Q4 2023 FuelCell Energy Inc Earnings Call
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Hello, and welcome to if you will shell energy incorporated conference call. Please note that this call is being recorded I would now like to hand over the call to Tom Gelston. Please go ahead.
Tom Gelston: Thank you 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 full fiscal year of 2023, and our earnings release and our SEC filings are available in the investors section of our website at.
Tom Gelston: Ww that fuel cell energy dot com.
Tom Gelston: 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.
Tom Gelston: Before we begin please note that some of the information that you will hear or will be provided with today will consist of forward looking statements within the meaning of the Securities Exchange Act of 1934.
Tom Gelston: 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.
Tom Gelston: Our business plans and strategies.
Tom Gelston: Our actual future results may differ materially from those described in or implied by such forward looking statements because of a number of risks and uncertainties.
Tom Gelston: 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.
Tom Gelston: During the 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.
Tom Gelston: Our earnings press release, and a copy of today's webcast presentation are available on our website at www dot fuel cell energy dot com under investors.
Jason Few: For our call today I'm joined by Jason few fuel cell Energy's, President and Chief Executive Officer, and Mike <unk>, Our executive Vice President Chief Financial Officer and Treasurer.
Jason Few: Following our prepared remarks, we will be available to take your questions and be joined by other members of the leadership team.
Jason Few: I'd like to now hand, the call over to Jason for opening remarks, Jason.
Jason Few: Thank you Tom and good morning, everyone.
Jason Few: Thank you for joining us on our call today.
Jason Few: We are proud of the continued progress we are making toward advancing our purpose of enabling the world empowered by clean energy.
Jason Few: This morning, we were proud to announce our fourth quarter and full year results marked by our important progress on large projects continued advancement of our solid oxide power generation electrolysis hydrogen platforms successful reentry into the Korean market.
Jason Few: And announcing the next steps toward the commercialization of our direct flu source carbon capture platform. As you will have seen from our joint announcement with Exxonmobil regarding our carbon capture demonstration project, but more on that later.
Jason Few: As a reminder, for those who are not familiar with fuel cell energy. We have included a company overview on slide three we are proud to be a global leader in electrochemical technology in simple terms, our proprietary fuel cell technology platform is due to things Decarbonize power.
Jason Few: <unk> and produce hydrogen.
Jason Few: We operate in North America, Asia, and Europe, and we are focused on entering additional markets around the world.
Jason Few: We have 188 modules in commercial operation and have generated more than 15 million megawatt hours to date.
Jason Few: Our carbonate technology has met our customers' needs for over 20 years and.
Jason Few: And our newly commercialized solid oxide platform extend the value, we offer customers, including electrolysis and power generation using zero emission hydrogen fuel as the only feedstock.
Jason Few: We believe that our two differentiated fuel cell electric chemical platforms enable us to leverage our operating history and position us to meet the evolving needs of our current and future customers across distributed power generation distributed hydrogen electrolysis and hydrogen energy storage and direct <unk>.
Jason Few: <unk> carbon capture fuel.
Jason Few: <unk> energy provides technological solutions for and Collaborates with some of the world's largest global companies, including our work with Exxonmobil to develop carbon capture solutions, our work with Toyota for distributed hydrogen through the completion of our Tri Gen facility at the Port of long Beach building, a micro grid for Pfizer.
Jason Few: Exploring the viability of using our Electrolyze are paired with nuclear energy to Decarbonize asphalt production in the UK with EDF energy and our collaboration with IBM to use AI to research new ways to extend the life of our fuel cells.
Jason Few: Next please turn to key messages for this quarter shown on slide four.
Jason Few: First we are maintaining the strength of our balance sheet and taking a disciplined approach to managing our capital investment pace by visibility into the milestones we established as investment triggers we will continue to work to increase revenues and investable cash flow and take proactive steps to.
Jason Few: Or raise capital while also preserving the liquidity required to operate our business.
Jason Few: Secondly, we were thrilled to jointly announced yesterday that Exxonmobil affiliate Esso Nederland DB plans to build a pilot plant.
Jason Few: Its Rotterdam manufacturing complex to test the carbonate fuel cell technology for carbon capture jointly developed by fuel cell energy and Exxonmobil technology and engineering company our amtech.
Jason Few: This announcement follows completion of all required technology tests regarding the efficacy and longevity of our carbonate fuel cells to capture at least 90% of cotwo emissions from an external emission source with a concentration of 8% or higher <unk>.
Jason Few: Although not a required tests for this pilot project. Our lab testing has demonstrated the ability to capture 90% of <unk> emissions from lower concentration lose streams as well.
Jason Few: Next we have continued to execute on large scale projects and our solid oxide manufacturing capacity expansion.
Jason Few: Our Tri generation platform in long Beach, California began commercial operations and is producing emissions free hydrogen electricity and water for our customer Toyota <unk>.
Jason Few: This capability is unique to <unk> energy.
Jason Few: Subsequent to the end of the quarter, we opened our newest fuel cell park in Derby, Connecticut, generating competitively priced renewable energy for many thousands of area residents in helping the state close its power generation gap. We also made progress on the capacity expansion of our solid oxide manufacturing.
Jason Few: Facility in Calgary and advance the planning for a potential U S capacity expansion.
Fourth we are making progress in expanding our reach into markets such as Korea, where we signed a long term service agreement for fuel cell operations with a domestic clean energy electric utility and an Mou, which outlined certain anticipated terms of their proposed business relationships.
Jason Few: With <unk> Green energy or GTE, the utility hosting the largest fuel cell park in the world with a total output of $58 eight megawatts we.
Jason Few: We see tremendous additional opportunity for long term service agreements in Korea.
Jason Few: Additionally, applications like electrolysis time to power and Seo to as the delivered product are gaining momentum among a broader set of customers and geographies.
Lastly, as we look ahead to fiscal 2024 and 2025, we remain focused on delivering our growth plans, we are focusing on advancing our technologies, including advancing toward the commercialization of carbon capture and other advanced applications and expanding our commercial relationships we have.
