FuelCell Energy Inc. (FCEL) 2024 Q3 Earnings Call Summary

Optimistic Highlights

• Significant Commercial Win

Announced a long-term service agreement with Gyeonggi Green Energy (GGE) in South Korea for 42 upgraded replacement fuel cell modules, boosting the backlog to $1.2 billion.

• Strong Growth in Generation and Advanced Technology Revenues

Generation revenues increased by 22% and advanced technology contract revenues increased by 84% year-over-year.

• Progress on Carbon Capture Project

Advancing the carbon capture project with ExxonMobil at the Esso refinery in Rotterdam, with module testing and validation ongoing.

• Bio-Generation Project

Advancing a bio-generation project with Ameresco for the Sacramento Area Sewer District, which will produce carbon-neutral electricity and usable heat from biogas.

• Expansion in South Korea

Expanding reach into the South Korean market with long-term service agreements and product sales, leveraging the country's aggressive hydrogen economy roadmap.

Pessimistic Highlights

• Decrease in Year-over-Year Revenue

Revenue decreased year-over-year due to the absence of module replacements in the current quarter compared to the prior quarter.

• Net Loss

Reported a net loss of $35.1 million for the third quarter of fiscal year 2024, compared to a net loss of $23.6 million in the prior year quarter.

• Decrease in Service Agreement Revenues

Service agreement revenues decreased to $1.4 million from $9.8 million in the prior year period due to the absence of module exchanges.

• Operating Expenses

Operating expenses for the third quarter decreased to $27.4 million from $33.2 million in the prior year third quarter, reflecting cost-saving measures including job eliminations.

• Adjusted EBITDA

Adjusted EBITDA totaled negative $20.1 million in the third quarter of fiscal year 2024, compared to negative $31.6 million in the prior year quarter.

Company Outlook

• Focus on Cost Management

The company is taking proactive steps to maintain the strength of its balance sheet, including disciplined expense and capital deployment management.

• Manufacturing and Production Adjustments

Monitoring and adjusting production at the Torrington facility to reduce costs while managing Carbonate inventory to meet current and forecasted demand.

• Financing and Cash Management

Pursuing financing to support commercial efforts, including deployment of modules to repowering opportunities in the Korean market.

• Strategic Investments

Making critical investments to support continuous improvements in manufacturing processes, including safety performance, to position for future growth.

• Market Expansion

Continuing to invest in scaling the commercial organization in South Korea and broader Asian markets, leveraging the aggressive hydrogen economy roadmap.

Q & A Highlights

• Q: Any update on the Toyota project and follow-on interest? (George Gianarikas, Canaccord Genuity)

A: The Toyota project is fully operational, providing hydrogen, power, and water. There is follow-on interest, but decisions are impacted by pending tax rules from the Treasury Department. (Jason Few)

• Q: Thoughts on 45V codification relaxation and timing? (George Gianarikas, Canaccord Genuity)

A: The Chevron ruling may require the Treasury Department to reassess the implementation of rules, likely aligning more with legislative intent, which should be positive for clean hydrogen companies. Clarity is not expected before the election. (Jason Few)

• Q: Manufacturing expansion for solid oxide in the US and DOE funding? (Ryan Pfingst, B. Riley)

A: Yes, active in DOE programs and committed to US-based manufacturing. Being thoughtful about capital deployment and scaling, awaiting more clarity on tax rules. (Jason Few)

• Q: eFuels projects in Canada and similar opportunities? (Ryan Pfingst, B. Riley)

A: Partnering to leverage technology and nuclear for eFuels, focusing on high-efficiency electrolysis and heat utilization. Medium to long-term opportunity. (Jason Few)

• Q: Updates on data center front? (Saumya Jain, UBS)

A: Seeing growth in pipeline from data center opportunities, leveraging strengths in time to power, on-site generation, large-scale deployment, and thermal energy integration. (Jason Few)

• Q: Wastewater projects in the pipeline? (Noel Parks, Touhy Brothers)

A: Growing movement to leverage anaerobic digesting at wastewater facilities, with projects like Ameresco demonstrating capabilities. Potential for hydrogen production and carbon recovery. (Jason Few)

• Q: Progress on Rotterdam site work and joint marketing with Exxon? (Noel Parks, Touhy Brothers)

A: Site work at Esso plant involves preparing for module installation and flue gas movement. Engaged in conversations with customers for demonstration scale projects. (Jason Few)

• Q: Impact of potential interest rate environment improvement on financing discussions? (Noel Parks, Touhy Brothers)

A: Excited about potential rate environment change, pursuing commercial financing for projects in Korea and elsewhere. (Michael Bishop)

• Q: Co-electrolysis projects and alternative approach to carbon emissions? (Jeffrey Campbell, Seaport Research Partners)

A: Leveraging nuclear for eFuels, capturing carbon at point source, producing power and hydrogen, and creating value streams for decarbonization. (Jason Few)

• Q: Initial response to food grade CO2 effort? (Jeffrey Campbell, Seaport Research Partners)

A: Positive response, with customers interested in sampling and testing CO2 for purification and taste. (Jason Few)