Financial Results
FuelCell Energy (the Company) reported total revenues for the third fiscal quarter of 2014 of $43.2 million compared to $53.7 million for the third fiscal quarter of 2013.
- Product sales for the third quarter of 2014 totaled $32.3 million, comprising $31.0 million of power plant revenue and fuel cell kit sales and $1.3 million of power plant component sales and site engineering and construction services, compared to $45.4 million for the prior year period.
- Service and license revenues for the third quarter of 2014 totaled $7.1 million compared to $3.7 million for the prior year period with the growing installed base and planned module exchanges contributing to higher service revenue.
- Advanced technologies contract revenue was $3.8 million for the third quarter of 2014 compared to $4.6 million for the prior year period.
- Product sales backlog was $137.3 million and 82.1 megawatts at July 31, 2014. Product backlog decreased $9.4 million sequentially with kit shipments to Asia exceeding new orders in North America although the composition of product backlog is transitioning to higher margin complete power plants with recent order announcements.
- Service backlog was $201.8 million at July 31, 2014. Service backlog increased $20.0 million sequentially as utility service contracts, such as the recently announced United Illuminating project, assume a greater proportion of the total service backlog.
- Advanced technologies contracts backlog was $11.1 million at July 31, 2014. The Company received a number of awards from the U.S. Department of Energy (DOE) during the third quarter of 2014 that are not included in backlog until contracts are executed.
Net loss attributable to common shareholders for the third quarter of 2014 totaled $7.8 million, or $0.03 per basic and diluted share. Excluding the non-cash embedded derivative adjustment of $0.1 million associated with conversions of Senior Unsecured Convertible notes, the adjusted net loss attributable to common shareholders totaled $7.7 million or $0.03 per basic and diluted share. Please refer to the accompanying Notes to Reconciliation of GAAP to Non-GAAP Consolidated Statements of Operations for more detailed information on these Non-GAAP measures. For the comparable prior year period, net loss attributable to common shareholders totaled $6.4 million or $0.03 per basic and diluted share.
Year-to-Date 2014
For the nine months ended July 31, 2014, the Company reported revenue of $125.9 million compared to $132.5 million for the prior year period. Product sales were $94.5 million compared to $108.9 million for the prior year period. Service agreement and license revenues were $19.2 million compared to $12.8 million for the prior year period. Advanced technologies contract revenues totaled $12.2 million, compared to $10.8 million for the prior year period.
For the nine months ended July 31, 2014, gross profit was $7.8 million compared to $4.5 million for the nine months ended July 31, 2013. The gross margin for the nine months ended July 31, 2014 was 6.2 percent compared to 3.4 percent for the prior year period. Expanding margins reflect a more favorable sales mix combined with cost reductions from volume purchasing.
Net loss attributable to common shareholders for the nine months ended July 31, 2014 was $35.8 million or $0.15 per basic and diluted share, or excluding the non-cash embedded derivative adjustment associated with conversions of Senior Unsecured Convertible notes, the adjusted net loss attributable to common shareholders totaled $27.4 million or $0.12 per basic and diluted share. For the comparable prior year period, net loss attributable to common shareholders totaled $27.1 million or $0.14 per basic and diluted share.
Cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash totaled $133.1 million at July 31, 2014. On July 30, 2014, the Company issued 14.6 million shares of common stock to NRG Energy for proceeds of $35 million. Net cash used by operating activities in the third quarter of 2014 was $15.9 million, including an increase in accounts receivable of $4.8 million for billings of projects announced in the second quarter of 2014. Capital spending was $2.2 million and depreciation expense was $1.1 million for the third quarter of 2014.
NRG Energy $40 million construction/term credit facility
In addition to the common stock investment, NRG Energy extended a $40 million revolving construction and term financing facility for the purpose of accelerating project development by FuelCell Energy and its subsidiaries. The Company's project finance subsidiaries may draw on the facility to finance the construction of projects through the commercial operating date (COD) of the power plants. The Company has the option to continue the financing term for each project after COD for a maximum term of five years per project. The interest rate is 8.5 percent per annum for construction-period financing and 8.0 percent thereafter.