Believe that 2024 will be an important year for our company and we believe that we have the technology and flexibility across our products and services to allow us to participate in the global energy transition in a number of different ways now I will turn the call over to Mike to discuss the financial results for the <unk>.
Mike: Fourth quarter <unk>.
Mike: Mike.
Thank you, Jason and good morning to everyone on the call today, let's begin by reviewing the financial highlights for the quarter shown on slide six for the fourth quarter of fiscal year 2023, We reported total revenues of $22 5 million compared to $39 2 million in the fourth quarter of fiscal year.
Mike: <unk> 2022, a decrease of 43%. This was driven primarily by the lack of replacement module sales in the fourth quarter of fiscal year 2023.
Mike: Net loss was $29 5 million in the fourth quarter of fiscal year 2023, compared to net loss of $42 million in the fourth quarter of fiscal year 2022, the resulting net loss per share attributable to common stockholders in the fourth quarter of fiscal year 2023 was negative seven.
Mike: Compared to negative <unk> 11 in the fourth quarter of fiscal year 2022.
Mike: Adjusted EBITDA totaled negative $30 8 million in the fourth quarter of fiscal year 2023, compared to adjusted EBITDA of negative $36 1 million in the fourth quarter of fiscal year 2022. Please.
Please see the discussion of non-GAAP financial measures, including adjusted EBITDA in the appendix at the end of our earnings release.
Mike: Finally, the company held total unrestricted cash restricted cash cash equivalents and short term investments of $403 $3 million as of October 31, 2023.
Mike: Next please turn to slide seven for additional details on our financial performance and backlog. The chart on the left hand side graphically shows our fourth quarter revenue composition by line item other than the service revenues of negative zero point $8 million.
Mike: Looking at revenue drivers by category product revenues for the prior year quarter included module sales to Korea fuel cell company limited or KFC under the Companys settlement agreement with KFC, and Posco Energy Company limited or <unk> energy for which the company recognized $24 million. This compares to $10 5 million.
Mike: Product sales in the fourth quarter of fiscal 2023, reflecting revenue recognition related to a performance guarantee which was part of the settlement agreement with Posco energy and a subsidiary of KFC. This revenue was constrained until certain other modules previously sold by the company to KFC were installed at the <unk>.
Mike: <unk> energy side and the company entered into a long term service agreement to service those installed modules.
Mike: Generation revenues were generally consistent quarter over quarter decreasing to $8 5 million from $8 $8 million in the comparable prior year period.
Mike: Advanced technology contract revenues decreased to $4 3 million from $7 5 million compared to the fourth quarter of fiscal year 2022 advanced technology contract revenues recognized under our joint development agreement with Exxonmobil technology, and engineering company or <unk> were approximately <unk> 3 million.
Mike: Higher this increase was more than offset by lower revenues recognized under government and other contracts as a result of the allocation of engineering resources to amtech and other internal engineering and product development efforts during the quarter.
Mike: Service agreement revenues for the fourth quarter were negative <unk> 8 million compared to negative $1.07 million in the prior year period revenues in both quarters were impacted by higher future cost estimates related to future module exchanges compared to the company's prior estimates, which more than offset revenue recognized in each quarter.
There were no module exchanges during the fourth quarters of fiscal years 2023 and 2022.
Mike: Looking at the top right hand side of this slide I will walk through the changes in gross loss in operating expenses during the fourth quarter of fiscal year 2023.
Mike: Gross loss for the fourth quarter of fiscal year, 2023 totaled $1 5 million compared to a gross loss of $15 $2 million in the comparable prior year quarter. The gross loss decreased for the fourth quarter of fiscal year 2023, primarily due to three items.
Mike: One product recognized in the fourth quarter of fiscal year 2023 that did not have any associated cost of goods sold in the quarter. Two generation cost of sales was lower in the fourth quarter of fiscal year 2023, as the company recorded a derivative gain of $4 1 million and three generation cost of sales were lower.
Mike: In the fourth quarter of fiscal year 2023, as a result of lower impairment charges compared to the comparable prior year quarter. These benefits were partially offset by the lack of module sales in the fourth quarter of fiscal year 2023.
Mike: Operating expenses for the fourth quarter of fiscal year 2023 increased to $35 million from $27 5 million in the fourth quarter of fiscal year 2022 administrative and selling expenses were higher during the fourth quarter of fiscal year 2023, primarily due to an increase in compensation expense result.
<unk> from an increase in head count in support of sales marketing and business expansion research and development expenses increased to $18 million during the fourth quarter of fiscal year 2023, primarily due to an increase in spending on the companys ongoing commercial development efforts related to our solid oxide power generation.
In electrolysis platforms and carbon recovery in carbon capture solutions compared to the comparable prior year period.
Mike: On the bottom right of this slide Youll see that we finished the quarter with backlog of approximately $1 billion a decrease of approximately five 7% compared to backlog as of October 31st 2022. The reduction in backlog is primarily result of revenue recognition under product generation and service agreements.
Mike: October 31, 2022, partially offset by an increase in service backlog from the New service agreement with Novo Green energy entered into during the year ended October 31 2023.
Mike: On slide eight is an update on our liquidity position and our ongoing investment in project assets.
As of October 31, 2023, we had total cash cash equivalents and short term investments of $403 3 million.
Mike: This includes $250 million of unrestricted cash and cash equivalents represented by the darker Blue bar on the chart in the center of the slide $103 8 million of short term investments represented by the lighter Blue bar and $49 6 million of restricted cash and cash equivalents represented by the purple bar.
The short term investments represent the amortized cost of U S. Treasury Securities Outstanding as of October 31, 2023, all of which are expected to be held to maturity.
Mike: Throughout fiscal year 2023, we took a proactive approach to capital raising by entering into project financings with total gross proceeds of $105 million during fiscal year 2023, and net proceeds of $97 4 million from sales of common stock during the fiscal year in the fourth.
