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spk04: Ladies and gentlemen, thank you for standing by. And welcome to the Fuel Cell Energy fourth quarter and fiscal year 2020 conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this time, you will need to press star then one on your telephone. If you require any further assistance, please press star then zero and an operator will come back on to assist you. I would now like to hand the conference over to your speaker today. Mr. Sean Justin, please go ahead.
spk06: Thank you, Amy. Good morning, everyone, and thank you for joining us on today's call. As a reminder, this call is being recorded. This morning, Fuel Cell Energy released our financial results for the fourth quarter and fiscal year ended October 31st, 2020, and the earnings press release is available on the investor relations section of our website at fuelcellenergy.com. Consistent with our practice, in addition to this call and press release, we have posted a slide presentation on our website. This webcast is being recorded and will be available for replay on the company's website approximately two hours after we conclude the call. Before we begin our prepared comments, please direct your attention to the disclosure statement on slide two of the presentation and the disclaimers included in the press release related to forward-looking statements. The discussion today will contain forward-looking statements including, without limitations, statements with respect to the company's anticipated financial results and statements regarding the company's plans and expectations regarding the continuing development, commercialization, and financing of its fuel cell technology and its business plans. These forward-looking statements are intended to qualify for safe harbor from the liability established by the Private Securities Litigation Reform Act of 1995. All statements made on this call today, other than statements of historical fact, are forward-looking statements and include statements regarding our anticipated financial and operational performance. Forward-looking statements made on this call represent management's current expectations and are based on information available at the time such statements are made. Forward-looking statements involve numerous known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from any results predicted, assumed, or implied by the forward-looking statements. We strongly encourage you to review the information in the report to be filed with the SEC regarding these risks and uncertainties. In particular, those that are described in the risk factor sections on our annual report on Form 10-K and cautionary statements and forward-looking statements in our quarterly filings. You should also review the section entitled cautionary statements concerning forward-looking statements in this morning's earnings press release. During this call, we will use non-GAAP financial measures when talking about the company's performance and financial condition. And according with SEC regulations, you can find a reconciliation of these non-GAAP measures to the comparable GAAP measures in this morning's earnings press release and reconciliation document posted on the investor relations portion of our website. For our call today, I am joined by Jason Pugh, Fuel Cell Energy's President and Chief Executive Officer, and Mike Bishop, Executive Vice President and 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 would like to now hand the call over to Jason for opening remarks. Jason? Thank you, Tom, and good morning, everyone.
spk03: Thanks for joining us on our call today. We truly appreciate your interest in our company. One year ago, I hosted my first earnings call as CEO of Fuel Cell Energy, and today I am very proud of what the team has accomplished and the groundwork we are laying for long-term and sustainable success. In a year in which all of us face the serious challenges created by the COVID-19 pandemic, as well as social unrest in many parts of the world, we've made progress toward our long-term goals of profitable growth, developing and executing our backlog, and advancing our clean energy platforms, all of which contribute to the global energy transition. As we begin the second year of our powerhouse business strategy, we will continue to drive operational excellence by focusing on delivering value to our customers and stockholders, adhering to prudent capital deployment to support growth, and decreasing our overall cost of capital. We are focused on delivering revenue growth by commercializing our proprietary technologies to deliver differentiated value to our customers in capturing some of the significant opportunities in the energy markets that are emerging today and that will continue to develop in the years ahead. Before delving into results for the quarter, we have included an overview of our company shown on slide three for investors who may be new to our story. During fiscal year 2020, which ended on October 31st, we delivered double-digit revenue growth, achieving approximately $71 million in total revenue across our three largest categories, servicing licenses, advanced technologies, and generation, which together represent a diversified source of recurring revenue under multi-year contracts with investment grade customers. While we did not have revenue from product sales in fiscal year 2020, we are refocusing our efforts on new product sales and our ongoing market reentry in the largest fuel cell market in the world today, South Korea, as well as other global markets, including near-term opportunities in Europe and the Middle East. Like many, the COVID-19 pandemic impacted our operations and timing of our growth prospects throughout the year, but as we turn the page entering 2021, we are optimistic about the energy transition opportunities before us. At