FuelCell Energy Inc (FCEL) Releases 4Q:16 Results; Shares Up 8%


FuelCell Energy Inc (NASDAQ:FCEL) reported financial results for its fourth quarter ended October 31, 2016 and key business highlights.

Financial Results
FuelCell Energy (the Company) reported total revenues for the fourth quarter of 2016 of $24.5 million, compared to $51.5 million for the comparable prior year period.  Revenue components include:

  • Product sales totaled $8.4 million for the current period compared to $43.8 million for the fourth quarter of 2015.  During the fourth quarter of 2016, the Company retained two fuel cell projects totaling 7 megawatts that will generate long term recurring electricity sales rather than quarterly product revenue.  This transition to retaining select projects rather than selling the projects at commissioning contributed to the decrease in sales, combined with lower Asian sales in the current quarter as Korean partner, POSCO Energy, is manufacturing locally under license and royalty agreements.
  • Service agreements and license revenues totaled $11.4 million for the current period compared to $5.5 million for the comparable prior year period, with the increase due to a number of service agreements that commenced in 2016, a greater number of module replacements under service contracts, and electricity sales from power purchase agreements.
  • Advanced Technologies contract revenues totaled $4.7 million for the current period compared to $2.1 million for the comparable prior year period.

A gross loss of ($0.5) million was incurred in the fourth quarter of 2016, compared to gross profit of $3.1 million and gross margin of 6.1 percent for the fourth quarter of 2015.  The decrease in gross profit was due to lower product sales and charges in the service business, including charges for obsolete sub-megawatt inventory.  This decrease was partially offset by improved Advanced Technology gross margin due to the mix of contracts transitioning to private industry.

Operating expenses for the current period totaled $11.3 million compared to $11.0 million for the prior year period.

Net loss attributable to common shareholders for the fourth quarter of 2016 totaled $13.7 million, or $0.41 per basic and diluted share, compared to $9.7 million or $0.38 per basic and diluted share for the fourth quarter of 2015.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the fourth quarter of 2016 totaled ($10.4) million. Refer to the discussion of Non-GAAP financial measures below regarding the Company’s calculation of Adjusted EBITDA.  Capital spending was $3.8 million and depreciation expense was $1.4 million.

On December 1, 2016 and subsequent to 2016 fiscal year end, the Company announced a restructuring to align production levels with the product sales and services backlog.  A work force reduction was undertaken with 96 positions or approximately 17 percent of the global workforce impacted. A personnel-related restructuring charge of approximately $3 million will be incurred in fiscal 2017, with approximately one half of the charge composed of cash severance costs. The Company expects that operating expenses (administrative and selling, research and development expenses) will be approximately $6 million lower on an annualized basis as a result of personnel reductions and related benefits, as well as lower overhead spending.

Revenue Backlog
Total backlog was $432.3 million as of October 31, 2016 compared to $381.4 million as of October 31, 2015.

  • Services backlog totaled $347.3 million as of October 31, 2016 compared to $254.1 million as of October 31, 2015.  Services backlog includes future contracted revenue from routine maintenance, scheduled module exchanges, and from power purchase agreements.
  • Product sales backlog totaled $24.9 million as of October 31, 2016 compared to $90.8 million as of October 31, 2015.  Product sales backlog reflects firm orders with executed contracts for the sale of product.
  • Advanced Technologies contracts backlog totaled $60.1 million as of October 31, 2016 compared to $36.5 million as of October 31, 2015.

Cash, restricted cash and financing availability
Cash, cash equivalents, restricted cash and financing availability totaled $156.5 million as of October 31, 2016, including:

  • $84.2 million of cash and cash equivalents, and $34.1 million of restricted cash
  • $38.2 million of borrowing availability under the NRG Energy revolving project financing facility

On October 31, 2016, the Company entered into a financing transaction with PNC Energy Capital (PNC) for a 5.6 megawatt fuel cell installation that recently began commercial operations at a Pfizer campus.  A portion of proceeds were used to repay construction borrowing from the debt facility extended by NRG Energy, leading to a net increase of cash to the Company of $19.3 million.

Project Assets 
Long term project assets consists of projects developed by the Company that are structured with power purchase agreements (PPA), which generate recurring monthly electricity sales, and projects the Company is developing and expects to retain and operate.  Long term project assets totaled $47.1 million at October 31, 2016, consisting of four projects totaling 9.8 megawatts, compared to $6.9 million at October 31, 2015 that included one project.

Subsequent to fiscal year end, the Company acquired a 1.4 megawatt fuel cell project at a university, increasing the total retained projects to five totaling 11.2 megawatts. In addition, project assets include two power plant projects under construction totaling 6.5 megawatts that the Company currently plans to retain.  In total, 7 projects are operating or under construction at present, for a total of 17.7 megawatts.

Business Highlights

  • Continuing development of multiple Connecticut fuel cell parks
  • Actively pursuing multi-megawatt fuel cell projects in New York State including 40 megawatt fuel cell only RFP for Long Island
  • Installing 2.8 megawatt power plant with a repeat customer in California
  • Construction in process for 3.7 megawatt project to showcase an enhanced efficiency fuel cell configuration
  • Progressing fuel cell carbon capture with a site announcement for a megawatt-class fuel cell plant to demonstrate both coal and gas-fired carbon capture at a power station owned by a subsidiary of Southern Company with support by ExxonMobil and the Department of Energy
  • Canadian oil sands engineering study progressing for carbon capture at gas-fired bitumen processing plant
  • Commissioning of 20 megawatt Asian fuel cell park completed by partner, POSCO Energy
  • Construction completed and commercial operations commenced for 2 installations, both of which were financed by PNC Energy Capital under an existing financing facility. The Company retains the Power Purchase Agreement and recognizes recurring electricity revenue and margin over the term of the power purchase agreement.

“We are focused on developing and closing projects as we take near-term actions to reduce spending and our cost structure,” said Chip Bottone, President and Chief Executive Officer, FuelCell Energy, Inc.

Shares of Fuelcell Energy are up nearly 8% to $2.10 in pre-market Thursday. FCEL has a 1-year high of $8.88 and a 1-year low of $1.60. The stock’s 50-day moving average is $2.07 and its 200-day moving average is $4.22.

On the ratings front, FCEL has been the subject of a number of recent research reports. In a report issued on December 15, Roth Capital analyst Craig Irwin reiterated a Hold rating on FCEL, with a price target of $2.00, which represents a slight upside potential from current levels. Separately, on December 1, FBR’s Carter Driscoll reiterated a Hold rating on the stock and has a price target of $2.50.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Craig Irwin and Carter Driscoll have a yearly average loss of -4.8% and -20.5% respectively. Irwin has a success rate of 36% and is ranked #4067 out of 4340 analysts, while Driscoll has a success rate of 22% and is ranked #4267.

FuelCell Energy, Inc. designs, manufactures, sells, installs and services stationary fuel cell power plants for distributed power generation. It operates through the Fuel Cell Power Plant Production and Research segment. It offers products for the Ultra-Clean Power and Renewable Power markets. Its services also include engineering, procurement, and installation; and training.