FuelCell Energy Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
June 10, 2024

There are 8 speakers on the call.

Operator

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the FuelCell Energy Second Quarter of Fiscal 2020 4 Financial Results Conference Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer session. At this time, I would like to turn the conference over to Tom Gelson, Senior Vice President of Finance and Investor Relations. Please go ahead.

Speaker 1

Thank you, and good morning, everyone, and thank you for joining us on the call today. As a reminder, this call is being recorded. This morning, FuelCell Energy released our financial results for the Q2 of 2024, and our earnings press release and our quarterly report on Form 10 Q are available in the Investors section of our website at www.fuelcellenergy.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 2 hours after we conclude the call.

Speaker 1

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 with 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 risk factors 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 ks and any subsequently filed quarterly reports on Form 10 Q. 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.

Speaker 1

Our earnings press release and a copy of today's webcast presentation are available on our website under Investors. For our call today, I am joined by Jason Pugh, FuelCell Energy's President and Chief Executive Officer and Mike Bishop, FuelCell Energy's Executive Vice President, Chief Financial Officer and Treasurer. Following our prepared remarks, we will be available to take your questions and be joined by other members of the leadership team. I'd now like to hand the call over to Jason for opening remarks. Jason?

Speaker 2

Thank you, Tom, and good morning, everyone. Thank you for joining us on our call today. I'm very pleased with our results for the Q2 as we continue to execute on our POWERHOUSE business strategy. Our revenue climbed sequentially compared to our Q1, but as expected decreased compared to the prior year period due to the fact that there were no module exchanges this quarter, while there were 8 module exchanges in the prior year period. Our on balance sheet 62.8 Megawatt generation portfolio achieved 67% revenue growth year over year, which included a full quarter of revenue from 3 projects that began operation in the Q1.

Speaker 2

During and subsequent to the quarter end, we had some significant commercial wins. And we've also announced an update and extension of our joint development agreement with ExxonMobil's low carbon solution business. Additionally, we've made progress on cost management and continued our disciplined approach to capital allocation, enabling us to continue our focus on pursuing growth, while managing our expenses related to scale, R and D and CapEx. A number of important data points are included on Slide 3, but we think our overall success is most evident through our technological solutions for and collaboration with some of the world's largest global companies, including our work with ExxonMobil, Toyota, Pfizer, Canadian Nuclear Laboratories or CNL and IBM to name a few. All of us at FuelCell Energy are very proud to be global leaders in electrochemical technology, all in support of our purpose to enable a world empowered by clean energy.

Speaker 2

We are working to achieve this purpose by deploying our proprietary fuel cell technology platforms for energy delivery and emissions management around the world to accomplish 2 fundamental technological applications, decarbonizing power and industry and producing hydrogen. Turning to key messages for the quarter. As you know, we have a long standing relationship with ExxonMobil Technology and Engineering Company or MTech, which provide technical support to ExxonMobil's low carbon solutions business. In April, we extended our joint development agreement through the end of 2026, allowing development work on carbon capture technology to continue. We also continue to progress our pilot project at Esso Nederland BV's manufacturing complex in Rotterdam, Netherlands.

Speaker 2

I will share more details in a few moments and how we are working with Exxon's low carbon solution business. 2nd, we've had a number of commercial wins substantially increasing our backlog during fiscal 2024. The most significant commercial win is in South Korea, a market where we have made expanding our reach with applications like electrolysis, time to power and CO2 recovery and carbon capture a top priority. After the end of the second quarter, we announced an agreement to supply Gunganjin Green Energy or GGE in South Korea with 42 upgraded replacement fuel cell modules. In connection with the sale of these modules, we also entered into a new 7 year service agreement under which fuel cell energy will support GGE's Huasong Falun Industry Complex, which is the world's largest fuel cell power platform installed at a single site.

Speaker 2

In total, this transaction adds approximately $160,000,000 dollars to our backlog and represents an incredibly important milestone for our company in a market that has embraced fuel cell technology as essential to its energy infrastructure. We look forward to continuing our relationship with GGE, providing them with GGE, providing them with excellent service and continuing to expand our business in South Korea. During the quarter, we also announced a deal for our carbonate fuel cell technology, which will be used in a biogeneration project developed by Ameresco for the Sacramento Area Sewer District to convert on-site biofuels into clean electricity. The project will be powered by 1 of our 2.8 Megawatt carbonate fuel cell platforms, which produces carbon neutral electricity and usable heat from biogas and has the potential for future production of renewable green hydrogen similar to our Port of Long Beach Toyota installation. We also entered into an agreement to provide comprehensive maintenance services for the fuel cell system, which will ensure that Sacramento Sewer can focus on its mission of protecting public health and the environment while delivering removable power from the cleanest technology available.

