Q2 2022 Fuelcell Energy Inc Earnings Call
Good morning, My name is Julianne and I'll be your conference operator today.
At this time I would like to welcome everyone to fuel cell energy second quarter 2022 earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session. If you require operator assistance at any time. Please press star followed by zero.
Tom Gelston Senior Vice President Finance and Investor Relations you May begin your conference.
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 second quarter of fiscal year 2022 in our earnings press release, and our quarterly report on Form 10-Q are available in the investors section on our website at www dot fuel cell energy Dot com.
Consistent with our practice in addition to this call and our earnings press release, we have posted a slide presentation on our website.
This webcast is being recorded and will be available for replay on our website approximately two hours. After we conclude the call.
Before we begin please note that some of the information that you will hear or be provided with today will consist of forward looking statements within the meaning of the Securities Exchange Act of 1934.
Such statements express our expectations beliefs and intentions regarding the future and include without limitation statements with respect to our anticipated financial results, our plans and expectations regarding the continuing development commercialization and financing of our fuel cell technology, and our business plans and strategies.
Our actual future results could differ materially from those described in or implied by such forward looking statements because of a number of risks and uncertainties.
More information regarding such risks and uncertainties is available in the safe Harbor statement in the slide presentation and in our filings with the Securities and Exchange Commission, particularly the risk factors section of our most recently filed annual report on Form 10-K, and any subsequently filed quarterly reports on Form 10-Q.
During this course of this call we will be discussing certain non-GAAP financial measures and we refer you to our website and to our earnings press release and the appendix of the slide presentation for the reconciliation of those measures to GAAP financial measures.
Our earnings press release, and a copy of today's webcast presentation are available on our website at fuel cell energy dot com under investors.
For our call today I am joined by Jason few fuel cell Energy's, President and Chief Executive Officer, and Mike Bishop, Our executive Vice President and Chief Financial Officer and Treasurer.
Following our prepared remarks, we will be available to take your questions and be joined by other members of the leadership team.
I'd like to now hand, the call over to Jason for opening remarks, Jason.
Thank you Tom and good morning, everyone. Thank you for joining us on our call today and.
In the second quarter, we made continued progress in executing our powerhouse business strategy.
Before I get into the results for the quarter I always like to provide a brief overview of the company as shown on slide three in summary, what we do is decarbonize power and produce hydrogen we do this as a leader in manufacturing stationary fuel cell platforms that leverage our proprietary technologies.
We operate across three continents and as we previously stated we are focused on targeting new opportunities in new markets across the globe. In fact, just this week, we announced a collaboration opportunity in North Africa. Our manufacturing locations are currently located in the United States.
Canada, and Germany, which we believe positions you also energy for local content requirements and efficient distribution, which is increasingly important given global supply chain constraints and Claude Chipping ways.
We have 95 platforms and commercial operation, which we believe demonstrate the commercial feasibility of our products.
In fiscal year 2021, our revenue of nearly $70 million came from three revenue categories.
Servicing licenses advanced technologies and generation all of which represent diversified sources of recurring revenue under multiyear contracts over.
Over the past two fiscal years, we have had no revenue from product sales. However.
Product sales returned to our revenue mix in the first quarter of this year with an initial order for 12 replacement modules to serve as Posco Energy's existing installations in Korea, six of which were delivered in the first quarter of this year.
We expect to deliver additional modules from the initial order in the third quarter of this year and pursuant to the terms of the settlement agreement with Posco Energy, We expect Korea fuel cell to place a noncancelable order for eight additional modules by June 30 of 2022.
We continue to target delivery of all 20 modules by the end of fiscal year 2022.
With the Asian market once again open to us as a result of that agreement we are optimistic that in the future. We will see revenues from new product sales in Korea. In addition to other Asian markets as well as select countries in Europe , The Middle East Africa, Latin America, and North America, where we have made it a priority.
The target product sales.
On slide four you will see our purpose as a company we are committed to our purpose of enabling a world empowered by clean energy.
Today and in the future every industry and company will be impacted by the transition to net zero and we believe our technology is well positioned.
The World will always need reliable power created in an environmentally responsible manner. Therefore, when it comes to what we do we believe fuel cell energy is uniquely positioned to assist customers on a safe secure and practical path that carbon zero.
We believe we can do this by Decarbonising power and producing hydrogen.
We believe we have the only technology that can capture cotwo, while producing power and hydrogen.
And produce hydrogen power and water simultaneously.
<unk> technologies provide localized solutions for clean energy that deliver real time benefits to the communities in which our platforms operate while reducing scope one and two emissions.