Quarter, we closed on tax equity transactions that yielded net proceeds of $7 $3 million, we expect to receive an additional $20 6 million of unrestricted cash in the first quarter of 2024. After the Derby projects are placed in service.
Mike: Finally, we generated $15 8 million in interest income during fiscal year 2023 from money market investments and U S. Treasury Securities an increase of $12 4 million from the amount of interest income generated in fiscal year 2022.
Mike: 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 as of October 31, 2023, our gross project assets totaled $304 3 million, which excludes accumulated depreciation.
Mike: As detailed on slide 22 in the appendix of the presentation, our generation portfolio totaled $63. One megawatts of assets as of October 31, 2023. This includes $43 seven megawatts of operating assets and $19 four megawatts of projects in process as projects in Prague.
Mike: <unk> begin commercial operation they are expected to contribute to higher generation revenue.
Mike: Please turn to slide nine here, we are showing greater detail on the targeted investments we plan to make during fiscal year, 2024, which will support our growth plans, allowing us to compete and meet market needs over the medium and long term.
First we are planning $60 million to $75 million of capital expenditures in fiscal year 2020 for these amounts are a continuation of the capital expenditures and commitments made by the company in fiscal year 2023 to upgrade our manufacturing facilities, including the expansion of solid oxide manufacturing capacity.
Mike: At our Calgary facility to 40 megawatts, a year of solid oxide electrolysis cell production.
Mike: This expansion is expected to be completed in fiscal year 2024, we also expect to invest in our manufacturing facilities for molten carbonate, including importantly for carbon capture during fiscal year 2023. The company also began investments to add engineered carbon recovery capability to the onsite sure.
Mike: <unk> thousand 500 in Torrington, Connecticut, which is expected to be completed in fiscal 2020 for this product enhancement will allow potential customers to observe the operating plant and given the target market of food and beverage companies will allow for the sampling and testing of recovered <unk> to verify.
Mike: Quantity quality and purity requirements.
Mike: Internally funded research and development expenditures for fiscal year 2024 are projected to be $60 million to $70 million, which is consistent with our R&D expenditures of $61 million in fiscal year 2023 priorities for R&D are to continue to accelerate the commercialization of our advanced technology solutions.
Mike: For distributed hydrogen hydrogen based long duration energy storage and hydrogen power generation.
Mike: Lastly in fiscal year 2024, we plan to invest 15% to $25 million in the project assets in our generation portfolio backlog with the expected monetization of tax incentives, helping to offset a significant amount of the planned investments. This expected investment level is lower than it has.
Mike: Been in prior years, as our Toyota and 14 megawatt <unk> projects are now complete.
Mike: In closing I am pleased with our continued progress this past quarter and during the fiscal year, we have taken and will continue to take proactive steps to ensure that we have the balance sheet strength required to support our growth objectives, and we will continue to take a highly disciplined approach to managing cash and allocating capital from a final.
Mike: <unk> perspective, we believe that we remain.
Mike: Well positioned to execute on our near medium and long term powerhouse business strategy I will now turn the call back over to Jason.
Thanks, Mike I will now cover our business and operational updates in more detail beginning with slide 11.
Mike: As we have stated in previous quarters, our powerhouse business strategy serves as our framework for achieving long term growth I.
Mike: I will summarize our approach the first tinnitus grow.
We are working to optimize our business to achieve growth in markets, where we see significant opportunities for our platform technologies. We have geographic market segment and application specific playbooks that are focused on building a robust sales pipeline and converting that pipeline into revenue.
Mike: To that in our business development team is focused on moving the pipeline from prospects to executed agreements and I will discuss our pipeline in more detail today.
Mike: The second is scale, we are scaling our existing platforms by investing in extending and deepening our leadership in total human capital across the organization.
Mike: Across our operations. Our previously mentioned we are focused on optimizing manufacturing capacity for our carbonate platform with the goal of achieving 100 megawatts of annualized integrated onsite manufacturing and conditioning capacity.
Mike: We are also working with Exxonmobil on the development of a new business framework between the parties beyond the current joint development agreement structure. We are also evaluating additional U S locations with the goal of producing up to an additional 400 megawatts per year of solid oxide electrolysis sales, which would be implemented.
Mike: In phases as the market develops we believe that the legislation enacted and being contemplated around the world will overtime serve as a catalyst to support the acceleration of adoption of products like ours and to ultimately drive down costs and.
Mike: And third innovate.
Mike: Over our 50 year history.
Mike: We have never stopped innovating as shown on our earlier slide we have hundreds of patents granted or pending in jurisdictions around the world. We believe our technologies and our culture provide the opportunity for our participation in the growth of the hydrogen economy and the carbon capture market and will enable us to deliver on.
Mike: Our purpose to enable world empowered by clean energy.
Mike: We are working to turn our innovations into diversified revenue streams by delivering a range of solutions and services anchored by our multi feature platforms, providing the opportunity for fuel cell energy to pursue the energy transition across the following four applications distributed hydrogen direct flu carbon capture.
<unk> electrolysis and long duration energy storage and distributed power generation.
Mike: We are making good progress in the execution of our strategy and I will discuss specific highlights in more detail on the following slides.
Mike: Please turn to slide 12.
On Korea.
Mike: We were very pleased to announce earlier in the year that we are growing and strengthening our presence in Korea, we executed a long term service agreement with no Green energy and quickly assumed full responsibility for fuel cell operations and maintenance services at our 20 megawatt fuel cell Park.
Speaker Change: Through this agreement <unk> energy is overseeing the operation and maintenance of eight <unk> 3000 fuel cells over the 14 year terms of the agreement.
Speaker Change: This agreement has added significant expected long term recurring revenue to our reported backlog with a contract value of approximately $75 million.
Speaker Change: We see further opportunities for operations and maintenance agreements in Korea, with a large potential market of over 100 megawatts.