Final Redemption of 8.0% Senior Unsecured Convertible Notes (Convertible Notes)
During the third quarter of 2014, the Company received the final $1.0 million of conversion notices under the Convertible Notes, resulting in the retirement of the instrument. There was no outstanding balance under the Convertible Notes at July 31, 2014. The Company issued approximately 0.8 million shares of common stock to settle the conversions. Net expense of $0.1 million was recorded to the Statement of Operations to adjust the fair value of the make whole liability embedded derivative to the fair value of the consideration provided to settle the make whole obligation related to converted Convertible Notes partially offset by the favorable impact from the fair value adjustment required on embedded derivatives.
Business Highlights
"We are collaborating with leading power producers including NRG Energy in North America and POSCO Energy in Asia and are in discussions with other large and influential power producers around the world, exemplifying our market segment approach of working with strong power industry leaders that both validate our power generation solutions as well as supporting power purchase agreements structures allowing the end user of the power to pay as power is produced," said Chip Bottone, President and Chief Executive Officer, FuelCell Energy, Inc. "The Company is well positioned with strong partners, committed capital for project development, a growing number of utility customers, and a product cost profile that will continue to improve with expanding production volume globally."
Another hospital installation was announced during the third quarter for a megawatt-class power plant at the University of California Irvine Medical Center, structured with a power purchase agreement so the Medical Center receives the benefits of clean on-site power under a pay-as-you-go structure. The combined heat and power configuration supports both project economics as well as the sustainability goals and health mission of the Medical Center.
Asian partner POSCO Energy is on schedule with the construction of the cell component manufacturing facility in South Korea with the building almost complete, to be followed by installation of manufacturing equipment. Once the plant is operational, increased levels of purchasing from the integrated global supply chain, whether by POSCO Energy or the Company will benefit both parties by obtaining lower pricing tiers from suppliers from the greater combined purchasing volume.
FuelCell Energy Solutions, GmbH and joint venture partner, Fraunhofer IKTS jointly received ¬4.9 Million (~ $6.5 million) in awards from the Germany Federal Ministry for Economic Affairs and Energy in the third quarter of 2014 for a three year project to further enhance the power density and operating life of DFC products. This funding illustrates the growing interest in large-scale stationary fuel cell power plants in Europe.
Advanced Technologies
The Advanced Technologies group is developing new markets for the Company's commercial power plants for distributed hydrogen and carbon capture solutions as well as commercializing solid oxide fuel cells (SOFC) for adjacent sub megawatt opportunities. Recent contracts and awards include:
Carbon Capture
Phase III funding of $1.2 million awarded by the DOE for routing flue gas from coal-fired power plants into DFC® fuel cells to concentrate and capture carbon dioxide (CO2).
Distributed hydrogen
The Company's tri-generation installation at the Torrington manufacturing facility was included in the 2014 low emission renewable credit awards (LREC) from the State of Connecticut. The plant is expected to be operational in the Fall and the tri-generation output of clean power, usable high quality heat and hydrogen is forecasted to generate annual savings of $0.2 million.
Solid Oxide Fuel Cells
Accelerated commercialization of SOFC technology is supported by the recent $7.5 million notification of award from the DOE Office of Fossil Energy to advance the robustness and improve the cost profile the Company's highly efficient SOFC technology.
Storage
- The Company received an award for a gas-to-liquid project using SOFC technology to convert natural gas into liquid methanol. A market is enhanced oil recovery in remote locations where natural gas is flared as it is not economical to transport the gas. Methanol has a high energy density enabling cost-effective transportation. Contract negotiations are in process with the DOE under a $3.5 million award from the ARPA-E program.
- The Company received an award for an electrolysis project utilizing carbonate DFC® technology in reverse to cleanly and cost-effectively convert natural gas and electricity into hydrogen with only minimal carbon emissions. Target markets are hydrogen production and conversion of electricity from intermittent renewable sources during periods of low demand into hydrogen, a storage medium, which is then available as a fuel source for peak demand periods. Contract negotiations are in process with the DOE under a $0.9 million program
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