up from 17 megawatts at the end of fiscal year 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.
Talent and expertise are what make success possible therefore across all areas of the business. We have recruited for key capabilities, including engineering manufacturing and sales support and marketing just to name a few.
Next on Slide 15, we are providing estimates of the investments required to achieve our goal our expected capex and R&D expense represents a significant increase I think I've made clear our position that we are at a unique point in time as the world shifts away from traditional energy re.
Sources towards lower carbon solutions hydrogen carbon capture and distributed generation, improving grid, resiliency and reliability and providing commercial and industrial customers with authentic de carbonization solutions that address scope, one two and three emissions while improving overall.
Air quality.
We think our solid oxide technology can also play an important role facilitating the adoption of alternative energy sources, such as wind and solar given their inherent intermittency and art carbonate carbon capture solutions is focused on addressing the hardest to electrify industries.
We believe that large scale investments should enable fuel cell energy to meet the market's need in the medium and long term.
Thus, we have determined in connection with the evolution of our business strategy that we will focus on continued investments to achieve long term growth rather than focusing on shorter term financial metrics, such as revenue growth and adjusted EBITDA.
In fiscal year, 2022, we expect to invest $40 million to $50 million in capital expenditures to enhance our manufacturing and business systems.
We also expect to invest $45 million to $55 million to accelerate commercialization of our advanced technology solutions.
When we established our powerhouse business strategy, a core focus of the transform pillar was to pay off debt and strengthen the balance sheet as.
As our powerhouse business strategy evolves, we are pivoting to focus on growth and we intend to focus on continued investment in the company to achieve long term growth.
The energy transition is happening.
At an accelerated pace and we believe our platform technologies will play a role in helping the global society achieve our collective sustainability goals. Thus.
We are moving forward with these investments in fiscal year 2022, because we believe it enhances the company's ability to capture more of the total available market growth opportunity in the future.
Looking at slide 16.
We are focused on commercializing new technologies. During this very unique period of time, which we believe presents an opportunity to invest in the hydrogen economy transition, we believe that making investments today will deliver stronger long term results to our shareholders and create a more diverse company.
I am very pleased to announce that in March of 2022, we will host a virtual investor day to give a much deeper explanation of our strategy to bring new technologies to market at that time.
We will be able to show share more details on our overall strategy.
In the meantime, we will continue working everyday to accomplish the things necessary for success, serving our customers retaining and recruiting world class human capital executing on project backlog further expanding and improving manufacturing capacity, winning new business around the world.
Recycling projects funding to reduce our cost of capital.
<unk> fleet deploying capital in support of future growth working towards product commercialization and innovation to improve manufacturing cost and product performance and overall level of <unk> cost of energy.
Delivering differentiated de carbonization solutions and and hydrogen platforms.
And investing in our marketing presence and capabilities.
Finally to conclude my remarks on slide 17.
We have executed several strategic actions to strengthen our balance sheet enhance liquidity and reduce our cost.
During which we believe have positioned the company well to execute on our growth strategy.
I am back by an exceptional team and we continue to add talent across the company. We are focused on taking care of our customers achieving our financial goals and continually building upon our operational excellence, while adhering to our core purpose.
Our technologies have a key role to play in our collective global goal of Decarbonising the grid.
<unk>, the hydrogen economy, and supporting existing energy and industrial infrastructure investments with differentiated carbon capture solutions.
Altogether, our solutions are attacking scope, one two and three emissions.
Our powerhouse strategy has evolved to focus on long term growth achieving scale and innovating for the future.
Finally, we intend to be a leader in sustainability and environmental stewardship by delivering on sustainability through our technology and the full circular life of our platforms.
I will now turn it over to the operator to begin Q&A.
Thank you Sir and as a reminder, if you wish to ask a question simply press Star then the number one on your telephone keypad. Once again, if you wish to ask a question simply press Star then the number one the new telephone keypad. Your first question is from the line of causing the rush from Oppenheimer.
Your line is now open.
Hey, Al This is Joe Beninati on for Colin Thanks for taking our questions.
Okay.
So can you tell how range in R&D.
I'm, well I'm well given the change in R&D and Capex spending could you detail, which of the newer products are going to be a primary focus how we should think about time to market and then finally plans for reaching EBITDA breakeven.
Yes, so as we.