Next we have two new project awards to highlight.
Speaker Change: The first is a one megawatt solid oxide power generation project awarded by a university in the northeast United States.
Speaker Change: The second is a two eight megawatt carbon at power generation project for a municipality in California, using biofuels as the feedstock taken advantage over our ability to use direct biofuels versus needing to spend additional capital upgrading that fuel to pipeline quality gas, which other.
Speaker Change: Power generation technologies require.
Speaker Change: I should note that these project awards are in negotiation <unk>.
Speaker Change: Consistent with our practice. These awards are not included in the company's backlogs and will only be added upon execution of final agreements.
Speaker Change: We are also working with nuclear power providers EDF energy in United Kingdom.
Again, Canadian nuclear laboratory or <unk> in Canada.
Speaker Change: We believe that our previously announced work with Idaho National Laboratory, and our work with EDF energy and <unk> demonstrates the differentiated value of our solid oxide electrolysis technology in nuclear applications.
Please turn to slide 13.
Speaker Change: We're focused on building our sales pipeline.
Speaker Change: On the left hand side of the slide we are illustrating the breakdown of our pipeline by type and geography.
Speaker Change: Consistent with our overall growth strategy and the capability of our platforms to deliver multiple values to our customers. We believe we will be well diversified across different applications as well as geographies.
Speaker Change: We offer a range of solutions enabled by our two electrochemical platforms and we believe that this will allow us to compete and win on differentiated value.
Speaker Change: By type our pipeline as of October 31, 2023 consisted of almost 50% electrolysis and hydrogen with 33% carbon capture and carbon recovery and the remaining 18% and pure distributed power generation gene.
Speaker Change: Geographically approximately 51% was in North America, 34% is in the Asia Pacific region, and the remaining 15% is in the EU UK Middle East and Africa.
Speaker Change: When we refer to our sales pipeline, we are referring to ongoing commercial discussions with new leads and potential customers.
Speaker Change: We believe that interest is being driven by demand in the market, particularly interest and carbon recovery plus.
Speaker Change: Zero and low carbon hydrogen from electrolysis and time to power applications. We also believe that the recently announced U S. Hydrogen hubs are driving interest in technologies like ours.
Speaker Change: We're continuing to qualify and develop new leads and potential customers. Please.
Speaker Change: Please turn to slide 14.
We believe that the hydrogen delivery market represents a large and growing opportunity.
Speaker Change: We are already participating in this market with our Tri Gen facility at Toyota's Port operations in long Beach, California, producing hydrogen electricity and water.
Speaker Change: We believe that our Tri Gen technology has broad market application and we are pursuing additional deployments.
Speaker Change: Next we will consider the future development of the hydrogen delivery market.
Speaker Change: In October the department of energy selected seven regional hydrogen hubs, which will be supported by $7 billion of funding through the infrastructure investment and job Act we.
Speaker Change: We believe these hubs will act as a catalyst for accelerating the clean energy transition.
Speaker Change: The first round of funding awards are currently in negotiations we were honored to have our technology named in two of the hydrogen hubs and we are in discussions with all of the hubs as they prepare to make technology decisions.
Speaker Change: We expect that future clarification around the production tax credit should help to further broaden the hydrogen market.
Speaker Change: We expect the use hydrogen hubs will drive meaningful incremental demand for clean energy technology like those provided by <unk> energy.
Speaker Change: Our Tri generation technology, which is being utilized by Toyota in long Beach, California provides a low risk solution that we believe is an ideal fit for hydrogen hub applications. In addition, we believe that our first commercial solid oxide unit, which is expected to be delivered to the Idaho National Laboratory in 2020.
Speaker Change: Four will demonstrate superior performance and efficiency compared to competitors.
Speaker Change: Please turn to slide 15.
Speaker Change: We are advancing our strategic priorities across two areas of focus decarbonising power and producing hydrogen.
Speaker Change: As previously mentioned, we recently opened our newest fuel cell Park in Derby, Connecticut to.
Speaker Change: <unk> <unk> thousand 14 megawatt project was placed in service in December.
Speaker Change: Subsequent to the quarter in this project is generating competitively priced renewable energy for many thousands of area residents and is helping the state of Connecticut close its power generation gap.
Speaker Change: We believe that this project further demonstrates our ability to execute large complex projects on time, and we will make a meaningful contribution to our generation operating portfolio and contribute to EBITDA for years to come.
Speaker Change: Also we expect that the smaller two eight megawatt project in Derby, Connecticut will be placed in service later this month.
Speaker Change: Moving to solid oxide.
Speaker Change: We continue to invest in product development and manufacturing scale up for our two solid oxide platforms power generation and electrolysis.
Speaker Change: To enable our growth we are expanding our Calgary manufacturing operations with the goal of delivering up to 40 megawatts of annualized all alongside of electrolysis cells production per year compared to our existing capacity of four megawatts per year.
Speaker Change: In addition, we are designed in flexibility that would allow us to further increase sales stack manufacturing capacity at our Calgary facility to facilitate the potential annualized production of up to an additional 40 megawatts of solid oxide electrolysis sales per year by leasing additional space.
Speaker Change: And investing in various process optimizations intended to increase throughput and yield.
Speaker Change: This approach would allow for the potential to increase our total annualized solid oxide electrolysis cell manufacturing capacity to up to 80 megawatts per year, we have hired and trained additional staff for a three shift production operation to support the initial planned expansion to 40 <unk>.
<unk> that would add additional staff as required in the future to realize the potential 80 megawatts of annualized solid oxide electrolysis cell production.
Speaker Change: Our solid oxide manufacturing operation is in the process of building four units.
Two units that were run internally for advanced testing and two production units for delivery externally.
Speaker Change: These commercial units for external delivery, one will be our electrolysis platform for delivery to Idaho National Laboratory and the other will be our distributed power platform for delivery to Trinity College in Hartford, Connecticut for Us under a long term power purchase agreement.
