FCEL stock is rising in early trading on January 22, 2020, after the company reported preliminary financials and announced a new business strategy.
FuelCell Energy, Inc. (Nasdaq: FCEL), a global leader in delivering localized, always on, sustainable clean energy, today reported financial results for its fourth fiscal quarter of 2019 and its fiscal year ended October 31, 2019 and provided details of its new business strategy.
“Our results in the fourth fiscal quarter and the full fiscal year reflect our focused execution on right-sizing FuelCell Energy, exiting opportunities that did not meet our margin objectives, and positioning the Company for growth in 2020 and beyond,” commented Jason Few, President and Chief Executive Officer of FuelCell Energy. “We accomplished a number of strategic initiatives to strengthen our balance sheet and improve our cost structure as we focus on delivering our significant project backlog, which is expected to result in recurring cash flow from our generation assets.”
Fourth Quarter of Fiscal 2019 Results
(All results reflect year-over-year comparisons unless otherwise noted)
- Revenue of $11.0 million represents a 38% decrease year-over-year and reflects the Company’s previous decision to deemphasize Product sales to focus on utility scale Power Purchase Agreement (“PPA”) opportunities, and grow our generation portfolio. This revenue decrease was partially offset by the Company’s increased Generation and Advanced Technologies contract revenues.
- Generation revenues increased by 206% to $5.5 million from $1.8 million as a result of the acquisition of the 14.9 megawatt (“MW”) Bridgeport Fuel Cell Project in 2019, which increased generation assets by 133% to 26.1 MW from 11.2 MW on a year-over-year basis.
- Advanced Technologies contract revenues increased by 16% to $4.3 million from $3.7 million due to increased activity, mainly in conjunction with the carbon capture joint development agreement with ExxonMobil Research and Engineering Company.
- Service and License revenues decreased by 72% to $0.8 million from $2.9 million, driven by the timing of planned service work performed in the comparative periods.
- Product sales totaled $0.5 million for the quarter, a decline of 95% when compared to product sales of $9.4 million in the comparable quarter. The difference between the periods is primarily due to the inclusion of the sale of the Trinity College fuel cell project in the fourth fiscal quarter of 2018.
- Gross loss for the fourth fiscal quarter of 2019 totaled $(23.4) million, compared to gross profit of $1.1 million in the fourth fiscal quarter of 2018. Results for the fourth fiscal quarter of 2019 include a noncash charge of $14.4 million due to a decision by the Company to operate the Triangle Street Project under a merchant model (selling electricity under tariff to the grid and without an executed power purchase agreement) for the next 5 years. Results also include a noncash charge of $3.1 million for the Bolthouse Farms Project because management has decided to pursue termination of the PPA related to the Bolthouse Farms Project given recent regulatory changes impacting the future cost profile for the Company and Bolthouse Farms.
Operating expenses for the fourth fiscal quarter of 2019 decreased by 26% to $9.6 million, compared to $13.0 million in the fourth fiscal quarter of 2018. Research and development expenses of $1.4 million reflect lower headcount and overhead as a result of restructuring activities during fiscal 2019 and an increased allocation of efforts to revenue producing activity. Administrative and selling expenses at $8.2 million were higher than in the fourth fiscal quarter of 2018 as a result of extraordinary legal and consulting costs incurred by the Company in connection with its restructuring, liquidity and refinancing initiatives. This expense category is expected to trend down in fiscal 2020 as those efforts are now complete.
Adjusted EBITDA loss totaled $(11.0) million in the fourth fiscal quarter of 2019 compared to $(8.8) million in the fourth fiscal quarter of 2018. (Adjusted EBITDA is a non-GAAP financial measure that represents adjusted earnings before interest, taxes, depreciation and amortization.) Please see the discussion of non-GAAP financial measures and Adjusted EBITDA in the appendix at the end of this release.
The net loss per share attributable to common stockholders in the fourth fiscal quarter of 2019 was $(0.23), compared to $(2.31) in the fourth fiscal quarter of 2018.
Fiscal 2019 Results
(All results reflect year-over-year comparisons unless otherwise noted)
- Revenue of $60.8 million represents a 32% decrease in revenue year-over-year, which was primarily a result of the Company’s previous strategic decision to focus on utility scale PPA business opportunities to grow the generation portfolio rather than selling our projects at completion, and the Company’s continuing inability to access the Asian markets as a result of the situation with POSCO Energy, partially offset by increased Service and License revenues, Generation revenues, and Advanced Technologies contract revenues.