We do this in a manner, which supports high standards of living and economic growth, while protecting the environment minimizing land use when compared to wind and solar projects avoiding costly transmission build outs and adapting to new resource challenges. This purpose drives our strategic focus and the work we are passionate about.
<unk>.
Now I will move on to the key messages for the second quarter beginning on slide five.
We continue to make steady progress advancing our strategic agenda executing against our backlog and working toward commercialization of new technologies at.
At the seven four megawatt project at the U S. Navy submarine base in Groton, Connecticut, we have completed the commissioning process of one of the two platforms installed on site. The second platform requires additional component work and when that's complete we will then resume the final stage of commissioning we expect the project to be.
Commercially operational this summer at which time it will be added to our generation portfolio.
When fully operational the platforms incorporation into the micro grid is expected to demonstrate the capacity of the also energy's platforms to increase grid stability and resilience.
We'll support the U S military effort to fortify its based energy supply, while demonstrating the U S. Navy's commitment to clean reliable power with micro grid capabilities.
Other key project is the two three megawatt Tri generation platform, we are constructing for Toyota at the Port of long Beach that will produce electricity hydrogen and water.
Fuel cell platform equipment has been built and delivered to the site and civil construction work has significantly advanced.
We are nearing the completion of the construction phase of the project with the remaining project activity anticipated to be completed in late 2022 or early 2023 as a result, while we have made substantial progress we do anticipate that commercial operations will be delayed beyond June 30 of 2022.
We will need to request and receive from Toyota an extension to the hydrogen power purchase agreement.
When the project achieved commercial operations. This energy platform will deliver carbon neutral electricity green hydrogen and water in a region experiencing extreme drought conditions and we expect our project to improve the air quality in long Beach, California and area hampered by poor air quality.
The hydrogen produced by our platform will provide the fuel needed to power the transportation sector in both passenger vehicles and class eight heavy duty trucks. Once completed this project is expected to be a real World example of how distributed green hydrogen can be deployed to repower and <unk>.
Fueled the transportation sector, including Maritime Aviation rail busing and more <unk>.
During the quarter, we continued to invest capital in our internal R&D much of which is focused on driving commercialization of our patented solid oxide platform to deliver power generation electrolysis and energy storage. Additionally.
Additionally, we are making progress in optimizing capacity for the carbonate platform with the goal of achieving 100 megawatts of annualized integrated onsite manufacturing and conditioning capacity.
The latter being a key recent development that is expected to lower costs, while increasing throughput.
We are also continuing to focus on the advancement of carbon capture and carbon separation technology towards commercialization.
Following the achievement of our critical technical milestone associated with our differentiated carbon capture application under the joint development agreement with Exxonmobil technology and Engineering company. Our Amtech, we entered into an extension of our collaborative development agreement, enabling our companies to continue working to advance fuel cell carbon <unk>.
<unk> and storage technology.
Additionally, we are also conducting a joint market study to define application opportunities and commercialization strategies and identify partners for a potential pilot for demonstration projects as we pursue carbon capture across a broad landscape of industrial applications.
During our recent Investor day presentation.
And our 8-K filed with the SEC on March 21, 2022, we highlighted that we believe the combined cumulative market for carbon capture leveraging our technology is approximately one trillion through 2030.
We are also making progress with our first generation carbon capture and storage technologies. This includes our work in the United Kingdom with Drax, one of the largest biomass power plants in the world to capture carbon and Canadian National Resource Limited a consortium of oil sand companies and some supporting <unk>.
<unk> government entities.
My third key message is that we are continuing to build our path forward in Asia.
We continue to build our commercial organization in Korea in support of our efforts to build new opportunities in the broader Asian market.
We believe that in Korea, DSO Nrg'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 Green government previously announced an aggressive hydrogen economy roadmap, which should create exciting opportunities in this market.
In addition, 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 as Asia looks to lead in the hydrogen transition.
Additionally, recall that last quarter, we reached a settlement agreement with Posco energy, which call for 'twenty replacement modules to be ordered during fiscal year 2022 to serve its existing installed base.
Six modules were delivered last quarter and while none were delivered this quarter. We continued to target delivery of all 20 modules by the end of fiscal year 2022.
And now I will turn it over to Mike to discuss the quarters financial results in more detail Mike.
Thank you, Jason and thanks to those that have joined our call today now I would like to spend a few minutes, providing some details on our financial results for the second fiscal quarter of 2022, beginning on slide seven in the second quarter of fiscal 2022, we reported revenues of $16 4 million compared to $14 million in the second quarter of fiscal.