Look to commercialize technologies, there's a huge focus on our solid oxide platform that solid oxide platform is a high temperature fuel cell platform and gives us a number of different capabilities to take to market.
We will have the ability to do electrolysis, which as you know has become an important factor in.
Not only how we're going to use hydrogen as a fuel source, but as a way to really.
Create a different path for firming up intermittent capacity for wind and solar.
That same platform will give our storage capabilities for that hydrogen and reverse ability to be able to use that hydrogen.
To produce carbon free power.
Assuming that we've produced green hydrogen through electrolysis process.
That also gives us.
Pure hydrogen generation platform.
That will be a new capability for the company as well.
In addition to that we will make investment around our carbon capture solution and there. That's the work that we continue to move forward and advance and our work with Emory, which is part of Exxon, but we will make investments there to help accelerate that technology.
We believe that we will deliver demonstration projects this year, showing our capabilities and solid oxide. We did some of that in 2021, showing the high electrical efficiency that we have with that platform and so we are aggressively working to commercialize those products.
Thanks.
With respect to.
Getting to EBITDA positive for adjusted EBITDA positive, we intend to talk about that some more and our March.
Analyst day call. So we'll lay out more strategy around that and provide some more detail.
That's great color. Thanks.
And then switching gears a bit can you give a sense of when you'll begin closing the product sales in Asia and now that the agreement with Posco and settled.
While our sales team is out there working right now so.
Hopefully.
Hopefully.
Soon but as you.
Or as we disclosed in our settlement with Posco.
We will get 20 orders or 20 module orders this year.
Which represents about $60 million in revenue opportunity for the company, we think clarifying clearing up the market confusion creates.
Opportunity for us to know.
<unk> on an equal footing and what is the largest fuel cell market in the world and so as those gen codes and other customers release, Rfps and look for generation capacity, rather that be through our.
Carbonate platform to do CHP or as they look to deploy hydrogen platforms, which they've announced a pretty aggressive effort around that in country.
We expect to fully participate in those opportunities and compete.
Thanks, everybody.
Thank you thanks, Joe.
Your next question is from the line of Jed <unk>.
From Canaccord. Your line is now open.
Hi, yes, thanks for taking my question.
I guess just one question for me.
Morning.
It looks like in the quarter the biggest delta.
Versus consensus was the service and licensing which was negative.
Revenue I was wondering maybe maybe I missed this but could you just walk through.
What is this a function of the.
<unk>.
Maintenance or warranty issues in Groton.
Led to that negative number.
How should we think about that on a go forward basis.
Good morning, Chad. This is Mike Thanks for joining our call, yes, as I spoke about in my remarks, we essentially had.
A loss of $100000 in the quarter compared to revenue of $5 4 million in the prior year.
Service and license revenue for us is variable.
Meaning that if we have module exchanges in the quarter. We have we have higher revenue. This quarter. We did not have any module exchanges and also in the prior year we.
We had recognized about $4 million of license revenue related to the Emory agreement.
Which did not occur this year. So if you look year over year our service revenue.
In.
In last year or this full fiscal years back say $24 million last year around $20 million. So year over year. The Delta was really that that license revenue, but as I said on a quarterly basis. It will be variable also this quarter.
The company recorded a $1 million reduction in service revenue as a result of higher future cost estimates related to future module exchanges compared to the prior.
To our prior estimates so that that's what really caused the negative in the quarter.
Got it sorry, I lied about I guess I have a follow up so if we got.
If we look at that on a go forward for 'twenty two.
It might hear you correctly that the 4 million will not be booked.
Bulk so so that's the.
Correct comp is is the 21 number not.
On the go forward is that the right way to look at that.
Yeah, so yeah.
Yeah, again service revenue variable quarter to quarter, but if you. If you look at the last two years, we've averaged on average excluding the license revenue we've been in that $20 million range.
Which is representative of the current of the current fleet certainly as as we add.
Additional units through product sales the opportunity for.
Service will will increase.
There is going to be quarterly variability, depending on when we do module exchanges.
Got it alright, that's it for me thank you.
Thanks, Jed Jed.
Your next question is from the line of Jeff Osborne from Cowen <unk> Company. Your line is now open.
Hey, good morning, two questions one on the Capex of $40 million to $50 million I was wondering if you could give us an update of where you are today on carbonate capacity and then how much of that Capex is being added for molten carbonate relative to capitalized R&D or other initiatives.