Speaker 2

4th, we are taking proactive steps to maintain the strength of our balance sheet. And as we grow, we will do so in a cost effective way following a disciplined approach to managing capital investment by establishing investment triggers linked to key milestones. We have taken concrete steps this quarter to manage costs from managing the pace of our solid oxide expansion to changes in the structure of our engineering team to managing R and D and CapEx with the goal of positioning ourselves for long term financial success. We are making critical investments to position FuelCell Energy for future growth while taking a highly disciplined approach to maintaining cash and liquidity. Finally, we continue to evaluate potential options to benefit from global energy transition policies.

Speaker 2

In the U. S, these include the legacy investment tax credit program as well as incentives under 45Q for carbon capture, 48C for the development and construction of clean energy manufacturing and the potential benefits from production tax credit as we await final guidance from the IRS and U. S. Treasury related to 45V. Add to this, the numerous supportive policies around the world and we believe that FuelCell Energy is positioned well to take advantage of available opportunities.

Speaker 2

Next, turning to the extension of the JDA and our work with Exxon's low carbon business on Slide 6. The extension of the JDA through the end of 2026 represents a significant milestone for our company. In order to reach this stage, the technology met several key technical performance criteria, which is a major accomplishment for the talented scientists and engineers from both of our companies. This success also reinforces our view that there are significant commercial possibilities to extend the value and opportunity for our Carbonate technology by delivering what we believe will be superior carbon capture technology at a lower cost. The extension of the JDA is designed to FuelCell Energy and Exxon's low carbon business to pursue multiple commercial opportunities.

Speaker 2

The carbon capture enhancements to our core technology jointly developed with Exxon to be demonstrated in Rotterdam features an optimized design for large scale installations. Through this updated agreement, Dielsso Energy has the opportunity to pursue carbon capture opportunities using our current generation of carbonate modules by incorporating carbon capture improvements derived from our joint development work. We can move more quickly to provide access to this superior technology and our existing platform targeting 250 kta or kilotons per annum as an opportunity to demonstrate the technology capabilities earlier while we complete the work to demonstrate large industrial scale carbon capture at Esso's refinery in Rotterdam. We believe the ability to incorporate improvements developed under the JDA and to fuel cell energy's current generation modules will enhance the capabilities of our power, hydrogen and carbon recovery solutions and provide the ability to offer more attractive near term carbon capture solutions to our customers. Additionally, FuelCell Energy and ExxonMobil are continuing to progress discussions for a commercial framework aimed at enabling deployments of the carbonate fuel cell technology for carbon capture through Exxon's low carbon solutions business and fuel cell energy.

Speaker 2

Turning to Slide 7. We are excited about the promising potential of this technology to capture CO2 emissions from industrial and commercial exhaust streams with the goal of helping to solve one of the world's biggest environmental challenges. The Esso Rotterdam pilot project is co funded by the European Union under the Admissions Trading Systems Innovation Fund and by the Netherlands Enterprise Agency by means of a Demonstration Energy and Climate Innovation, DEI Plus brand. This manufacturing site will be the 1st place in the world to pilot this differentiated multi featured technology that captures CO2 emissions from industrial sources while simultaneously generating electricity and hydrogen. The ability to deliver these valuable co products is targeted to improve the economics of carbon capture, lower the barrier to broader adoption of carbon capture in this marketplace and deliver decarbonized electricity and hydrogen.

Speaker 2

Next, as you'll see on Slide 8, we have entered into an exciting new relationship with Ameresco to use our carbonate fuel cell technology in a biogeneration project for the Sacramento Area Sewer District. Wastewater treatment is a particularly attractive application for our platforms and California remains an important geography for our company. Some of the inherent benefits in this application are: our carbonate fuel cell platform runs directly on biogas created on-site from the wastewater treatment process Our proprietary fuel cell cleanup system removes contaminants to maximize usable on-site biogas. Waste heat generated by the fuel cell will be used to support the anaerobic process that creates biogas and the fuel cells chemical reaction is virtually free of NOx, SOx and particulate matter emissions, improving air quality for the community. In California, FuelCell Energy's platforms have received key certification under the California Air and Resource Board distributed generation standards, which allows the local Air Quality Management District to utilize a streamlined air permitting process, accelerating the installation of clean energy projects the company pursues in the state.

