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FUELCELL ENERGY 2019

In 2019 Fuelcell Energy faced significant liquidity challenges, management and operation restructuring to support the Company´s growth and achieve profitability

Sources: Yahoo Finance, Bloomberg

Negative cash flows from operating and investing activities and negative working capital in 2018 let the company doubt whether it was able to continue as a going concern. In 2019 the company restructured its management team, raised capital under the at-the-market sales plan, which allowed accounts payable to be paid off. While some of the indicators of substantial doubt still exist, such as historical losses and negative cash flows, management has concluded that substantial doubt has been reduced and the company expects to meet its obligations. In 2019 the company undertook a workforce reduction of 30%, or 135 employees.

FuelCell Energy was founded more than 50 years ago in 1969. With more than 9.5 million megawatt hours of clean electricity produced, FuelCell Energy is now a global leader in delivering environmentally-responsible power solutions. The company´s carbonate fuel cell technology generates electricity directly from a fuel, such as natural gas or Renewable Biogas, by reforming the fuel inside the fuel cell to produce hydrogen.

In October 2019, the company had 95 U.S. patents and 153 patents in other jurisdictions covering fuel cell technology with patents directed to various aspects of the SureSource technology, solid oxide fuel cell (“SOFC”) technology, PEM fuel cell technology and applications thereof.

According to the Annual Financial Report 2019, total revenues for the year 2019 decreased by $28.7 million, or by 32%, to $60.7 million, from $89.4 million in 2018. Total cost of revenues for the year 2019 decreased by $4.3 million, or 5%, to $82.0 million from $86.3 million during the year 2019. The company's gross loss margin was 35.0% in 2019, as compared to a gross profit margin of 3.5% in 2018 and gross profit margin of 2.9% in 2017.

Reportable segments of the company are the following four: Product Sales; Service and License Agreements; Generation; Advanced Technologies Contracts.

Product Sales for the year 2019 consisted of  $0.5 million of power plant revenue compared to $52.5 million of product revenues for the year 2018, which included $49.4 million of power plant revenue and $3.1 million of revenue related to engineering and construction services.This compares to product revenues for the year 2017, which included $41.0 million of power plant revenue and $2.0 million of revenue related to engineering and construction services.The decline in product sales was primarily a result of a previous strategic decision of the company to focus on utility scale PPA business opportunities rather than selling projects upon completion, and inability to access the Asian markets as a result of the situation with POSCO Energy. Cost of product sales decreased by $36.0 million, or 66%, for the year 2019 to $18.6 million, compared to $54.5 million in the previous year.  Overall gross loss from product sales was $18.1 million in 2019 compared to a gross loss of $2.0 million in 2018 and $6.8 million in 2017.  Both periods were impacted by the under-absorption of fixed costs due to low production volumes.  

Revenues for 2019 from Service and License Agreements increased by 68% or by $10.9 million to $26.6 million in 2019 from $15.8 million in 2018.  Service revenues increased, primarily due to revenues of $10.0 million in connection with the EMRE License Agreement. Cost of service and license revenues increased by $3.9 million, or 25%, to $18.9 million in 2019 from $15.1 million in 2018.  Cost of service agreements includes maintenance and operating costs, module exchanges, and performance guarantees. Overall gross profit from service and license revenues was $7.7 million in 2019, which represents an increase of $7.0 million, or 1000%, from gross profit of $0.7 million for the year 2018.  Service and license revenue gross margins were impacted by a change in estimates for future module replacements, which resulted in a reduction of revenue of approximately $1.0 million and an increase in the service loss reserve of $1.7 million.  The overall gross margin percentage of 28.8% for 2019 increased compared to 4.4% in 2018 and to 6.5% in 2017.  This increase was primarily a result of the EMRE License Agreement revenues recorded in 2019, which had no corresponding cost of sales.

Revenues from Generation increased by 94% or by $6.9 million from $7.2 million in 2018 to $14.0 million in 2019. Generation revenues for the years 2019 and 2018 reflect revenue from electricity generated under the company’s PPAs.  Generation revenues increased for the year 2019 compared to the year 2018 due to additional revenue recorded for the Bridgeport Fuel Cell Project, which was acquired on May 9th 2019. Revenue recognized under the related PPA subsequent to the acquisition of the Bridgeport Fuel Cell Project is now included in Generation revenues to an amount equal to $7.0 million.  Cost of generation revenues totalled $31.6 million in the year 2019, compared to $6.4 million for the year 2018.  The increase in Cost of generation revenues was primarily a result of growing generation fleet and impairment charges for the Triangle Street Project and the Bolthouse Farms Project. Cost of generation revenues included depreciation of approximately $6.8 million and $4.1 million for the years 2019 and 2018, respectively, and included amortization of $0.6 million for the Bridgeport Fuel Cell Project PPA for the year 2019.

Revenues from Advanced technologies contracts increased by 40% or by $5.6 million from $14.0 million in 2018to $19.6 million in 2019. The increase was primarily due to the timing of project activity under existing contracts. Cost of Advanced Technologies contract revenues increased by $2.5 million to $12.9 million in 2019, compared to $10.4 million in 2018.  Advanced Technologies contracts achieved a gross profit of $6.7 million in 2019 compared to a gross profit of $3.7 million in 2018.  The increase in Advanced Technologies contract gross margin is related to the timing and mix of contracts being performed during the year 2019, particularly a higher proportion related to private industry contracts. In 2019 Advanced Technologies contract backlog totalled $12.0 million compared to $32.4 million in 2018 and represented a decrease of 63%.

Administrative and selling expenses were $31.9 million and $24.9 million for the years 2019 and 2018, respectively.  The increase from the previous year primarily relates to legal and consulting costs related to the company´s restructuring, liquidity and refinancing initiatives. Total legal and professional fees incurred in 2019 were $11.5 million, compared to $4.1 million in 2018.
 
Research and development expenses decreased to $13.8 million in 2019 compared to $22.8 million in 2018 and $20.4 million in 2017. The decrease related to the reduction in spending resulting from the restructuring initiatives and resources being allocated to fund Advanced Technologies projects.
 
Loss from operations was $66.9 million in 2019 compared to $44.6 million in 2018 and $44.9 million in 2017. The increase in the loss from operations was primarily a result of no significant product sales, unfavourable margins and impairment charges of $20.4 million in 2019.
Cash, cash equivalents and restricted cash totalled $39.8 million in 2019 compared to $80.2 million in 2018.
 
The company faced significant liquidity challenges in 2019. The company’s future liquidity will be dependent on its ability to timely complete current projects within budget, to increase cash flows from its generation portfolio, to obtain approval of and receive funding for project construction under the Orion Facility and to increase order and contract volumes.
This business model requires substantial financing arrangements for the growth of business. If financing is not available or the company spends more than the financing approved for projects, it may be required to reduce planned spending, sell assets, seek alternative financing and take other measures, which could have a material negative effect on the operations.