The solid oxide side, it's just a big number so it's a bit surprised by that.
Jeff Good morning, this is Mike.
Yes, so on capacity today for our carbonate technology.
Recall, we expanded our factory.
Several years ago, so the footprint of our factory in Torrington today has capability to go up to 200 megawatts. We currently have.
Machinery and equipment in the factory capable of supporting about 100 megawatts of annual production. So as we think about expanding carbonate carpeted manufacturing, we do need to add additional additional capital into the factory to support that the question and then a question.
Would be will why why do that when you look at the size of the opportunities that we're pursuing.
With megawatt scale carbon installations in Korea is a great example.
Our project in Korea, with Costco as a 20 megawatt project.
And then you also look at the size of potential <unk>.
Carbon capture opportunities, which are which are going to be megawatt scale. It makes sense to add.
To add additional equipment to be able to realize that 200 megawatts of volume over time now obviously, we're not going to do all of that.
This coming year, the additional capex would be around.
Around capacity for solid oxide as we sit here today, we have small capacity for solid oxide in our Calgary facility in Canada, but as Jason mentioned.
Solid oxide and electrolysis is a significant market opportunity and to be able to.
Capture product sales.
There we are going to need additional capacity over time. So that's that's where some of the spending is coming from as well.
Got it.
Question. My last one is on the house Bill $65 24 in Connecticut that you had highlighted a quarter or two ago can you just give us an update on how to handicap that progress of that bill and what your opportunities are for wins here in 2022.
Yes, so with respect to that Bill one of the things that ultimately didn't happen would that bill the utilities implemented it as a rec only program. So as we evaluated those opportunities and exposure.
Around fuel risk and other things you had to take we were we were very conservative in our approach to that projects. We are still working through.
<unk>.
Outcomes of that project, but the bill did not rguest the implementation of the Bill did not play out exactly as we expected and we think that that will have an impact on how we do in that process.
Got it thank you Joanne.
Thank you.
Next question is from the line of Eric Stine from Craig Hallum, You Wilson.
Good morning, everyone.
Good morning.
Good morning, so in light of the.
Everything going on with Posco, just curious if you can give any color on anticipated timing of orders, but I guess more importantly, maybe timing of revenues in fiscal 'twenty two.
Based on potential module replacements in that market.
Sure Eric as we.
As we disclosed in the actual in our 8-K around this we expect those 20 orders to happen in fiscal year 2022, and as those are product sales. We would expect that revenue to also happen in 2022 also.
We anticipate an initial order of 12 modules here in the short term.
And that would be followed up by another eight modules around mid year as what we anticipate based on the agreement that we or the settlement agreement that we reached.
Gotcha, Okay that that helps in terms of the revenue timing and just curious I mean beyond fiscal 'twenty two.
Yes.
Thoughts on what this looks like obviously, you want to service the customers or the installed base in that market.
Maybe what that pipeline because you've obviously got pretty good visibility into when those were installed.
And when those module and replacement going forward are timed.
Yes in the in the actual settlement agreement. There is there is an assumption or the ability for another 14 modules to be to be ordered by.
Posco.
As part of this overall settlement, but if I could.
The latter up from that just for a moment and.
And you look at the overall implications of the settlement and the fact that.
The go forward agreement does not provide a provision for manufacturing modules by by Posco. So you should assume or could assume as there are needs to replace modules in that market against the existing.
Customer base that has been served by posco that those likely represent opportunities for module sales for us as we go forward.
Got it no that helps.
Maybe just last one for me just on the product sales I mean, obviously, you talked about Asia and how this posco.
<unk> now removed that cloud and hopefully starts to open up that market.
Terms.
Product sales, but.
You also mentioned globally, just wondering maybe some of the gating factors or the outlook you have.
Some of that optimism that <unk> had over the last year plus that that starts to come to fruition.
Well, yes, I think as we talked about even in the call today, the announcement with snap and Saget in Italy at the Toronto Airport, we think that opportunity, which is leveraging our technology is another example of how we think in global markets.
We will.
Farewell and we'll be well positioned when you think about.
Our ability on a fuel flexibility.
Aspect of our platform there, we're talking about a hydrogen blend with natural gas, we think that that's going to continue to be a big opportunity for us we think opportunities around biofuels on a global basis will be cigna.