Speaker 2

The Sacramento Sewer Project represents our 4th biogas project in California with our other plants already installed in Riverside, Tulare and San Bernardino. Turning to Slide 9. As we mentioned earlier in the call, subsequent to the end of the quarter, we signed a significant long term service agreement to support GGE's Wonsan fallen industrial complex. In addition to the $160,000,000 this project adds to our backlog, our engagement with GGE also demonstrates our ability to roll out and service large scale power projects, a capability we think is unique to fuel cell energy. Importantly, our Carbonate technology is a proprietary and proven design.

Speaker 2

Today, FiOSO Energy operates 8 large scale platforms ranging from 11.2 Megawatts to 58.8 Megawatts and of these 8 platforms, 7 have been in operations for 5 years or more. One rapidly growing need, particularly in the U. S, is for new data center construction to support investment in AI. Strong demand for additional computing power has been set back by the limitations of the current power grid, which is unable to meet the energy demands of large AI data centers. Current projections for power usage show that this bottleneck is only expected to grow creating a substantial addressable market for the large scale baseload power projects that are one of our unique strengths.

Speaker 2

No other fuel cell provider has implemented, run and supported large megawatt projects at our same scale, making FuelCell Energy uniquely positioned to meet the immediate and future needs tied to the data center growth. We have demonstrated our large scale platform capabilities at sites in the U. S. And Asia, providing customers and prospective customers with the operating data to support a fuel cell energy purchase decision. In addition, we have delivered platforms integrated with absorption chilling, thus fully taking advantage of our ability to deliver steam, our thermal energy ideal for cooling data centers.

Speaker 2

Data centers require continuous power and our continuous baseload platforms provide the reliability and resiliency data centers need. Finally, we have a proven track record in microgrid applications, which are crucial for data centers. We are actively pursuing opportunities in this sector and believe our business is uniquely suited to capitalize on this secular trend. And now I would like to turn the call over to our CFO, Mike Bishop.

Speaker 3

Thank you, Jason, and good morning to everybody on the call today. Let's begin by reviewing the financial highlights for the quarter as shown on Slide 11. For the Q2 of fiscal year 2024, we reported total revenues of $22,400,000 compared to revenues of $38,300,000 in the prior year quarter. In the Q2 of fiscal year 2024, we reported a net loss of $37,700,000 compared to a net loss of $33,900,000 in the Q2 of fiscal year 2023. The resulting net loss per share attributable to common stockholders in the Q2 of fiscal year 2024 was negative 0 point 0 $7 compared to negative 0 point 0 $9 in the Q2 of fiscal year 20 23.

Speaker 3

The net loss per common share benefited from the higher number of weighted average shares outstanding due to share issuances since April 30, 2023. Adjusted EBITDA totaled negative $26,500,000 in the Q2 of fiscal year 2024 compared to adjusted EBITDA of negative $26,000,000 in the Q2 of fiscal year 2023. Please see the discussion of non GAAP financial measures, including adjusted EBITDA in the appendix at the end of our earnings release. Finally, we reported a strong total cash and short term investment position of approximately $313,200,000 consisting of cash, cash equivalents, restricted cash and investments in U. S.

Speaker 3

Treasuries as of April 30, 2024. Next, on Slide 12, you will see additional details on our financial performance and backlog. In the graph on the left hand side of the slide, revenue is broken down by category. Service agreement revenues decreased to $1,400,000 for the Q2 of fiscal year 2024 from $26,200,000 in the prior year period. The decrease in service agreement revenues was primarily driven by the fact there were no module exchanges during the Q2 of fiscal year 2024.

Speaker 3

Service agreement revenues recognized during the prior year quarter were primarily driven by module exchanges at the plants owned by Korea Southern Power Company in Korea. Generation revenues increased 67% to $14,100,000 from $8,400,000 primarily driven by revenue from the Toyota and Derby projects, which began operations in the Q1 of fiscal 2024. Advanced Technology contract revenues increased $6,900,000 from $3,700,000 Compared to the prior year quarter, Advanced Technology contract revenues recognized under our JDA with Emtek were approximately $100,000 lower and revenue recognized under government contracts and other contracts were approximately $3,300,000 higher. Advanced Technology contract revenues for the Q2 of fiscal 2024 also include revenues arising from the purchase order previously received from Esso Nederland BV or Esso, an affiliate of Emtek and ExxonMobil Corporation. Looking at the right hand side of the slide, I will walk through the changes in gross loss, profit and operating expenses.