the top of the slide, we highlight many of our important customers currently using our technology platforms. These include a number of customers with our newest seven-year stack life fuel cells, many of which integrate combined heat and power capabilities that operate at extremely high energy efficiency levels, as well as other installations that enable microgrids, utilize biofuels, resulting in carbon neutral to carbon negative power, and can leverage multiple fuel types. Our SureSource fuel cell platform is capable of directly supplying hydrogen, and as an example of this, We are currently installing our first commercial hydrogen production platform in Long Beach, California, to power Toyota zero-emission fuel cell trucks and consumer vehicles. We have the ability to extend our carbonate fuel cell platform to deliver hydrogen through a process known as reforming, electrolysis, and purification, or REP. And with our solid oxide fuel cell platform, we will produce hydrogen through highly efficient electrolysis, long-duration hydrogen-based energy storage, and zero-carbon hydrogen power generation. Electrolysis, long-duration hydrogen energy storage, and zero-carbon power generation platform solutions will be commercialized with our solid oxide technology, which we expect to support the increasing penetration of intermittent renewable technologies such as wind and solar by providing a way to store the off-peak energy generated by renewables, and produce power at a later date on demand. Moving to slide four, as a company, we remain energized by our purpose of enabling the world to live a life empowered by clean energy. This purpose drives our strategic focus and the work we do. We believe consumers and businesses around the world will increasingly need always-on power. The electric grid continues to evolve around the world, but grid reliability is critical. And Feel So Energy is uniquely positioned to meet this challenge with our broad decarbonization product portfolio. We believe the future of clean energy begins with Feel So Energy. Next, on slide five, there are some key messages we would like to convey to you today. The first is to highlight the progress we are making toward completion of projects in our backlog as we execute our powerhouse business strategy for fiscal year 2020 revenue grew 17% to $70.9 million, which was primarily due to our expanded generation portfolio and growth in revenues from advanced technology projects, while we continue to maintain and emphasize managing operating expenses and positioning the company for growth. To put some mile markers behind our generation portfolio, we had 32.6 megawatts of operating power plants in our on-balance sheet generation portfolio at the end of the year, representing 25% growth from 26.1 megawatts one year ago. Growth in advanced technology stems from our joint development agreement with ExxonMobil Research and Engineering Company as we work toward commercializing our proprietary carbon capture solution. We continue to make progress against our circa $1.3 billion in contracted revenue backlog including completion of our 2.8 megawatt project in Tulare, California, utilizing our proprietary gas cleanup skid technology. This facility utilizes 100% on-site renewable biogas from the wastewater treatment facility to produce clean power for the San Joaquin Valley in California, one of the most productive agricultural regions in the world. We are near completion of construction on our next biofuel power platform in California at the San Bernardino Municipal Waste Water Treatment Department, extending our platform portfolio, utilizing on-site biofuels to produce carbon-neutral power. Fuso Energy's SureSource power platform will use methane-rich biogas that would otherwise be flared, wasting energy and producing emissions to produce clean, renewable, carbon neutral power. We are proud to note that our power platform is the only fuel cell power platform certified by CARB, the California Air Resources Board, for operations on biogas. We are also nearing mechanical completion of our microgrid project at the Naval Submarine Base in Groton, Connecticut. Once third-party interconnections and other safety-related work is complete, the platform will be ready for commissioning and commercial operation. We are excited to have the opportunity to deploy our microgrid platform in support of the United States federal government's defense critical electrical infrastructure objectives. We recently began early stage construction activity on 24.5 megawatts of additional projects, including the 2.3 megawatt Trigen platform that will deliver carbon neutral electricity green hydrogen, and produced water to Toyota at the Port of Long Beach in California, and our utility-scale deployments in Yapank, New York, and Derby, Connecticut. The Derby, Connecticut project is expected to deliver competitively priced Class I renewable energy and renewable energy credits from a compact footprint by remediating and repurposing a municipal brownfield in the city of Derbyshire. Managing through COVID-19 made 2020 a challenging year. First, I want to offer our prayers of support for the millions of families around the world that lost loved ones and for those who are currently battling COVID-19. I also want to thank healthcare workers, first responders, and the frontline workers at our company and around the world for their selfless sacrifice to show up to work every day. Thank you. As a company, We are proud of the actions we took to safeguard our team members and our community during the pandemic by temporarily shutting down our manufacturing facility and requiring all employees who were capable to work from home while maintaining full wages and benefits for team members unable to work from home due to their job functions. We made a number of improvements in our manufacturing processes