21, an increase of approximately 17% looking at revenues by category consistent with our expectations. There were no product revenues in the second quarter. As there were no module is delivered we do expect product revenues in the third quarter as we expect to deliver additional modules from the 12 module orders.
We received from a subsidiary of Posco energy in the first fiscal quarter of 2022. Additionally, pursuant to the terms of the settlement agreement with Posco energy, we expect a subsidiary of Posco energy to place a noncancelable order by June 32020, 248, additional modules where target.
Delivery of all 20 modules of which six were delivered in the first quarter by the end of our fiscal year <unk>.
Service agreements revenues increased 300% to $2 6 million from $700000. The increase in revenues for the second quarter of fiscal 2022 is primarily due to the fact, there was a refurbished module exchange and non routine maintenance activities during the quarter.
Generation revenues increased 46% to $9 1 million from $6 2 million, primarily due to the completion of the long Island power authority or <unk> project. During the three months ended January 31 2022.
And the higher operating output of the generation fleet portfolio as a result of module replacements. During the last six months of fiscal year 2021.
Advanced technologies contract revenues decreased 34% to $4 7 million from $7 1 million compared to the second quarter of fiscal 2021 advanced technology contract revenues recognized under the joint development agreement with Exxonmobil technology, and engineering company or Amtech, formerly known as Exxonmobil.
<unk> research and engineering company for approximately $3 2 million lower during the second quarter of fiscal 2022, offset by an increase in revenue recognized under government and other contracts of $900000 for the second quarter of fiscal 2022.
Gross loss for the second quarter of fiscal 2022 totaled $7 3 million compared to a gross loss of $4 $8 million in the comparable prior year quarter. The increase in gross loss was driven by higher manufacturing variances $4 8 million of non recoverable costs related to the construction of the Toyota project and lower advanced.
Technologies margin, partially offset by reduced generation gross loss, excluding the impact of the non recoverable costs related to the construction of the Toyota project and reduced service gross loss operating expenses for the second quarter of fiscal 2022 increased to $20 9 million from $12 6 million in the second.
Quarter of fiscal 2021 administrative and selling expenses increased due to higher sales marketing and consulting costs as the company is investing in rebranding and accelerating its sales and commercialization efforts, including increasing the size of its sales and marketing teams, which resulted in an increase in compensation expenses.
Research and development expenses were $7 7 million during the second quarter up from $3 million in the second quarter of fiscal 2021, reflecting increased spending on the companys hydrogen commercialization initiatives, namely acceleration of our commercial development efforts related to our solid oxide platform.
Net loss was $30 1 million in the second quarter of fiscal 2022 compared to net loss of $18 9 million in the second quarter of fiscal 2021, driven by a higher gross loss and higher operating expenses. Additionally, interest expense was higher in the second quarter of fiscal 2022 compared to the prior year.
Period, adjusted EBITDA totaled negative $21 2 million in the second quarter of fiscal 2022 compared to adjusted EBITDA of negative $11 3 million in the second quarter of fiscal 2021. Please see the discussion of non-GAAP financial measures, including adjusted EBITDA in the appendix at the end of our earnings.
Release, the net loss attributable to common stockholders in the second quarter of fiscal 2022 was $31 million or <unk> <unk> per basic and diluted share compared to $19 7 million or <unk> <unk> per basic and diluted share in the second quarter of fiscal 2021, the higher net loss per common share is prime.
Merrily due to the higher net loss attributable to common stockholders, partially offset by the higher number of weighted average shares outstanding due to share issuances since April 32021.
Next please turn to slide eight for additional details on our financial performance and backlog. The chart at the left hand side graphically shows certain of the numbers. We just reviewed for the second quarters of fiscal year 'twenty, one and 'twenty two looking at the right hand side of the slide we finished the quarter with a backlog that was up slightly year.
Over year to $1 $33 billion, primarily as a result of the addition of product sales backlog, partially offset by a reduction of service and advanced technologies backlog and reflecting the continued execution of backlog and adjustments to generation backlog, specifically changes to backlog reflect the addition of <unk>.
<unk> sales backlog from the module order received from a subsidiary of Posco energy and module exchanges in our generation portfolio that are expected to contribute to higher future output in revenues. Our advanced technologies backlog reflects new contracts from the U S Department of energy, partially offset by work performed under our joint development.
<unk> agreement with Amtech.
Turning to slide nine I would like to give an update on enhanced liquidity and the ongoing investment in our project assets.
As of April 32022, we had total cash restricted cash and cash equivalents of approximately $489 6 million.