Speaker 3

Gross loss for the Q2 of fiscal 2024 totaled $7,100,000 compared to a gross loss of $6,100,000 in the comparable prior year quarter. The gross loss is in part a result of unfavorable margins for Generation, which included expense construction and gas costs related to the Toyota project of $2,600,000 and a mark to market net loss of $2,300,000 related to natural gas purchase contracts in the 3 months ended April 30, 2024. The gross loss in the comparable prior year period primarily resulted from lower generation margins due to $4,500,000 of expense construction and gas costs related to the Toyota project, partially offset by higher service margins related to module exchanges. Operating expenses for the Q2 of fiscal 2024 increased 20 $16,600,000 during the Q2 of fiscal 2024 compared to $14,700,000 in the prior year period. The increase in research and development expenses reflects increased spending on labor and materials and our ongoing commercial development efforts, including increased headcount related to our solid oxide power generation and electrolysis platforms and carbon separation and carbon recovery solution.

Speaker 3

On the bottom right of the slide, you will see the backlog increased to $1,060,000,000 as of April 30, 2024, compared to $1,020,000,000 as of April 30, 2023. This change was primarily a result of the service agreement with Noel Green Energy Company Limited entered into during fiscal year ended October 31, 2023, increases in advanced technology contract backlog as a result of the purchase order received from ESO during the Q1 of fiscal year 2024 and additional advanced technology contract backlog related to Amendment 5 to the JDA between the company and Emtek entered into in April 2024, partially offset by revenue recognition under generation, service and advanced technology agreements since April 30, 2023. Subsequent to the end of the quarter, we announced that we have entered into a long term service agreement with GGE, pursuant to which we will provide GGE with 42, 1.4 Megawatt upgraded replacement carbonate fuel cell modules. The total amount payable by GGE under this new long term service agreement for the replacement fuel cell modules, balance of plant replacement components and service is approximately $160,000,000 which will be paid over time as replacement fuel cell modules are commissioned and the service obligations for such modules commence under the long term service agreement.

Speaker 3

This $160,000,000 agreement was added to the company's backlog in our Q3 as of May 28, 2024. Next, on Slide 13, we have an update on our cash and liquidity. During the quarter, we closed on a project debt financing transaction with Liberty Bank and Connecticut Green Bank for our 2 projects in Derby, Connecticut, which recently began operations. Net funding to the company totaled approximately $11,500,000 after deducting transaction fees and debt service reserves. The term of the senior facility is 7 years and the subordinated credit facility is 14 years.

Speaker 3

The interest rate for the senior debt is fixed at 7.25 percent and the interest rate for the subordinated debt is fixed at 8%. During the 3 months ended April 30, 2024, approximately 6,500,000 shares of our common stock were sold under the amended open market sale agreement at an average sale price of $0.98 per share, resulting in net proceeds to the company of approximately $5,900,000 after deducting sales commissions and fees. As of April 30, 2024, cash and cash equivalents, investments in U. S. Treasuries and restricted cash and cash equivalents totaled $313,200,000 This includes approximately $158,800,000 of unrestricted cash and cash equivalents, $101,300,000 of short term investments in U.

Speaker 3

S. Treasuries and $53,100,000 of restricted cash and cash equivalents. Subsequent to quarter end, the company raised an additional $31,700,000 through the sale of common stock under the company's amended open market sale agreement after deducting commissions and fees. Turning to Slide 14. On our 2023 Q4 earnings call, we presented our targeted investment plan for fiscal year 2024.

Speaker 3

As Jason previously mentioned, we are committed to following a disciplined approach to managing our investments as we grow by establishing triggers linked to key milestones. In keeping with this approach, some of our previously planned spending is now expected to shift into fiscal year 2025. First, we are now expecting to make $45,000,000 to $60,000,000 in capital expenditures for property, plant and equipment in fiscal year 2024, down from the $60,000,000 to $75,000,000 we originally planned for the fiscal year. These updated capital amounts are in addition to capital expenditures and our commitments made by the company in fiscal year 2023 to upgrade our manufacturing facilities. These priorities include expansion of solid oxide manufacturing capacity at our Calgary facility to 40 megawatts of solid oxide electrolysis cell production per year, which is now expected to be completed in calendar year 2025.