and capabilities while implementing applicable social distancing protocols and restarting production in late June at an annualized production rate of 17 megawatts. Despite these challenges, we increased production after recommencing operations and expect to increase our production to an annualized production rate of 45 megawatts during 2021. The second key message I want to highlight is the progress we've made toward bolstering our financial foundation, strengthening our liquidity, and creating an opportunity to reduce our cost of capital. Mike will go into more detail, so I will just provide a few highlights, starting with our current balance sheet position. During fiscal year 2020 and early fiscal year 2021, we raised over $325 million in capital. In the fourth quarter, we completed an equity offering resulting in net proceeds to the company of approximately $98.3 million net of expenses. we had strong institutional and retail demand for our shares. And subsequent to the fiscal year end, we completed an additional equity offering, resulting in net proceeds to the company of approximately $156.3 million after deducting expenses. These subsequent proceeds allowed us to repay $87.3 million, representing all amounts owed to lenders and the agent under the Orion Credit Agreement. as well as pay $21.5 million owed to Enbridge under our Series 1 preferred share obligation. As a result of these activities, we significantly reduced our corporate debt and our unrestricted cash balance on a pro forma basis increased to approximately $209 million, $11.2 million of which represents cash formerly restricted by Orion that was released upon the payoff. Altogether, The results of these offerings provide us with an opportunity to reduce our cost of borrowing going forward and enables us to have significant liquidity to execute our project backlog and accelerate commercialization of our advanced technologies. And third, I want to highlight our goal of extending our leadership in sustainability and environmental stewardship. Markets around the world are increasingly looking for decarbonization solutions that drive the transition to clean energy address climate challenges, and enhance grid reliability. The energy transition is being further driven by regulatory support. Based on the initial policy objectives outlined by the new White House administration, we expect clean energy and climate policies in the U.S. to be a significant focus and receive broad support which is consistent with what we are seeing in markets across the world. To meet the growing need of clean energy, Fuel Cell Energy remains focused on developing and deploying our decarbonization product portfolio solutions for some of the largest global energy opportunities. One, distributed baseload generation, which is provided by our current SureSource platform. Two, distributed hydrogen generation using our carbonate platform. Our solution has the advantage of a clean water delivery capability, utilization of multiple fuel types while delivering hydrogen that can then be used as a feedstock in industrial applications, as a fuel for transportation, and for decarbonizing and or repowering existing gas turbine power generation infrastructure or blending down the carbon intensity of low carbon natural gas. This is the technology platform we plan to deploy at our facility in Long Beach, California. And it is the first of its kind in the US. And it is the first of its kind in the US. We are also developing a hybrid reforming electrolysis solution, REP, based on our carbonate platform to produce hydrogen from fuels and power when power coal production is not needed. Three. Long-duration hydrogen energy storage, power generation, and electrolysis using our solid oxide platform. The generation of hydrogen through electrolysis can enable a zero-carbon energy storage platform. Our hydrogen energy storage system is a closed-loop platform and is designed such that when it operates in reverse mode, it can leverage stored hydrogen to produce carbon-free power. Our differentiated technologies position fuel cell energy to capture meaningful opportunities in the growing hydrogen economy around the world and support increased penetration of intermittent renewable technologies. And fourth, carbon capture, sequestration, and utilization. We believe that carbon capture is key to making material reduction to the world's carbon footprint, enabling existing power generation infrastructure to remain in place and avoiding the need for much of the world to forego economic development. Fuel Cell Energy's carbon capture technology is the only solution that we know of that concentrates and captures carbon while simultaneously producing more energy and has the ability to deliver hydrogen from a single platform. Together with ExxonMobil Research and Engineering Company, we continue to develop our fuel cell technology that has the ability to concentrate CO2 across industrial applications such as coal and gas fire power plants, industrial and chemical processing, while also producing power from the fuel cell stack. Our technology also has the ability to extract and deliver carbon dioxide from our fuel cell platforms for utilization in a number of applications such as food processing and carbonated beverages, dry ice production, water purification, and more. In fiscal 2021, we plan to focus on commercially advancing new applications of our technology, including the demonstration of our solid oxide electrolysis platform, while continuing to execute on our backlog of projects by delivering our traditional distributed generation platforms. Said simply, we believe our technologies will position Fuel Cell Energy to be a leading energy platform solutions provider for the world's energy transition. Now, I will turn the call over to Mike to discuss our financial results in more detail. Mike?