Speaker Change: We expect that the ICL unit will be operational at our Danbury location. This month, and then delivered to <unk> in early 2024, where the unit will operate and undergo extensive validation testing.
Speaker Change: So turning to slide 16, we wanted to highlight some very recent developments regarding our carbon capture work with Exxonmobil.
Speaker Change: Mobile announced yesterday that its affiliate Esso Nederland BV plans to build a pilot plant at its Rotterdam manufacturing complex to test the carbonate fuel cell technology for carbon capture jointly developed by <unk> energy and amtech.
Speaker Change: So Robert dams integrated manufacturing site will be the first place in the world to pilot this technology XR.
Speaker Change: Exxonmobil has stated that they captured cotwo be transported and stored via the purpose project for permanent storage under the North Sea. Additionally.
Speaker Change: The release indicated that pending a successful demonstration exxonmobil could deploy this technology at its manufacturing sites around the world and win the carbonate fuel cell technology is technically ready for broad scale implementation it could potentially offer economical de carbonization solutions for customers.
From a wide range of industries.
Speaker Change: We believe that our technology could significantly reduce.
Speaker Change: Direct <unk> emissions from industrial emitters, and we are very excited as we move into the next phase of activities and actions.
Speaker Change: Before moving to Q&A I will conclude with takeaways on slide 17.
Speaker Change: I am excited about how our consistent efforts to advance new technologies toward commercialization are progressing we believe that our technologies will have a positive impact on our world.
We have remained focused on disciplined capital allocation and we have maintained the strength of our balance sheet through both debt and equity financing.
Speaker Change: We are making critical investments to position <unk> energy for future growth, while taking a highly disciplined approach to maintaining cash and liquidity.
Speaker Change: We are excited about Esso Nederland, Bvs recently announced plans to build a pilot plant at its Rotterdam manufacturing complex to test the carbonate fuel cell technology for carbon capture jointly developed by <unk> energy and Amtech as mentioned earlier. This announcement follows completion of.
Speaker Change: All required technology test regarding the efficacy and longevity of our carbonate fuel cells to capture at least 90% of <unk> missions from an external emission source with a concentration of 8% or higher cotwo.
Speaker Change: We believe that capturing carbon at the emission source and sequestering it could be an efficient way to decarbonize heavy industry. In addition, we have shown that our technology can capture carbon and produce electricity and hydrogen simultaneously, which differentiates it from other forms of <unk>.
Speaker Change: <unk> capture technology, which consume energy, we believe our carbon capture technology could be an important solution for helping decarbonize the hard to abate carbon intensive industrial sector.
Speaker Change: We are demonstrating our ability to execute large projects. Most recently with our Tri Gen platform operating for Toyota in long Beach, and the commercial operations of our Derby generation facility.
We've had success in our growth efforts in Korea, where we see tremendous additional opportunity for the future.
Speaker Change: Lastly, we believe we are positioned for growth and we remain focused on advancing both our technologies and commercial relationships in 2024.
Speaker Change: We believe fuel cell energy is well positioned to capture market opportunities over the coming years and deliver enhanced shareholder returns over the long run.
Speaker Change: I will now turn it over to the operator to begin Q&A.
Speaker Change: Thank you we are now opening the floor for Q&A, if you'd like to ask a question. Please press star and number one on your telephone keypad.
Speaker Change: Star and number one on your telephone keypad, we have our first question from George <unk>.
Speaker Change: Ian <unk> from Canaccord Genuity. Your line is now open.
Ian: Hi, everyone. Thank you for taking my question happy holidays, and congrats for getting Tri Gen operational.
Speaker Change: George <unk> morning, Thank you and happy holidays to you.
Speaker Change: So maybe first if we can.
George: So on the Exxon announcement from yesterday.
George: Since two how extensive.
George: Exxon's.
George: And trials are in building other pilot plants with other technologies outside of yours is this their.
George: <unk>.
George: Deal announced to build a pilot plant with carbon capture technology.
George: So Exxon has a number of different efforts going on in carbon capture technology. So obviously the work that we're doing with Exxon is exclusive to our carbonate fuel cell and what makes it different is that of any of the trials or other.
Work, that's going on is that our platform is the only one that can <unk>.
George: <unk> carbon from an external source produce power and hydrogen simultaneously.
George: One is announced other carbon capture projects that theyre doing that are leveraging different technologies.
George: Then ours, but this is the first trial using our our platform.
George: Yeah.
George: Okay.
George: And then maybe to focus on just the outlook for 2024.
George: Mentioned.
George: Your backlog and you also mentioned some increase.
Spending initiatives. So can you help us just compartmentalize what revenue could look like next year you have.
George: A growing backlog you also have we're all kind of waiting.
George: For the Treasury Department and give us more guidance as to the rules around hydrogen green hydrogen production. So.
George: How should we think about balancing the investments you want to make and also with the pipeline in the executable pipeline and backlog are for next year and how that translates into revenue.
Good morning, George This is Mike and thank you for the question so.
Mike: As I outlined in my remarks, we are planning on making targeted investments as we go into 2024 really a continuation of what we're doing in 2023 as far as commercializing our solid oxide technology and expanding manufacturing capacity at our Calgary facility as well as <unk>.
Mike: Beginning.
Additional expansion in Torrington, particularly around around carbon capture those investments set us up nicely for being competitive in increasing revenues in future years around those new technologies, so as Jason talked about carbon capture as well as electrolysis. So we expect to see those.
Mike: <unk> in future years as for 2024, we Havent put out specific guidance around revenue for 2024, but with Toyota coming online with Derby coming online you would expect to see increasing generation revenues is as we go into 2024, we did put out.
Mike: Expectations around R&D spend expect that to be in the range. As we were this past year. We ended last year with about $61 million, we've targeted <unk>.
Mike: $60 million to $75 million there so.
Mike: Potentially some slight increases there, but really focused on the targeted investments around commercializing this technology is to that.
We have been developing here for some time.