Significant opportunities for us as a company as well so we think that you know now.
With our expansion of our sales team the investments we've made in markets. We're starting to see these things come to <unk>.
Fruition for us as a company and then we certainly believe that as the hydrogen and hydrogen economy accelerates those are going to be real opportunities for us whether it be through our carbonate platform, which we have the capability.
Through our Tri Gen platform like we're building in.
Long Beach, California, but then the expanded capabilities that we get through our solid oxide platform to participate in electrolysis opportunities with our with our technology, which we think is significantly different <unk> from <unk>.
Existing technologies today, such as pigment alkaline when you just look at the efficiency differences alone and converting electricity to hydrogen.
There is we have a significant advantage and we think thats going to fare well for us in the market as we commercialize that technology.
Okay. Thank you.
<unk>.
Yes.
Your next question is from the line of Greece, South or from B. Riley. Your line is now open.
<unk>.
Hey, guys. Thanks for taking my question here, maybe you could talk a little bit.
More about the MRE.
Murray timeline here.
So we extended the joined agreement through April 2022 can you walk through what you see as like the key milestones ahead over the next couple of months before we get to a decision on one day and then as that decision something we should expect in the spring here or you can take longer than that.
Yeah no good.
Chris Thanks for the question.
As we continue to work with Emory.
What we're really doing is showing that the technology can meet the operating conditions that exist at the Rotterdam facility. So in other words, our ability to effectively.
Capture the carbon.
And produce power at the power density levels that we want to achieve while also capturing the carbon.
Doing that.
And being ready for that demonstration project is the work that we're doing from a technology development standpoint, and as we demonstrate certain milestones that.
Exxon wants to see from a technical capability standpoint.
They will then make the decision in terms of moving forward on the Rotterdam trial, we suspect absent a change on their part that that decision will be made late spring early summer in terms of when they make their final decision on how they want to move forward on that project.
On the demonstration project.
Okay got it that's.
That's helpful and then just.
A little bit more color on the R&D uptick here should we think about $45 million to $55 million in R&D is a good run rate beyond fiscal year 2022 is basically to get some of the hydrogen pieces to commercialization or are there. Some one time.
Items related to R&D in there that are pretty lumpy I'm kind of curious if you could kind of break down how we should think about.
I guess some structure.
And kind of operating leverage going forward might be something we wanted to touch on more in the March March analyst day, but curious how we should think about that.
Yeah. So Chris this is Mike so on the.
So we put out a forecast for for this year as you mentioned, we're not putting out.
Any spending forecast beyond fiscal 2022.
Also as you mentioned, we expect in our analyst day.
To provide more clarity on on longer term targets.
But this is certainly a ramp that's that's very focused on commercializing our solid oxide technology.
As Jason had mentioned, we see a very significant market opportunity around around electrolysis. So the company funded R&D is really going towards commercialization of our solid oxide technology, which which certainly we want to do here in the near term.
And then we will obviously assess spending levels in future years as we go forward.
Yeah.
Got it okay and is any of that uptick in solid oxide related to or funded around kind of Doa type stuff or is it separate things that going through that process. You are you realizing you'd want to be doing kind of adjacent to that.
Yeah. So so obviously fuel cell energy has a very long relationship with the department of energy going back to the early seventies.
And we have.
Really been funding the solid oxide R&D up until fiscal 2020 through cooperative agreements with department of energy.
<unk> and other government agencies and some commercial.
R&D contracts here and there.
So that has largely paid for where we are today with solid oxide R&D and we've been we've been doing solid oxide for nearly 20 years now.
Given the energy transition that's right in front of us.
We need to accelerate the commercialization of those technologies. So you'll still see in our funded R&D advanced technology contract revenue on the top of the P&L, you'll you'll continue to see.
Revenue coming in there as we as we continue these demonstration projects with the Doe, but youll also see.
Increased company funded R&D, which is in the operating expense line of our P&L.
Okay.
Thanks, guys.
Thank you.
Your next question is from the line of Laurence Alexander from Jefferies. Your line is now open.
And I guess the first question is just on the on the Capex spending can you break it out in terms of.
Positive return on capital Capex versus expansion of capabilities Capex.
And.
Can you give us some guideposts for the average return on capital.
On the positive return projects that you're willing to sign.
As you prepare for kind of the tidal wave of it related to the energy transition I mean, let's just what are the guideposts for what youre willing and not willing to undertake.