spk07: Thank you, Jason. Let's begin by reviewing the highlights of our results shown on slide seven. I'll start with fourth quarter results. Total revenue increased 54% year-over-year to $17 million, primarily reflecting increases in service and license and advanced technology contract revenues, partially offset by a decrease in generation revenue. Breaking down total revenues, service and license revenues increased to $5.4 million from $800,000 during the fourth quarter of fiscal 2019 due to revenue recognized for module exchanges at three plant locations. Generation revenues decreased to $5.1 million due to plant maintenance activities primarily related to downtime while upgrades were performed at our 14.9 megawatt Bridgeport Fuel Cell Park project. Advanced technology contract revenues increased 48% $6.4 million due to revenues recognized in connection with our Joint Development Agreement, or JDA, with ExxonMobil Research and Engineering Company, or Emory, which was executed early in fiscal year 2020. Cost of service and license revenues in the quarter increased to $8.1 million from $3.8 million in the fourth quarter of fiscal year 2019 as the company performed module exchanges for three projects. There were no module exchanges in the prior year period. cost of generation revenues decreased to $10.3 million from $22.6 million in the prior year period due to lower impairment charges. Results for the fourth quarter of 2019 included a non-cash impairment charge of $17.5 million as a result of decisions made by the company to operate the Triangle Street project under a merchant model and to use the project as a development platform for the company's advanced applications as well as the termination of the Bull House Farm's project due to unfavorable regulatory changes. In the fourth quarter of fiscal 2020, we took a further impairment charge on the Triangle Street project of $2.4 million as a result of output and revenue projections given our current development plans. Operating expenses decreased 5% to $9.1 million compared to $9.6 million in the prior year period. This decrease was driven by our reduction in administrative and selling expenses, as a result of restructuring activities implemented in 2019, slightly offset by an increase in research and development expenses. Loss from operations totaled $17.1 million compared to $33 million in the prior year period. The fourth quarter of fiscal 20 was impacted by the timing and mix of advanced technology activities, higher service costs during the quarter, and the impairment charge relating to our Triangle Street project. Net loss for the quarter totaled $18.9 million compared to a net loss of $35.2 million in the fourth quarter of fiscal 2019. Net loss attributable to common stockholders for the quarter totaled $19.7 million or $0.08 per basic and diluted share compared to a net loss of $36 million or $0.23 per basic and diluted share in the prior year period. The lower net loss per common share for the quarter ended October 31, 2020, is primarily due to higher weighted average shares outstanding due to share issuances since October 31st, 2019. Adjusted EBITDA improved to negative 8.6 million compared to negative 11 million in the prior year period. Now, turning to the full fiscal year, revenues increased 17% to 70.9 million, primarily due to increases in generation and advanced technologies revenues. Service and license revenues increased decreased 6% to $25.1 million fiscal year 2020, included revenues of $4 million recorded in connection with the joint development agreement that was entered into with Emory early in fiscal year 2020, compared with the $10 million of revenue recorded in the prior fiscal year related to a separate license agreement entered into with Emory. In addition, the prior fiscal year included revenue recorded for the Bridgeport Fuel Cell Park service agreements, revenue are no longer being recognized under this service agreement as a result of the purchase of the project by a subsidiary of the company in May of 2019. Generation revenues increased 42% to $19.9 million, reflecting revenue from electricity generated under our PPAs, including the Bridgeport Fuel Cell Park project acquired in May of 2019 and the Tulare Biomath project, which commenced operations in December of 2019. advanced technology contract revenues increased 31% to $25.8 million due to revenues recognized in conjunction with the company's JDA with Emory. Operating expenses for fiscal year 2020 decreased 31% to $31.4 million compared to $45.7 million in fiscal year 2019, reflecting the decrease in research and development expenses from restructuring initiatives implemented in fiscal 2019 and the reduction of resources being allocated to internal research and development activities as resources were instead allocated to funded advanced technology projects. Administrative and selling expenses decreased in fiscal year 2020. The decrease primarily relates to proceeds from a legal settlement of $2.2 million received during the year ended October 31st, 2020, which was recorded as an offset to administrative and selling expenses and higher legal and consulting costs incurred during the year ended October 31st, 2019, in conjunction with the restructuring and refinancing activities undertaken by the company in fiscal 2019. Loss from operations in fiscal year 2020 totaled $39.2 million compared to a loss of $66.9 million in fiscal year 2019. Net loss for the fiscal year totaled $89.1 million compared to a net loss of $77.6 million in the prior year. Net loss includes a negative non-cash impact related to the change in fair value of a common stock warrant liability of $37.1 million. Adjusted EBITDA in