Speaker 3

The company is also exploring adding certain solid oxide manufacturing capabilities to its Torrington, Connecticut production facility. We are also investing in our Torrington manufacturing facility for molten carbonate, including adding capabilities for carbon recovery and carbon capture manufacturing and testing. Internally funded research and development expenses for fiscal year 2024 are now projected to be in the range of $60,000,000 to $65,000,000 reflecting a decrease from our prior estimated expenses for fiscal year 2024. Priorities for R and D are to continue to accelerate the commercialization of our advanced technology solutions for distributed hydrogen, hydrogen based long duration energy storage and hydrogen power generation. Lastly, we lowered the estimated investment in project assets in our generation portfolio to $10,000,000 to $15,000,000 for fiscal 2024 compared to the previously provided range of $15,000,000 to $25,000,000 as a result of the timing of the Trinity project, which is now expected to be constructed and commissioned in calendar year 2025.

Speaker 3

In summary, the adjustments described on this slide represent a reduction in planned spending of up to $30,000,000 in fiscal year 2024, assuming the high end of the range. We will continue to pursue opportunities to reduce costs across our product platforms and business operations, while executing on our strategic growth initiatives. I will now turn the call back to Jason.

Speaker 2

Thanks, Mike. I hope you have all seen the progress we have made in the Q2 and have greater visibility and clarity into the drivers of our business. When we sell one of our products to a customer who realizes the value in our clean power solutions, we win. When we provide reliable power and services to these customers, we win. When we turn our emerging technologies into new project sales, we win.

Speaker 2

When we do all of this in a cost disciplined manner, balancing our commitment to service and innovative research with our commitment to generating returns for investors, we win. Our goal this year is to put more wins on the board. This quarter showed many of these examples and we look forward to providing more positive updates in the quarters ahead. I will now turn it over to the operator to begin Q and A.

Operator

Thank you. We will now begin the question and answer session. We'll go first to George Gianarakis at Canaccord Genuity.

Speaker 4

Hi, good morning everyone and thank you for taking my questions.

Speaker 2

Rich, how are you this morning? Thank you for calling in.

Speaker 4

Great. Yourself?

Speaker 2

Doing fantastic. Thank you.

Speaker 4

So I'd just like to focus on Slide 14 for a second, reducing spending by up to about $30,000,000 Did I hear correctly that you're expecting some of this project spend to extend into fiscal 2025? And also you had mentioned in the past that you had this reversible solid oxide platform that you expect to start in 2027. Is that still on track? Thank you.

Speaker 3

Good morning, George. This is Mike. I will take the first part of that question. As far as our planned spend in fiscal 2024, yes, on Slide 14, we did summarize the adjustments that we've made this fiscal year, reducing CapEx, reducing company funded R and D expenditures and reducing project asset spending. Specific to your question around project assets, the range we expect this year is $10,000,000 to 15,000,000 dollars Previously, we were in the $15,000,000 to $25,000,000 range that assumed that the Trinity Connecticut project would be completed in fiscal 2024.

Speaker 3

That project has now been extended into fiscal 2025, which is the reason for lowering that particular estimate.

Speaker 2

And Jordan, with respect to reversible solid oxide, it remains on our product roadmap. But as we've outlined in today's call, we're really pacing our spending based on how we see market adoption. We think with our technologies, we're well positioned today to be around a number of different opportunities depending on how the market evolves, whether that's using hydrogen as a long duration energy storage, which we continue to believe is ultimately a more compelling solution than a mineral based solution, rather the opportunities emerge faster along the lines of carbon recovery or carbon capture. And the opportunity we see just increasing around distributed power generation as interconnection queues continue to extend out on grids at least certainly domestically and you see some of that happening in international markets as well. So we think our technology puts us all close to market opportunities developing and our investments will be really guided by what we see happening from a market adoption standpoint.

Speaker 4

Thank you. And maybe as a follow-up, you mentioned this new Ameresco partnership and the one particular wastewater treatment facility that you'll be deployed in there? Just any color around any pipeline there and the partnership

Speaker 5

step back in queue.