Good morning. Laurence. This is this is Mike and thank you for joining the call and thanks for the question so really.
As as you asked the guidepost that are driving the increase in spending both around capex and around research and development.
Is the is the addressable market opportunity that's right in front of us around.
Around the markets that Jason discussed, we talked about electrolysis with our solid oxide technology as I mentioned earlier, we're spending both.
Research and development dollars to bring that technology to <unk>.
Commercialization as well as capex dollars to have the capacity to be able to produce.
That technology as I mentioned in our Calgary facility today.
We have a very small capacity to be able to produce those and this is a very large market opportunity. So the investment dollars that we're making today will generate capacity.
That will allow us to deploy this technology.
Into the marketplace.
Okay.
Okay, Great and then secondly for the discussion about.
Opening up the Asian market with the Posco agreement, what would you see as a reasonable lag.
Between disagreement and having your first new commercial projects up and running or are we talking three to five years, where can you have a faster sales cycle.
Yes so.
With respect to <unk>.
The opportunities outside of the orders that we will get from Posco as part of the settlement.
The market if I, just say Korea for a moment.
As largely a market that's driven by a lot of RFP activity. So we will certainly compete for those opportunities and given.
The position we've been in with Posco over the last.
Call It five plus years.
Our technology hasn't really been offered in those opportunities. We now have an opportunity to do that so we certainly think that there is a shorter sales cycle than three to five years.
We think that we will actively participate in opportunities as those rfps.
To start to happen and so we expect that to be sometime.
Later in 2022, we should start seeing RFP activity that we'll be able to participate in in addition to that we will obviously try to originate opportunities in that market and across Asia.
Leveraging our different technology platforms, and then certainly as we get to our solid oxide platform.
Given the significant amount of investments that have been announced in places like Korea, and Japan around hydrogen.
We think that also gives us an opportunity to compete there and then if you just take our Tri Gen platform, which is a distributed generation hydrogen platform.
That's a technology, we can deploy in those markets today as an example, and so we think that opportunity presents itself and then certainly working with Toyota and the U S.
It gives us an opportunity to certainly position that in terms as we look at markets like Japan as an example.
Okay. Thank you.
Thank you.
Your last question is from the line of Leo Mariani from Keybanc. Your line is now open.
Hey, guys.
A question on the $60 million of revenue that you're expecting from the South Korean module exchanges in fiscal 'twenty two.
Would you guys expect to receive a 100% of that to your top line or is there some shared interest with posco on that revenue or you guys just getting a royalty from it just want to get a sense of that $60 million.
Yeah no the.
The $60 million is revenue is for pain for the modules. There is no shared interest in that revenues. So thats top line revenue growth for fuel cell energy.
Okay and then.
Just on the product sales and I'll always a tough question to answer but.
Would you guys expect to have some of those in fiscal 'twenty two.
We do expect to have some product sales in fiscal 2022 beyond just the orders we've talked about today right.
Theres 20 module orders that we fully expect as a result of the settlement.
With with Posco and that will be all 2022 revenue opportunity for the company.
And we have other opportunities in the pipeline that we certainly.
Anticipate being successful with in 2022.
Okay.
Okay.
You guys mentioned $1 8 million I think was the number of impairments on two projects that were canceled.
Can you give a little bit more clarity what were those two projects that were canceled.
Hi, Lee this is Mike.
And thank you for joining the call. So the $1 8 million and we had put out an 8-K on this.
A couple of months ago that was related to development projects that we had in New York.
Through Lifer there were prior project awards.
That the company had invested in <unk>.
Never got to a commercial agreement with Lipa and given the passage of time decided to impair those assets. Conversely, we did get to a commercial agreement with Lipa on our <unk> project and as we discussed in our release and on the call.
Commercial operation of that project is is imminent.
So we're very excited about that project coming online.
Okay. Thank you.
Yes.
There are no further questions I would like to hand, it over to him to Jason's team.
Excuse me rural Thank you.
Thank you again for joining US today, we will continue to execute on our powerhouse business strategy working to deliver growth and optimize returns.
The fuel cell energy team is excited about our work 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.
I wish everyone, a very happy safe and prosperous new year.
For joining and have a great day.
And with that this concludes today's conference call. Thank you for attending you may now disconnect.
[music].
Okay.