This includes approximately $467 8 million of unrestricted cash and cash equivalents represented by the darker blue bar on.
On the chart in the center of the slide and $21 8 million of restricted cash and cash equivalents represented by the lighter Blue bar.
About a year ago in June of 2021 to strengthen our liquidity and financial flexibility. We commenced an at the market offering program with Jefferies and Barclays capital to offer up to $500 million of our common stock in the third and fourth quarters of last fiscal year, we sold approximately 44 million shares under the program generating net.
Proceeds to the company of approximately $369 million in the second fiscal quarter of 2022, we sold an additional $19 9 million shares of common stock, resulting in net proceeds of $118 3 million.
Looking at the right hand side of the slide there 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 on completed operating projects as well as capital spent on.
<unk> currently in development and under construction at the end of the second quarter of fiscal 2022, our gross project assets total approximately $264 1 million, which excludes extreme accumulated depreciation.
As detailed on slide 19 in the appendix of this presentation. Our generation portfolio totaled 76, three megawatts of assets as of April 32022. This includes 41 four megawatts of operating assets and $34 nine megawatts of projects in process.
As projects in process begin commercial operation they are expected to contribute higher revenue. Additionally, as these projects in process reached mechanical completion <unk> achieved commercial operation, we expect to seek additional long term tax equity financing as well as back leverage debt transactions to further reinvest capital.
Back into the business.
Please turn to slide 10.
As we previously shared during our Investor day in March and in our public filings. We are targeting investments in three primary areas capital expenditures research and development and continued build out of our generation portfolio.
Capital spending will be in the areas of increased capacity expansion additional tests and laboratory facilities and upgrades to an expansion of our business systems. We are decreasing our estimated full year capex to a range of $30 million to $40 million from an earlier estimate of $40 million to $50 million due to.
The timing of certain investments that we now expect will be made in fiscal year 2023, rather than 2022.
Looking at research and development, our R&D efforts are focused on commercialization of our hydrogen technologies, including long duration energy storage.
We're decreasing our estimated full year R&D expenses to a range of $30 million to $40 million from an earlier estimate of $45 million to $55 million. We are committed to continuing to build out of our generation portfolio, which should benefit from the growth in recurring revenues as projects begin operation under power purchase agreements as of April .
<unk> 2022, the company had $34 nine megawatts of projects under development and construction some of which are expected to generate operating cash flows beginning in fiscal year 2022 to build out this portfolio as of April 32022, we estimate the remaining investment in project assets to be approximately eight.
$9 million for fiscal year 2022, we forecast project asset expenditures to be in the range of $40 million to $60 million. We expect these investments to result in growth for the company and we believe that fuel cell energy is well positioned to participate in the accelerating energy transition as discussed in our investor.
Your day, we've established targets for revenue in excess of $300 million by the end of fiscal year 2025, and in excess of $1 billion by.
By the end of fiscal year 2030 in closing we are pleased with the continued progress being made at this time, while we recognize that there are some sectors that have the potential to be negatively impacted in the coming months. Our current view is that the combination of our substantial backlog recurring revenue from our fleet and continued <unk>.
Sales focus will keep us well positioned for the future I will now turn the call back over to Jason Jason.
Thanks, Mike.
On slide 12, I want to reiterate.
Highlights of our powerhouse business strategy, which is our guiding strategy for our journey toward long term growth.
Our first tenet is growth, we want to pursue growth in markets and customer segments, where we see significant opportunities for our technology.
The second is scale to achieve growth, we plan to scale, our existing platform by investing in extending and deepening our leadership in total human capital across the organization.
And third innovate we believe that our continued focus on innovation will enable our participation in the growth of the hydrogen economy and carbon capture markets two opportunities, where we believe the combined cumulative market through 2030 is greater than one five trillion and.
And we expect will help us deliver on our purpose.
Our powerhouse business strategy has evolved over the past couple of years to focus on growth.
The energy transition is happening at an accelerated pace and we believe our technologies will play an important role in helping society achieve our global sustainability goals.
We are moving forward with investments in capacity capability and global talent, which we believe will enhance our ability to capture more of the market opportunity over the coming years and deliver enhanced shareholder returns over the long run on slide 13, we have provided more detail on how we're working to.
<unk> growth by pursuing global opportunities I am proud of the progress, we're making as an organization and how we are growing our sales team and capabilities with the goal of achieving the long term targets shared at our recent Investor day.
Part of this is optimizing our business by which we mean capitalizing on our core technology strengths and key product markets.
Just one example is the module sales to Korea fuel cell that we discussed today.
These product sales utilize our existing technology and manufacturing processes to add meaningful revenue growth.