- Generation revenues increased 96% to $14.0 million from $7.2 million due to additional revenue recorded for the 14.9 MW Bridgeport Fuel Cell Project, which was acquired in May 2019.
- Advanced Technologies contract revenues increased 40% to $19.6 million from $14.0 million due to the timing of project activity under existing contracts.
- Service and License revenues increased 69% to $26.6 million from $15.8 million, mainly due to revenues of $10.0 million recorded in connection with our license agreement with ExxonMobil Research and Engineering Company during the fiscal year ended October 31, 2019.
- Product sales for the fiscal year consisted of $0.5 million of power plant revenue compared to $52.5 million of product revenues for the fiscal year ended October 31, 2018, which included sales from the 20 MW fuel cell project for Korea Southern Power Company and the sale to Clearway Energy of a 2.8 MW fuel cell power plant project in Tulare, California.
- Gross loss in fiscal 2019 totaled $(21.3) million, compared to gross profit of $3.1 million in fiscal 2018. Fiscal 2019 results include one-time, noncash impairment charges of $20.4 million.
Operating expenses for fiscal 2019 decreased 4% to $45.7 million compared to $47.7 million in fiscal 2018. Research and development expenses of $13.8 million in fiscal 2019 compared to $22.8 million in fiscal 2018. This decrease reflects the reduction in spending resulting from the restructuring initiatives and the reassignment of personnel from internal research and development activities to funded Advanced Technologies projects. Administrative and selling expenses of $31.9 million in fiscal 2019 were higher than in fiscal 2018 as a result of atypical legal and consulting costs related to the Company’s restructuring, liquidity and refinancing initiatives.
In a separate release today, FuelCell Energy announced its comprehensive strategy to strengthen its business and maximize operational efficiencies, which is expected to enable the Company to capture future growth opportunities by executing of its core business, focusing on customer relationships, delivering on and expanding its project backlog, and developing and commercializing new technologies with it partners. Access the release.
“My first full quarter as CEO has been a pivotal time for FuelCell Energy, during which we have worked together with our Board, as a management team, and with our stakeholders and suppliers to complete the restructuring phase of our strategy,” said Jason Few. “Having accomplished our initial objectives of building a financial foundation to move forward with our new business, today we unveiled the pillars of our Powerhouse transformation strategy: Transform, Strengthen, and Grow. We are fully focused on successfully executing our project commitments and positioning the Company to deliver positive earnings.”
FuelCell Energy today announced the details of its new “Powerhouse” business strategy, which is focused on the fundamental pillars of Transform, Strengthen, and Grow.
- “Building on our 50-year history of innovation and our leadership in the advancement of fuel cell technology, we are embarking on a new “Powerhouse” business strategy focused on strengthening our operations and industry positioning to enable the delivery of sustained profitable growth to benefit all of our stakeholders,” said Jason Few, President and Chief Executive Officer. “In 2019, we largely completed the restructuring necessary to support our new business strategy, including accomplishing several foundational milestones toward achieving profitable growth and reestablishing our position of industry leadership. We are now able to focus fully on execution of our strategy and both growing our existing business and expanding into new products, markets and geographies.”
2019 Key Accomplishments and Recent Developments
- Ended our engagement with Huron Consulting Services LLC (“Huron Consulting”) after successfully restructuring our business and operations and paying off our senior secured credit facility.
- Closed on a new $200 million senior secured credit facility with Orion Energy Partners to fund construction costs, inventory and other capital expenditures associated with current and future fuel cell projects.
- Improved our capital structure by retiring our Series C and Series D preferred stock obligations.
- Entered into a new two-year joint development agreement with ExxonMobil Research and Engineering Company, with anticipated revenues of up to $60 million, to further the development of our carbon capture technology, and entered into a related $10 million technology license agreement.
- Announced a strategic relationship with E.ON Business Solutions to market and distribute our products, adding to the two operating plants already owned by E.ON.
- Relaunched our sub-megawatt products in Europe commercially, including our 250kW and 400kW SureSource™ solutions, in addition to offering our SureSource™ 1500, 3000 and 4000 platforms.
- Reached more than 9 million MW hours of clean electricity produced by our SureSource™ fuel cell power plants globally since the first commercial installation in 2003.
- Announced a carbon capture project with Drax Power Station, the largest single-site renewable power generator in the United Kingdom.
- Advanced our solid oxide power generation, electrolysis, and energy storage applications by executing on our existing Department of Energy contracts and earning new DOE project awards.