Speaker 2

Yes. So with Ameresco, this is our first project we've done with Ameresco, but it's certainly not our first bio gas direct biogas project. And we think that this trend will continue to develop as an attractive opportunity for us as a company. We think that as you look across states and cities all over America as an example and even in Europe, there is a continued push to move away from landfill waste, which essentially means most of that waste is going to end up being part of some anaerobic digestion process and they're going to create fuel that needs to be utilized. What gives us unique advantage is that we're able to use that fuel directly on-site, which also reduces the cost associated with that fuel because we don't need to get that fuel to pipeline quality.

Speaker 2

We can utilize that fuel and then utilize the thermal energy of our platform to actually accelerate the anaerobic digestion process. So we have an expectation that this project with Ameresco will be a successful one. As an EPC firm, we would anticipate that they would pursue other opportunities like the one at the Sacramento Sewer District and we think that the success of this project will give us an opportunity to participate in more of those as we move forward.

Speaker 5

Thank you.

Operator

We'll move to our next question from Samya Jain at UBS. Hey, good morning guys. Could you provide some more detail on the Trigen system and how you see that partnership with Toyota growing?

Speaker 3

So,

Speaker 2

our Trigem system is fully operational at the Port of Long Beach in California. And as you know, it provides 3 valuable streams to Toyota. We provide electricity, we provide hydrogen and water. All three of those are used directly on-site. We suspect that as Toyota continues to advance its efforts to distribute hydrogen based fuel cell electric vehicles that that will create additional opportunities for that technology.

Speaker 2

We're excited to see a recent news story that Honda is starting to build fuel cell electric vehicles here in the United States in Columbus, Ohio. So we think that that really begins to throw support for the trend around fuel cell electric vehicle transportation in light duty transportation in addition to heavy duty transportation where we think it makes a lot of sense as well because you don't pay the penalty for excess weight with batteries on a fuel cell electric vehicle on the heavy Class 8 side. So we're working very closely with Toyota. We have a good relationship with Toyota and we suspect that we'll have opportunities to pursue other Trigen projects. Thank

Operator

you.

Speaker 5

And

Operator

We'll go next to Ryan Fink with B. Riley.

Speaker 1

And there's risk associated with that. So I can't really say

Speaker 6

Jason, you mentioned the data center opportunity. Are you in discussions with potential data center customers today? Just trying to get a sense of how advanced those conversations might be.

Speaker 2

Yes, Ryan, we are and I'm actually joined by Mark Fiesel, our Chief Commercial Officer. So I'll have him maybe jump in and give you a sense of the kind of conversations that we're having, but we're very engaged in those conversations. And the one thing that I would say, like we mentioned in the prepared remarks, we think that positions us incredibly well Ryan for the data center opportunity is that we have demonstrated our ability to deploy large scale platforms. I mean, if you look at the GGE platform that's 58.8 megawatts, we have multiple 20 megawatt platforms in Korea as well. We have large platforms running here in the United States and that differentiates us from any other fuel cell provider.

Speaker 2

And so as data centers are looking for on-site generation at large scale, we feel like we're well positioned, but I'll have Mark give you a few other insights on our customer conversations.

Speaker 3

Yes, Jason. Thank you. So as you can imagine in having these conversations with data center customers, they're very interested in a number of different elements that have to do with how they can bring energy in a sustainable, reliable way to this new load. In addition to the well publicized interconnection queues that are long and the ability for the grid to serve or not, there's other kind of constraints that these customers face as well, such as air quality restrictions in certain areas. And so as Jason mentioned, with respect to our work in California, our demonstrated ability to be able to operate large generation plants at scale and avoiding some of those criteria mittens that can result in long delayed implementations of energy is a very important advantage.

Speaker 3

So we are in the midst of technical economic decisions, conversations with many data center companies around the world and especially focused right here in North America.

Speaker 2

Ryan, maybe I'll just add one other thing. As we think about advantages for us, obviously proven demonstrated large scale, like I said, we've got platforms that are 50 megawatts, 20 megawatts that have been running for 5 years or more so proven demonstrated capability to large scale. Secondly, when you think about these edge data centers and the need to get data centers closer to where the consumption is actually taking place, air permitting becomes a big issue. Well, we have an advantage in air permitting because we don't combust fuel. So we're not admitting SOX, NOX and other particulates.

Speaker 2

Thirdly, when you think about edge data centers, we have another advantage because of noise. We don't have moving parts. So we operate at a very low decibel level. So we're able to deploy our platform in urban areas. Another big advantage is the fact that we're a high temperature.