One of our important goals has been to drive commercial excellence and supported this I am very happy to have Mark Feasel recently joined our team as executive Vice President and Chief Commercial Officer.
Look forward to his leadership and helping to strengthen our customer centric relationships and further build our sales opportunities across applications customer segments and geographic markets.
To expand geographically and by market, we are focused on targeting opportunities in Korea and across Asia, Europe , as well as the United States and geographies across rest of the world. We have made significant progress in building our sales force in Asia with the goal of increasing our sales opportunities and that reach.
We also added <unk> as SVP, Chief Corporate development officer, as we pursue our multi pronged growth strategy and John Torrent, SVP solid oxide manufacturing as we commercialize and scale solid oxide.
In February we published our first sustainability report and I want to highlight that our dedication to achieving net zero remains in the forefront we are committed to achieving net zero on scope, one and scope two emissions by 2030 and scope three emissions by 2050, we are.
Aligned with the leading standard organizations in the U N climate action goals that we can impact beyond our environmental commitments. We are equally focused on our teammates the people and the communities in which we work and live and being a diverse equitable and inclusive organization.
This commitment is shared across our company and our board in every aspect of our business.
Finally to conclude my remarks on slide 15.
We have executed several strategic actions to strengthen our balance sheet enhance liquidity and reduced our cost of borrowing which we believe have positioned the company to execute on our growth strategy.
We have well established relationships with financing providers, we continue to expand our source of liquidity as evidenced by our tax equity transactions. We discussed today and the liquidity provides the company with the flexibility to scale, our operations and make investments in commercializing technologies as well as sales and <unk>.
Marketing.
We have $1 3 billion of backlog with recurring revenues from long term contracts.
We believe that our technologies have a key role to play in the global goals of Decarbonising the grid.
Developing the hydrogen economy, and supporting existing energy and industrial infrastructure investments with differentiated carbon capture solutions.
Finally, we intend to be a leader in sustainability and environmental stewardship through the technology, we deliver and the full lifecycle of our platforms.
I will now turn it over to the operator to begin Q&A.
Thank you if you'd like to ask a question. Please press star followed by the number one on your telephone keypad to withdraw your question. Please press star one again, we'll pause for just a moment to compile the Q&A roster.
Our first question comes from Colin Rusch from Oppenheimer <unk> Company. Please go ahead. Your line is open.
Thanks, so much guys.
Can we get an update on your plans to monetize the carbon capture technology beyond the development agreement.
Curious how things are margin and welcome more concrete way.
Continue to make a lot of progress there.
Sure Collin good morning, Thank you for joining the call. This morning, as we as we announced we extended the agreement with Exxon through the balance of this year and one of the things thats different than what we've talked about previously is that this agreement also the <unk>.
<unk> includes developing a joint marketing and commercialization plan around the technology and so that work is being done to really think about.
The customer segments and geographies that we can go after kind of as phase. One if you will of the technology to demonstrate the capability for us to effectively capture carbon against industrial applications.
As our first target and so that will cut across when we talk about industrial applications that really thinks about like boiler applications. For example, like the project we're doing in Canada, where we are.
Capturing carbon from a process upgrade boiler or it might be.
Our refining or petrochemical kind of application.
Or.
Boilers that are used in other manufacturing processes. So that's the focus of that effort and will really look to try to likely demonstrate the technology against a couple of different geographies as well as against a couple of different kind of market segment types and that and we will look to include.
As part of that.
Kind of a full on solution set so not just the carbon capture but what's the infrastructure to actually move.
Due to a point of sequestration for an example, what's the subsurface kind of worker technology that we're going to use to actually execute against the sequestration. So it would be a full wholesome plan around how we're going to commercialize the technology and moving forward.
That's super helpful. And then now that you've got some some additional sales resources working on GTR could you talk a little bit about the competitive dynamics, where you guys are competing well, where you might need to make some changes in terms of growing that business on the product side.
And really driving accelerated growth.
Yes, sure. So when we look at our business and if I just kind of.
Break the world into two and I and I say the U S and rest of the world, we see about 40% of our opportunity really across the U S and about 60% across markets inclusive of.
The EU mid East Africa, Latam Asia as an example, and then when you look at the particular applications, we see utility opportunities across all of those markets, we see food and beverage when you think about our opportunity to deliver cotwo from a utilization standpoint, so not just sequestration.
<unk> I mean, if you look at just today in the financial Times. For example has reported that CF industries is shutting down one of its fertilizer plants in <unk> and.