And maybe just on the on the Treasury's decision and how that kind of impacts how you think about next year in terms of investment and revenue outlook.
As far as as far as the Treasury, we're obviously carefully watching that the company has a history of being able to monetize tax benefits and we've talked about that here recently with tax benefits that we've monetized around both the Toyota projects.
Mike: As well as well as Derby, so wouldn't expect.
Mike: Anything to impact that it's obviously opportunity.
Mike: In the future for potential additional monetization, but we're watching it carefully like everybody else.
Mike: You had mentioned that I think in a previous call that you expect Toyota the treasury facility.
$3 a kilogram.
Mike: Is that still the expectation or do you think that could change based on what happens.
Mike: So as far as far as the Tri Gen facility, we announced in.
Mike: In our press release that we put out last week that we have entered into an agreement too.
Mike: Sell the production tax credits from from that facility, we did not put out the exact number but we've entered into a financing transaction to sell the sell the PTC, which does add incremental value to that project.
Speaker Change: Thank you so much.
Speaker Change: Yes.
Speaker Change: Our next question comes from Manav Gupta from UBS financial your line is now open.
Manav Gupta: Thanks, guys I'll, just take the Q and I only asked one question.
Manav Gupta: You are working on a daily loan guarantee program not a daily loan, but the loan guarantee program can you help us understand how that process is going and any update on that and I'll turn it over after that thank you.
Speaker Change: Hi, good morning, and thank you for the question.
Yes, with respect to our expanding manufacturing around solid oxide in the U S. We are in the process around the Doe loan guarantee.
We are getting close to finalizing the location we've narrowed it down to just around three locations, which is the next phase that we need to get through that process and then we will continue to move forward with the dose, but we're excited about.
Speaker Change: The progress, we're making in certainly around the pipeline that we're seeing which is obviously, we need to see from a corporate perspective before even moving forward with that.
Thank you guys.
Speaker Change: Okay.
Speaker Change: Our next question comes from Eric Stine from Craig Hallum. Your line is now open.
Eric Stine: Good morning, everyone.
Eric Stine: Hey, so on the generation portfolio when total Toyota up in Derby believe shortly I mean, you'll be at that 60 megawatts.
Eric Stine: And as I think about the past I mean, this goes back a ways and I understand you're taking on much more investment here to drive some of these very sizable opportunities, but in the past you had talked about a 50 to 60 megawatt kind of a breakeven level for generation, where you would be EBITDA positive.
Eric Stine: And I'm just curious is that something that you plan to update I mean could you give a little color there as it stands given your new cost structure.
Eric Stine: Good morning, Eric This is Mike So I'll take that so yes as as these additional projects come online. We will we will have over 60 megawatts of projects online in the portfolio, so finishing up.
Mike: Investments that have been made in the last several years that will increase our our generation revenue as far as EBITDA for the portfolio itself, that's a positive EBITDA portfolio.
Mike: When you take out.
Mike: The depreciate so on our on our financial statements were showing negative negative margins from the portfolio, but when you take out depreciation as well as the costs that we expense around the Toyota project for the quarter that came in around I'm, sorry for the fiscal year that came in around 45% and for the <unk>.
Mike: <unk> around 42%.
Mike: So.
Mike: E positive positive cash generation from the portfolio when we look at the overall business as we said we are making additional investments we have increased our our SG&A as well as R&D over the last several years to bring on these new these new technologies as as those.
Mike: Come online and become revenue producers.
Mike: In the next few years that will continue to improve the EBITDA profile of the company, we have not put out specific guidance around when the company gets to EBITDA positive, but we would expect to continue to drive in that direction as we get revenue from not only these new technologies.
Mike: To grow our activity on a global basis with Jason talked about the opportunity in Korea. We recently had a new service agreement come on come online Thats revenue, producing and we see further opportunities there as well.
Okay.
Speaker Change: Got it that is helpful. And then maybe last one for me just on the pipeline do appreciate the breakdown.
By application and by geography, but wondering.
Speaker Change: Maybe I missed it but did you give an actual amount or estimate of what that might be I know that is something that you have done in the past.
Speaker Change: Yeah, Eric what we provided was really a look at the type of applications that we see in our pipeline. So if you look at that between power generation electrolysis and hydrogen and carbon capture and what we refer to as carbon recovery and then we gave a view of it by <unk>.
Speaker Change: <unk> with those same applications, what we did not provide a specific megawatt or gigawatt number to the pipeline.
Speaker Change: And.
Speaker Change: And that in the past at least since I've been here, but what I would say as you look at what we've talked about on the call. Today. If you take for example, the service agreement that Mike just talked about in Korea. There is a 100 megawatts of.
Speaker Change: Additional opportunity in the Korea market, we talked about three additional.
Speaker Change: Award et cetera that are not fully negotiated yet so we're starting to see that pipeline convert in the opportunities. We we also.
Speaker Change: See that some of the projects that we have in Europe as they come up for renewal, we haven't we're having some success. There. So we think that we're starting to get to a point to where we're seeing that pipeline converts are opportunities and we're excited about that.
Speaker Change: Okay I'll take the rest offline. Thanks.
Thank you.
Our next question comes from Jeff Osborne from TD Cowen. Your line is now open.
Jeff Osborne: Yes. Thank you just two quick ones on my side I think you had mentioned your advanced had advanced the planning for the solid oxide fuel cell facility potentially in the U S. Can you just give us an update.
Jeff Osborne: On how that advancement is gone if theres any update in terms of scope.
Jeff Osborne: Capex I think in the past you had talked about potentially upwards of $300 million. So I'd be interested in that and then just following up on what you just said to Eric on the 100 megawatts in <unk>.
Korea, just hypothetically if you receive an order tomorrow for that when would the revenue flow through would.
Jeff Osborne: Or would you encourage the analysts to sort of model a proportion of that 100 megawatts for maybe the second half of next year or.
Jeff Osborne: Sort of zero out the product revenue.