Speaker 2

And that gives us an advantage to actually integrate with absorption chilling because all of these edge data centers need lots of cooling to operate those data centers. And so if you think about just those things as just four examples of where we have proven advantage and demonstrated capabilities. And then add to that, maybe the 5th one is the fact that we have demonstrated success in micro grid applications. So our ability to integrate with the data center and the grid and provide that level of redundancy, we think puts us in a really nice position to offer a very compelling solution to data center operators. Great.

Speaker 6

Yes, I really appreciate all that color. Thank you, Mark as well. Just one more from me. Can you walk through the expected revenue cadence for the GGE agreement?

Speaker 3

Good morning, Ryan. This is Mike. So what yes, so high level, the GGE agreement is $160,000,000 What that agreement includes is replacement of the 42 fuel cell modules at the GGE site and then service for 7 years as well as maintenance around the balance of plant. So the way this will initially roll out is the first six replacement modules will be delivered in our 4th fiscal quarter. So we would expect revenue recognition related to those modules in the 4th quarter.

Speaker 3

And then from there, the next 30 modules will be shipped and delivered during calendar 2025 and the final 6 modules will be delivered in the first half of twenty twenty six. So revenue recognition will essentially follow those modules being delivered to the customer site.

Speaker 6

Got it. All very helpful. I'll turn it back. Thanks.

Speaker 5

Yes.

Operator

We'll go next to Noel Parks at Tuohy Brothers.

Speaker 5

Hi, good morning. Just had a couple. I was interested in the R and D spending and you revised the expectation for the year. And I just wonder if you could break out a little bit, whether those increases are likely to be not the increase, I'm sorry, the current spending rate is going to be more in the carbonate product, the solid oxide or carbon recovery? And you could sort of characterize examples of what some of the projects or initiatives are that are ahead?

Speaker 3

Sure. Noelle, this is Mike. I'll take that one. So yes, in our disclosures around company funded R and D, we reduced the range from $60,000,000 to $70,000,000 to $60,000,000 to $65,000,000 We're at about 32,000,000 dollars in the first half of the calendar or first half of the fiscal year excuse me. So essentially remaining flat the rest of the year.

Speaker 3

The investments that we're making in R and D at that line and our financial statements are really around our solid oxide solutions. So this is solid oxide. Power gen as well as hydrogen based long duration energy storage and electrolysis for producing hydrogen. Around carbon capture that you mentioned, that's a funded project that's coming with our joint development agreement with Exxon as well as the recent purchase order that we entered into around the Rotterdam project. So that's flowing through advanced technologies and the company is getting paid for that particular work.

Speaker 5

Okay, great. And this is just kind of a housekeeping question. I noticed that the depreciation sequentially was a bit higher this quarter. I wonder if that was just a timing thing related to either onboarding or rolling off of out of inventory?

Speaker 3

Yes. So depreciation did tick up and that's a result of newer projects coming online. So we previously announced the 2 Derby projects came online in the 1st fiscal quarter as did the Toyota project. So you're now starting to see the depreciation from those projects coming through the financial statements.

Speaker 5

Got it. Thanks a lot.

Speaker 7

Yes, no problem.

Operator

We'll move next to Jeffrey Campbell at Seaport Research Partners.

Speaker 7

Good morning. I want to go back to Slide 6 and just see if we can expand a little bit on the fuel cell ability to utilize this technology, referring to the carbon capture stuff, in small to mid scale applications through the agreement term. And I'm not meaning to be pejorative in any way, I'm just wondering, is this sort of a theoretical concept at this point? Or do you already have a design for a smaller application? Do you have is there an active marketing effort going on here?

Speaker 7

Maybe what type of application you think would have results sooner than later? And also, would if something comes through, is that going to be competing for manufacturing capability in some of the other areas that you've noted? Thanks.

Speaker 2

Jeffrey, thank you for the question. Great question. So the work that we've done over the last few years with Exxon has been around technology optimization focused on carbon capture. In the work that we've done to actually pursue larger scale opportunities, we fundamentally have changed kind of the format of our footprint of the design. And so today we're kind of a cube shaped vertical design in the work that we're doing with Exxon.