In chess Shire, that's going to have an impact on not only fertilizer and food supply, but on cotwo for meat processing, we think those kind of applications represent great opportunities for us and we're seeing that across the globe in terms of opportunities that we look at in the U S. We see more folks around micro grid grew.
Resiliency and reliability and we think that we compete quite effectively there and we have a number of demonstrated applications and we also see bio fuels as a as an opportunity that's going to continue to be strong for us given some of the uniqueness of our of our capabilities and particularly on the on the carbonate side and then when we look to <unk>.
Our national markets.
And we talk about markets like for example, like Korea, we definitely see district heating and cooling as a big opportunity because thats a big part of the market. There and then we see strong interest in distributed hydrogen.
And distributed hydrogen for multiple ways of producing hydrogen so EBIT outside of the U S kind of hub concept, that's coming out of the infrastructure package, we see distributed hydrogen demand being produced from fuel and so we think as we demonstrate the Toyota project, we're seeing strong port interest.
As a ship to shore resorts as well as distributed hydrogen for goods movement at a port level and we're seeing that not only in the U S. But other parts of the World and then of course, a lot of strong interest in electrolysis and Thats.
The project, we just announced our Mou and North Africa, that's all around leveraging our technology around electrolysis, and then being able to leverage.
Great Sun coverage in North Africa, and pipelines to move that hydrogen back into Italy, and EU markets as an example.
Thanks, so much guys.
Thank you.
Our next question comes from Laurence Alexander from Jefferies. Please go ahead. Your line is open.
Hey, Good morning, this is actually Kevin Estok on for Laurence Alexander.
My first question is sort of broaden constantly with green and blue hydrogen I guess separate of the Toyota project I guess Im just curious to hear how long you think it would take to build out further.
Green hydrogen capacity and I guess is that something you thought you might be interested in and my second question has to do with gross margins basically when do you expect them to turn positive and is there any commentary there would be helpful. Thank you.
Yes, so when we think about green hydrogen or blue hydrogen or paying hydrogen kind of pick a color.
We really try to think about it more from a carbon intensity standpoint, because we think thats really.
A better way to think about hydrogen and the hydrogen is going to be delivered for particular applications or use cases in the case of the Toyota project.
<unk>, we're leveraging R&D, we're delivering green hydrogen, we're delivering carbon neutral power and water on that project and we think that those kind of projects are going to continue to be real opportunities for us both domestically and internationally and so we think there is an opportunity to maybe move those projects.
Forward.
More rapidly versus some of the pure green electrolysis hydrogen projects because one of the things that's still a bit of it of the challenge you have there.
Is infrastructure for moving that hydrogen without putting it in a tube trailers and putting it on a truck and move on it.
So there is work that still needs to be done there, but we think our ability to do distributed hydrogen even leveraging fuel and deliver green hydrogen and that application will be.
Strong opportunity for us and yes, we are very interested in more of those opportunities and expanding that.
Both domestically and internationally and maybe all of it.
Mike talk a little bit about the <unk>.
Margin profile.
Sure Thanks, Jason and good morning, Kevin.
So from a from a margin perspective, maybe I'll just walk through line items on our on our P&L and give you my perspective there so.
This quarter is consistent with our expectations. We did not have any product revenue recall last quarter, we had $18 million of product revenue from our subsidiary of Posco energy that generated about 18% margins. We do expect the balance of that order that was a $60 million order, we expect the balance of that.
To be delivered.
By the end of our fiscal year, So youll see additional revenue and margin coming from that line item service revenue this quarter about 2.6.
6 million that was that was negative margin service is variable.
As the fleet expands we do expect positive margins from service generation, you'll typically see margins.
<unk> to flat, what's coming through generation is really two things.
We have depreciation and then we've also been expensing.
Project costs related to the Toyota project in that line item. So how the company thinks about generation is really on an EBITDA basis typically were targeting EBITDA margins in the 40% to 50% and if you if you back out those two line items.
That I just mentioned.
That brings you EBITDA margins around 42% for the quarter.
And then finally advanced technologies, you've consistently seen.
Positive margins from advanced technologies Advanced technologies is the combination of our work.
With <unk> our Exxonmobil.
And this quarter you saw margins in the range of 25% coming.
Coming through advanced technologies.
Yeah.
Okay. Thank you.
Yes.
Our next question comes from Noel Parks from Tuohy Brothers. Please go ahead. Your line is open.
Hi, good morning.
Good morning.
I had a couple of things one is that there wasn't mentioned earlier about module exchanges in the generation portfolio and how much visibility do you have into the timing of those.
Good morning, Noel. This is this is Mike I'll take that one so.