Jeff Osborne: For the year.
Speaker Change: Jeff. Thank you for your question on the first part of your question.
Speaker Change: We what we've talked about for the U S is a manufacturing facility that would have the ability to produce at 400 megawatts.
Speaker Change: We have since refined our view of that and our view of the capital required to achieve that has come down by a factor of about two thirds are roughly in terms of how we think about the cost.
The <unk>.
Facility that we have in Calgary is 40 megawatts as what we're spending there too and we think that we have the ability to get that to 80 with minor.
Investment in making that happen. So we're excited about about the opportunity to get the Calgary facility also to 80, but in the U S. We think that's important.
Speaker Change: One just because of where we see opportunity and to obviously to make sure. We're in pole position to take advantage of the IRA as we are with our carbonate platform, which we've always manufactured that here in the United States.
Speaker Change: With respect to the 100 megawatt opportunity.
What I would say there is that if.
Speaker Change: If you think about the way our business works our modules work, depending on when module or installed that's what really creates the opportunity for the upgrade cycle. So it's not an even distribution in the way you might think about it. So we can look to maybe help with that a little bit more.
Speaker Change: And how you might think about it but that's all going to be driven by.
Speaker Change: When modules come up for renewal and are working through those contracts with each of the <unk> in the Korea market.
Speaker Change: So just to follow up on the Capex.
Speaker Change: Previous was 302 thirds less is it.
Speaker Change: $100.
Speaker Change: Are my figures off.
Speaker Change: Yes, initially to build out a facility that's more why what we're thinking we'll end up being.
Speaker Change: Got it and then you won't be more specific on Korea, how many units are.
Speaker Change: Roughly five years old that might be up for renewal.
Speaker Change: Thinking about that portfolio.
Speaker Change: And what would be after the next 12 to 18 months.
Jeff This is Mike Let me, let me take a shot at that so.
You mentioned currently we do not have <unk>.
Mike: Product backlog, so would not expect to see product revenues early in the fiscal year, but as as Jason said, we are in the process of working through.
Mike: Transition of of the portfolio in Korea, which is which is currently under Posco energy or KFC. That's 100 megawatts of opportunity. It's all of our carbonate fuel cell. So we do have inventory for that and as.
Mike: As those renewals happen in these repowering opportunities happen, we will be as as.
Mike: Prudent as we can about shipping those modules to Korea. There is there is a time lag there but.
Mike: We will be producing the inventory and we will be able to ship modules to Korea in the second half of the year. It just really depends on timing of.
Mike: Transitioning these these projects from.
Posco energy, our KFC, two fuel cell energy and the and the cycle in which.
Mike: Those renewals happen.
Mike: Perfect and then just lastly nicely.
Speaker Change: Is there any more.
Speaker Change: Similar to the $10 5 million from performance guarantees is there any residual performance guarantees falling through in the next fiscal year from prior units shipped and we need to model pure profit.
We wouldn't we wouldn't expect anything significant there Jeff the those modules, which the performance guarantees were related to where no all green and those were installed this.
Speaker Change: This past quarter.
Speaker Change: Alright, Thats all I had thank you.
Speaker Change: Okay. Thanks.
Our next question comes from Vishal <unk> from Jefferies. Your line is now open.
Vishal: Hi, Thank you good morning, everyone.
Vishal: Okay.
Maybe one or two quick ones just on the timing.
Vishal: Of.
Vishal: The pilot for the carbon capture with Exxon.
Vishal: Could you maybe share more about how that.
Vishal: When the policy would take place one that is going to be.
Vishal: What's the next steps after that.
Vishal: Sure.
Vishal: If you think about the announcement, we just made yesterday.
Vishal: Of that work that's going on with Exxon includes their participation with the innovation fund in the EU and right now the timing for the pilot is slated for early 2026.
Vishal: And Theres, a theres documents out there that you could see online around the EU innovation funding to give some more clarity on that.
Vishal: But we expect that will be.
Vishal: Operational in that timeframe.
Speaker Change: Awesome. Thank you and then just on the hydrogen hubs I know that you talked about.
Speaker Change: Oh, Youre technology being stuck in the two hubs and then also you have discussions going on so maybe just timing around that as well.
Speaker Change: Okay.
Speaker Change: Yeah, So I think the.
Speaker Change: If you think about the hubs and.
Speaker Change: What's going on there.
Speaker Change: The negotiations between I'll call them homeowners for lack of a better expression.
Speaker Change: Is going on between them and the daily around how the funding is going to work, but what we're excited about when you look at all seven hubs four of the seven I'll have an aspect of transportation tied to them. We see our Toyota project is a great example of our ability to execute a project like that very quick.
Speaker Change: <unk>, if you think about the fuel mix or the way in which the Dol is trying to demonstrate these hydrogen hubs. There is a cross between doing electrolysis, whether that's through wind and solar or things like hydro or utilizing fuel to do that theres also hubs that have the opportunity.
Speaker Change: Year round doing.
Speaker Change: Blue hydrogen as it used to be called.
Speaker Change: And doing that by capturing Cotwo, we think we're really well positioned to add value across all seven of the hubs and so as those hub owners work through on Nene.
Speaker Change: Cycle with the Doe.
We are working with them and lock stopped to provide technology as part of the solutions they need to to make the hydrogen hubs work.
Thank you I'll turn it over.
Speaker Change: Our next question comes from Ryan <unk> from B Riley. Your line is now open.
Hey, guys. Thanks for taking my questions.
Ryan: With the <unk> side now available for potential customer visits can you talk about the interest you have seen from others in recent months and your confidence in attracting another customer.
Ryan: Yeah.
Speaker Change: Alright, good morning, and thank you for the question.
Speaker Change: One of the things that's really exciting about the Toyota project is that unlike even some of the other projects that have been talked about.
Speaker Change: This is a real commercial implementation of the solution for a customer that has a real need to leverage the power the hydrogen and the water from the platform.