- Continued Execution on Customer Projects
Even while restructuring our business and operations in fiscal 2019, we remained focused on delivering on our customer commitments:
- Completed construction and began commercial operation of the 2.8 MW renewable biogas fuel cell project at a wastewater treatment facility in Tulare, California, leveraging our SureSource™ fuel cell technology.
- Progress in constructing the 7.4 MW fuel cell power plant for the Connecticut Municipal Electric Energy Cooperative on the U.S. Naval submarine base in Groton, Connecticut.
- Winning a new renewable biogas 1.4 MW project with the City of San Bernardino, California Municipal Water Department.
- New Business Strategy Launched
“We have launched a series of strategic initiatives to strengthen our financial and operational position, which we believe will enable the Company to deliver current projects on time and budget and set the stage for future growth. As we enter 2020, our recent performance indicates that we are on the right track. We are implementing a comprehensive strategy to strengthen and grow FuelCell Energy by executing on our core business, building on customer relationships, delivering and expanding our project backlog, and developing and commercializing new technologies, products and markets. Our “Powerhouse” business strategy consists of three fundamental pillars: Transform, Strengthen, and Grow,” said Jason Few.
As described above, much of our transformation strategy has already been accomplished, including the following:
- Restructured management: Appointed Jason Few as President and CEO, promoted Michael Lisowski to EVP and COO, and Tony Leo to EVP and CTO, and retained the balance of the existing leadership team including Mike Bishop as EVP and CFO and Jennifer Arasimowicz as GC, Corporate Secretary and CAO.
- Secured funding: Closed on a $200 million senior secured credit facility with Orion Energy Partners to support execution of current and future projects and provide balance sheet strength and liquidity.
- Restructured organization: Ended our engagement with Huron Consulting after successfully restructuring our business and operations and payoff of our prior senior secured credit facility.
- Delivered cost savings: Realized annualized operating savings of approximately $15 million through the restructuring of our business.
- Refinanced debt: Repaid a substantial portion of our short-term debt with funds from a combination of sales of our common stock under our at-the-market sales plan and our long-term credit facility with Orion Energy Partners.
- With our transformation already well underway, we are now fully committed to delivering on the remaining two pillars of the Powerhouse strategy:
- Capital deployment: Continue to focus on disciplined capital deployment and obtaining lower-cost, long-term financing and tax equity for completed generation projects.
- Commercial excellence: Build on customer relationships and extend our customer-centric reputation.
- Operational excellence: Implement a rigorous approach to project backlog execution and on-time, on-budget delivery.
- Cost reductions: Continued focus on lean resource management and cost reduction opportunities.
- Sales growth: Increase global product sales to key strategic customers, grow service revenue through pricing strategy and enhanced energy solutions, and reduce the cost of ownership for our customers.
- Innovation: Increase product life and reliability, and expand commercialization of new technologies such as carbon capture, hydrogen, biofuels, long-term energy storage, and solid oxide systems.
- Segment leadership: Capitalize on our expertise and competitive advantages in key addressable markets—biofuels, microgrid development, and the expanding hydrogen economy for industry, transportation and electric power generation.
- Education: Ensure federal, state and local legislators, regulators and environmental organizations understand the environmental benefits, grid reliability advantages and multi-featured capabilities of the FuelCell SureSource™ platforms.
- Geographic and market expansion: Continue to develop new clean and renewable energy partnerships to advance carbon capture, hydrogen and multi-fuel/biofuel technology, and pursue growth around the world.
- “I am proud of all that the FuelCell Energy team, along with our valued partners, has accomplished during my first five months as CEO. I am excited about our new Powerhouse business strategy and the clear go-forward plan to execute on our project commitments, build on our technical leadership, deliver improved financial results for our stakeholders, and play a critical role in environmentally sustainable baseload energy, hydrogen and energy storage,” concluded Jason Few.
Conference Call Information
FuelCell Energy will host a conference call today beginning at 10:00 a.m. EST to discuss the fourth fiscal quarter and full year results for fiscal 2019 along with details of the Company’s new business strategy. Participants can access the live call via webcast on the Company website or by telephone as follows:
The live webcast of the call and supporting slide presentation will be available at www.fuelcellenergy.com. To listen to the call, select “Investors” on the home page, proceed to the “Events & Presentations” page and then click on the “Webcast” link listed under the January 22nd earnings call event. Alternatively, participants can dial 647-689-4106 and state FuelCell Energy or the conference ID number 5086175. The replay of the conference call will be available via webcast on the Company’s Investors’ page at www.fuelcellenergy.com approximately two hours after the conclusion of the call.