Speaker 2

We're going to be a horizontal design platform. But the cell technology itself that goes into both of those platforms, we have the ability to leverage them in our current design and we'll certainly leverage it in our go forward design on applications that are just focused on carbon capture. So as we do the work to get to the demonstration project in the Netherlands with Exxon at the ESO plant, we have the ability to take that cell design without changing our existing format or footprint and integrate that cell design into our existing platform, enhancing its carbon capture capabilities. We have previously demonstrated the ability to capture carbon in our existing design. But one of the things that we wanted to make sure that we did when we put it in we put it into a carbon capture application is that we also maintain the power density.

Speaker 2

This will give us the ability to do that both in our existing design and in the design strictly focused on carbon capture. So it is not theoretical. It is something that we are actively engaged in as a company. Our sales team is actively engaged in opportunities with customers around the ability to leverage our existing design for carbon capture. In addition to the work that we're doing against carbon recovery, so what are the kind of applications that you could utilize this technology for?

Speaker 2

We've talked a lot about the food and beverage application opportunity where we can capture carbon, let's say from a boiler at a food processing plant, capture that carbon. We can clean that carbon up and then give it right back to the customer, for example, to use in the processing of those proteins as an example. You could take that exact same example and take a customer with an industrial boiler. We can capture that carbon. And if we were doing this somewhere in a market where you've got CO2 pipelines, we could put that CO2 on a pipeline and that CO2 could be sequestered or used in other applications.

Speaker 2

So these are real opportunities that we're pursuing. If you think about other areas where you now have with the EPA rules around the good neighbor rule and the need for companies to capture carbon, those also open opportunities for us to utilize our existing platform, integrating our enhanced cell technology to go after those kind of opportunities.

Speaker 7

Great. And if I could just follow that up, the follow on is, do you see this, I mean, on paper, the small scale versus the large for SO, it looks like parallel path. Do you feel like from the conversations you're having right now that there are people that are out there that may be willing to commit to a small or mid scale application before the Exxon facility is up and running in 2026? Or is there sort of the sense that everybody is kind of waiting to see how the thing performs at the large scale and then that will be the validation to get some of these smaller scale applications moving? Thanks.

Speaker 2

Yes. No, it's a great question. We anticipate that customers will move forward in advance of the Exxon integration project being implemented and fully running its project timeline. So we do not see that as a barrier to pursuing carbon capture opportunities on the smaller scale. And in fact, we think that there's customers on the smaller scale that will likely be able to move maybe faster than some of these very large scale projects where there's a number of other things that you have to work through in terms of the CO2 itself and just the volume and what you're going to do with it.

Speaker 2

And as you get into carbon capture, you're then talking about Class 2 permits or Class 6 permits to be able to sequester the carbon. And so we think the smaller scale projects have an opportunity to move faster, get off the starting line a little bit quicker.

Speaker 7

Great. Appreciate the color. Thank you.

Speaker 2

Thank you.

Operator

And that concludes our Q and A session. I will now turn the conference back over to Jason Fuhr for closing remarks.

Speaker 2

Thank you, Audra. I really appreciate it and thank you all for joining us today. The results of the Q2 are indicative of our POWERHOUSE business strategy to grow significant market opportunities, scale our existing platform to support growth and innovate for the future. We remain laser focused on this strategy, which has allowed us to collaborate on developing technologies with some of the largest companies in the world. Thank you again for joining us today on our call.

Speaker 2

Have a great day.

Operator

This concludes today's conference call. Again, thank you for your participation. You may now

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Key Takeaways

  • FuelCell Energy’s 62.8 MW on-balance-sheet generation portfolio achieved 67% year-over-year revenue growth, with Q2 revenues up sequentially but down vs. prior year due to fewer module exchanges.
  • The company added approximately $160 million to its backlog with a 7-year service deal for 42 upgraded modules at Gunganjin Green Energy’s 58.8 MW South Korean complex.
  • FuelCell Energy extended its joint development agreement with ExxonMobil through 2026 to advance carbonate fuel cell carbon capture, including a Rotterdam pilot demonstrating simultaneous CO₂ capture, power, and hydrogen production.
  • Management implemented disciplined capital allocation, cutting fiscal 2024 CapEx, R&D, and project spending by up to $30 million to preserve liquidity, which stood at roughly $313 million as of April 30, 2024.
  • FuelCell Energy is pursuing large-scale baseload power opportunities in AI data centers, leveraging proven multi-megawatt platforms with low emissions, minimal noise, streamlined permitting, and waste-heat-driven cooling solutions.
A.I. generated. May contain errors.
Earnings Conference Call
FuelCell Energy Q2 2024
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