So the way to think about our generation portfolio. These are typically 20 year assets. These are assets held by the company on balance sheet and the reason why the company has retained our generation portfolio is to benefit from the long term long term recurring cash flows.
And you've seen revenues from our generation portfolio increase in recent quarters as projects have come online for example.
The LIFO Jaap Henk project came online in the first quarter and Thats, why youre seeing higher revenues coming coming through so what the way that we kind of think about this is.
Well if you will.
As we continue to build out the fleet you will see higher revenues coming through from from this portfolio.
Okay and.
The module exchanges that those are sort of.
Predictably Im sorry.
A follow on to the module exchanges.
So over the course of the power purchase agreement.
We will replace modules and in the way the way our our technology works is.
<unk>.
The current lifecycle of modules that we're deploying today is around seven years. So we have visibility to be able to plan out those module exchanges and when they occur.
That will lead to lead to higher higher revenue because the.
The module essentially degrades about 10% over its life, so youre seeing youre seeing slight reductions in revenue over time and then when the new module comes online that was that's what leads to the to the revenue increase sorry I wasn't.
Clear in my first answer there.
Problem at all thanks.
And.
I just wanted to touch on the Toyota Project, you mentioned a couple of times about.
The booking of cost for that and just looking ahead of it is there.
A shift in.
How the cost get represented.
Upon or approaching final commissioning.
We will see.
In the future.
So the Toyota project we.
The way to think about that project, we have not yet secured.
Renewable natural gas.
Contract for that project. So as a result, we're not able to fully estimate the project economics. So.
So what we've been doing from an accounting perspective.
Going back several quarters, which has been disclosed we're capitalizing.
Recoverable costs, which is essentially the the power plant and expensing.
Site work and what we're calling non recoverable costs.
As we get closer to commissioning the company is is working on securing that.
Renewable natural gas source economics will become clearer and there might be an opportunity to capitalize additional costs going forward, but that really is dependent on the future economics of the project the project.
We do expect to be cash flow positive as our EBITDA positive in the range that I talked about.
For our other projects, but as I mentioned, we are expensing.
Part of the capital cost of that project.
Great great. Thanks for the clarification and.
I.
Just wondering sort of as a.
General topic.
We have been hearing more I guess over the past.
Six months or a year.
About hydrogen hub project.
Many of them sort of independently financed the resourceful.
Potential support from the infrastructure Bill in the mix and I just wonder as you see those developing.
Across different regions.
Where were those trends Mike.
Fit in with <unk>.
What you foresee for hydrogen adoption overall and what it would have an influence on on your own business.
Yeah, Hey, this is Jason view.
Look we think the hydrogen hubs for an exciting opportunity. If you look at the infrastructure package that was actually signed by President Biden. There is about $9 $5 billion allocated toward hydrogen related items everything from these hydrogen hubs, which is roughly about $8 billion and then you've got another billion dollars five.
Between infrastructure and additional R&D kind of allocated out of that total.
Trillion dollars plus infrastructure package.
The original intent or what was described by the do it was to do four hydrogen hubs around the country.
Kind of conventional wisdom right now is probably going to be at least eight.
What <unk> seen are a number of states <unk> entities kind of pair up to actually be in a position to submit programs or proposals to the doe to win those hydrogen hubs opportunity. So as an example, we are participating in a number of those.
Just to give an example in Connecticut, where part of one that includes Connecticut, New Jersey, New York and Massachusetts as an example.
And so if you consider that the northeast corridor. The plan is to put together a program that will.
Be compelling for the Doe to want to support that project and there will be funding from the Doe.
There'll be funding from the companies in the states to try to make those projects successful in demonstrating.
Hydrogen production and utilization and one of the things as you think about the deal.
What they've indicated that they want to do is show hydrogen production from a multitude of sources. So just to give you perspective for our company.
We can demonstrate as were doing with Toyota the ability to produce hydrogen utilizing fuel so that might be one way that the Doe is interested in showing distributed hydrogen being produced via fuel, perhaps for transportation application or some other use for that hydrogen.
They also want to be able to show hydrogen production from renewable energy like wind and solar so thats, where technology that we're working to commercialize our GARP electrolysis platform could be utilized to demonstrate converting.
Renewable energy and water into hydrogen and then using that hydrogen potentially for power production or using that hydrogen as a potential replacement fuel for manufacturing steel or using it in gas blending applications to bring down the carbon intensity of Nat gas.
So a number of different ways. We think these hubs are going to come together.
Participating in a number of those.
<unk>.
RFP, if you will has not come out yet so everyone's waiting on that.