Speaker Change: Between the platform and its capabilities and the way in which Toyota as the customers leveraging the platform that has served as a catalyst to generate a lot of interest in the in the product itself. We continue to do a number of tours, we have a number of opportunities that we're pursuing.
Speaker Change: Moving around try Gen. As a solution. In addition, like I just mentioned, we think that Theres, maybe some replicability for Tri Gen. Even in some of the hydrogen hub opportunities.
Speaker Change: That's helpful.
Speaker Change: And nice to see the nuclear related announcements last couple of months in the U K and Canada, how big of an opportunity do you see with nuclear and what is appetite look like here in the U S.
Speaker Change: A great question and maybe I'll ask Tony to chime in here a little bit about why we are excited about the nuclear opportunity given our solid oxide electrolysis platform and wide such a good pairing with nuclear and the renewed interest that we're seeing around nuclear not only here in the U S, but around the world.
Tony: Yeah happy to do that the key advantage of marrying nuclear power to our solid oxide electrolysis as its zero carbon power and its available 24, seven. So if you think of the other zero carbon solutions that can produce zero carbon hydrogen through electrolysis they tend to be intermittent renewables.
Tony: So nuclear a has a very high capacity factor in be it also provides waste heat, which we can use to increase our electrical efficiency. It starts out high at about 90%, but we can literally get it to a 100%. If we have an external source of waste heat, which we can get from nuclear power. So it's a really good fit for our solid oxide electrolysis.
Speaker Change: Got it Thats, an application that seems to make a lot of sense at the holidays guys I'll turn it back.
Speaker Change: Happy holidays. Thank you.
Our last question comes from Noel Parks from Tuohy Brothers. Your line is now open.
Noel Parks: Hi, good morning.
Noel Parks: Good morning.
Noel Parks: I just wanted to talk on.
Noel Parks: Sure.
Noel Parks: General topic on the product development side.
Noel Parks: I was wondering if you could.
Talk a bit about some of the work you've been doing as far as.
Reducing the footprint.
Noel Parks: Fuel cells.
Noel Parks: Any particular progress you expect to see in the coming fiscal year, and how that might manifest itself.
Speaker Change: Good morning, and thank you for the question I think if you look at our two platforms, our carbonate platform and our solid oxide platform.
Speaker Change: If you if you look at solid oxide, it's effectively the size of the containers the modest size and it too just like our carbon and platform is very modular lies.
Speaker Change: That creates an advantage for us in terms of.
Speaker Change: Space and how we utilized space if you take the Tri Gen platform just as an example.
Speaker Change: I mean, thats a platform, providing two three megawatts of power to providing hydrogen it's providing water and its on the equivalent of roughly three basketball courts. So not a lot of footprint needed for our platforms and as you think about the ability around solid oxide.
Speaker Change: And rack mounted and doing other things like that with a platform. That's more containerized you can be very efficient.
Speaker Change: This utilization.
While delivering a lot of power or other benefits like hydrogen indoor carbon capture.
Speaker Change: Okay.
Speaker Change: Okay great.
Speaker Change: <unk>.
Speaker Change: I apologize if you touched on this earlier, but.
Speaker Change: When it comes to the recent announcement of the.
Speaker Change: Exxon deal.
Speaker Change: I was wondering.
Speaker Change: If you could talk a little bit about maybe the last stages of getting to the agreement.
Speaker Change: I feel like earlier in the year.
Speaker Change: Maybe in Europe your comments about.
Speaker Change: About the JV.
Speaker Change: You mentioned, a good deal about joint marketing aspects of it.
Speaker Change: To a degree that made me take maybe the first announcement.
Speaker Change: Actually be something other than in Rotterdam.
Speaker Change: Of course, there are presently surprised to hear that that was the.
The priority. So anything you could talk about sort of the background or kind of what's been happening the last couple of quarters.
Speaker Change: Yes.
Speaker Change: As we've talked about.
Speaker Change: One of the things that both Exxon and fuel cell.
Speaker Change: We're very focused on in the joint development was really around optimizing the plant.
Speaker Change: And optimization of the platform really centered around <unk>.
Speaker Change: How effective where we in capturing and transferring carbon how good was the platform in terms of maintaining power density right. Because we think that's a significant advantage to our platform versus any other technology out there to capture carbon. So we spent a lot of time on those two things and then thirdly.
One of the other elements was just around life and now one in a carbon capture more wood ourselves stack life laughed and life testing takes time.
Speaker Change: So those things were all things that we really focused on through this development effort.
Speaker Change: After solving those things from a technical standpoint, and both sides being comfortable with the results that we were able to generate the next phase was to move to this demonstration project and we're really excited to do that.
Speaker Change: Not only because.
Speaker Change: It's exxon and they've been our.
Speaker Change: Who we worked with jointly around optimizing the technology, but like they said in the press release that after successfully demonstrating this is technology that they think they could deploy at their other sites and if you just look at them as a customer right. That's a pretty significant opportunity and then if you if you open up the <unk>.
Speaker Change: <unk> and you look at industrial customers.
Speaker Change: <unk> that is a significant market opportunity for technology like ours that will capture carbon.
Speaker Change: And produce power simultaneously and have the benefit have the optionality of delivering other benefits like hydrogen as part of the platform.
Speaker Change: Great. Thanks, a lot.
Speaker Change: Thank you.
Speaker Change: The question and answer session is now closed I would now like to hand back over to Jason <unk> for closing remarks.
Jason Few: Thank you.
Jason Few: We will continue to execute our powerhouse business strategy with the goal of delivering growth and optimizing returns. Thank.
Speaker Change: Thank you all for joining the call today and.
Speaker Change: And for your interest in fuel cell energy, we wish you all a peaceful and happy holiday season, and we look forward to updating you again next quarter have a great day. Thank you.
Speaker Change: Thank you for attending today's conference and you Hope you have a wonderful Dan happy holidays, you may now disconnect.
Okay.