And that really will kick off the process in earnest.
Okay, great. Thanks, a lot.
Thank you.
As a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.
Our next question comes from Eric Stine from Craig Hallum. Please go ahead. Your line is open.
Hi, everyone. Thanks for taking the questions.
Thank you Hey, Eric how are you this morning, hey, doing well thanks.
So maybe just sticking with Toyota.
Could you just go into a little more detail I know you said youre almost done with construction, but there are a few more steps left and you need to get an extension on the PPA I mean do you do you anticipate any challenges on that or what are kind of the next things we should look for going forward.
Yes, Eric Hi, This is Jason maybe I'll just start and then I'll turn it over to Mike to maybe Michael was asking and maybe talk about the projects itself.
We are making very solid progress on the project and as we indicated we're close to.
On the mechanical side, we believe that Toyota remains very committed to this project.
This is part of the process in these projects to work through extensions or those types of things I mean, if you think about this project and you go back to the very beginning as you may recall, we were initially delayed as a result of some issues with the utility wanted.
Challenge.
The PUC. So we had to work through those issues that really began the initial delay in this project and so.
But they both Toyota and you also have worked through extensions previously in this and we think that we will get through this as well and we think that they remain very committed to the project and in fact, I mean, if you were to actually be at the port of long Beach right now you would see a pretty impressed.
<unk>.
The view of the platform that's there and so I think I think they are excited as are we buy 100, if you want to talk about the projects more yes. Thank you Jason and thank you Eric for the question. This is Mike Lisowski Chief operating officer.
Quite proud of the advancement and progress made on execution of this project.
Just to unpack it a little bit the design of the platform is complete all of the engineered equipment and Skus have been fabricated and built and have been delivered to the site as Jason highlighted.
The site civil construction is that element of execution is nearing completion and all of the mechanical equipment is being assembled and connected together we've launched the electrical assembly portion of the work and then the way the way to think about the remaining steps is as we will once complete.
<unk> through mechanical completion will then engage in large the commissioning process and that's that's work that we'll thoughtfully worked through bringing the plant up and commissioning the plant and bringing it to commercial operation as indicated later this calendar year into the perhaps the beginning of next <unk>.
Olander year, but as Jason highlighted the progress on the site is very visible quite impressive and we're continuing to March forward very collaboratively with Toyota on the project and looking ahead to commercial operation.
Got it and in terms of.
I know theres a lot of a lot of activity going on in renewable natural gas I mean also a lot of competition for those volumes, but I would is it safe to say that you're you're not all that worried about and RMG com.
Contract to feed to feed the facility.
No look we think that getting R&D is not going to be a challenge for the facility just given the volumes that are there the number of projects that are going on in California.
We think that theres going to be continued development around around R&D and maybe the other thing that youre seeing which we think is a positive.
As you are seeing the major integrated getting into the R&D space.
In a major way.
And we believe that they're going to participate in this area at large volumes because thats what they do.
And so we feel pretty good about that yes.
Yes, absolutely.
Okay. Well then maybe last for me just on the product side I know, you've certainly focused on that you've got the agreement for the amended agreement with Posco.
But just curious.
You are clearly more positive, but anything you can maybe give us in terms of detail around quoting levels or the pipeline.
I'm not sure if youre willing to make a prediction on timing of when you might see some product momentum outside of the replacement modules.
Yeah, Here's what I would say about that and as you know we.
We don't give.
<unk> forecast on that but what I would say.
We think the sales cycle is a 12 to 18 month sales cycle.
Although we terminated our agreement for example, with Posco.
In.
June of 'twenty.
21 or something like that.
We 2000 22020.
We still have that overhang out there between the dispute that we had going in now that thats resolved.
I would tell you that the engagement level from prospective customers as well as existing.
Is much stronger now that that cloud is lifted and so we feel really good about that and then just in general our focus in growing our sales team.
And having a focus.
In broader markets around the world, which tend to be more product purchase markets and PPA markets as has been our traditional experience in the EU. We would expect that to continue and we would certainly expect to see that in other parts of the world, where we're expanding the business.
Okay. Thank you.
Thank you.
We have no further questions in queue I'd like to turn the call back over to Jason for you for closing remarks.
Juliana. Thank you very much I appreciate that and really want to thank everyone for joining the call. Today, we will continue to execute on our powerhouse business strategy with the goal of delivering growth and optimizing returns.
Fuel cell energy team is excited about our work to deliver on our purpose of enabling the world to be empowered clean energy. Thank.
Thank you for joining and have a great day, and we look forward to speaking to you again next quarter. Thank you.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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