the fiscal year 2020 improved 44% to negative 17.7 million compared to negative 31.4 million in fiscal year 2019. Please see the discussion of non-GAAP financial measures and adjusted EBITDA in the appendix of our earnings release. Net loss per basic and diluted share attributable to common stockholders for the fiscal year 2020 was 42 cents compared to $1.82 in fiscal year 2019. Next, please turn to slide eight for additional detail on financial performance and backlog. The chart on the left-hand side of the slide graphically displays the numbers I walked through in the fourth quarter, and we are pleased with the improvement of net loss attributed to both common stockholders, net loss from operations, and adjusted EBITDA when compared to the fourth quarter of fiscal 2019. Looking at the right-hand side of the slide, we finished the fiscal year with backlog of $1.29 billion. Backlog decreased 2.5%, reflecting the continued execution of backlog and adjustments to generation backlog, primarily resulting from the decrease in fuel pricing, which has lowered estimated future revenue. Partially offsetting these decreases is an increase in advanced technologies backlog, primarily the result of the JDA with Emory. Total backlog consists of approximately $1.1 million in generation backlog, $169 million in service and license backlog, and $49 million in advanced technology contracts backlog. Turning to slide 9, I would like to highlight the steps taken to provide additional liquidity with the goal of enabling us to focus on the execution of our business plan, including building out our backlog of generation projects, and commercializing our advanced hydrogen technologies. During fiscal 2020, we raised 173.2 million of net proceeds through common stock sales and warrant exercises. As of October 31, 2020, restricted cash, restricted cash, and cash equivalents totaled 192.1 million, of which 42.2 million was restricted cash represented by the gray bars. We also had cash as of October 31, 2020, totaling $149 million of unrestricted cash that is represented by the dark blue bar at the bottom of the chart. After the fiscal year end, we completed an additional equity offering, resulting in net proceeds to the company of approximately $156.3 million. These proceeds were partially used to extinguish our senior secured credit facility with Orion Energy Partners by paying all amounts owed totaling $87.3 million and to pay in full the $21.5 million owed to Enbridge under the Series 1 preferred obligation of one of our subsidiaries. The remaining $47.5 million of proceeds from the offering is unrestricted cash and may be used to accelerate the development and and commercialization of our solid oxide platform for project development, project financing, working capital support, and general corporate purposes. As a result of these activities, we had pro forma cash, restricted cash, and cash equivalents totaling $239.6 million as of October 31, 2020, of which $208.6 million was unrestricted cash. Consistent with prior periods, the company does not provide quarterly or annual revenue or EPS guidance. We did, however, provide spending ranges for fiscal 2021 in our 10-K as follows. As of October 31, 2020, the company had 40.7 megawatts of projects under development and construction, some of which are expected to generate operating cash flows beginning in fiscal years 21 and 22. To build out this portfolio for fiscal 21, we forecast project asset expenditures to be in the range of $50 to $75 million compared to $31.5 million for fiscal year 2020. To fund such expenditures, we expect to use unrestricted cash on hand and to seek sources of construction financing. Once these projects under development become operational, We will seek to obtain permanent financing, including tax equity and debt, which would be expected to return cash to the business. Capital expenditures are expected to be in the range of $5 to $10 million for fiscal year 21, compared to capital expenditures of $400,000 in fiscal year 20, as we make investments in our factories, laboratories, and business systems. How many funded research and development activities are expected to increase to 18 to 20 million in fiscal year 21 compared to approximately 4.8 million in fiscal year 20? As we expect to accelerate commercialization of our advanced technology solutions, including distributed hydrogen, hydrogen-based long-duration energy storage, and hydrogen power generation. In closing, we are pleased with the progress that we have made under our powerhouse business strategy. Our enhanced liquidity positions the company to execute on our business plan and deliver on our project backlog while accelerating commercialization of our advanced technology platforms and applications. I will now turn the call back over to Jason. Jason?
spk03: Thanks, Mike. As mentioned previously, we made progress executing on our project backlog in 2020, including completion of our biogas power platform in Tulare, California, Additionally, we are near completion on new power platforms at the U.S. Navy base in Broughton, Connecticut, and at the wastewater treatment facility in San Bernardino, California. We also began early stage construction activity on projects in Yap Bank, New York, Derby, Connecticut, and the Toyota project in Long Beach, California. We completed downstream teamwork and made a number of improvements in our manufacturing processes and capabilities. focusing on increasing throughput and simplifying and streamlining production operations while enhancing health and safety protocols related to COVID-19. As a result of these improvements, we have the capability to increase our annualized production rate up to 45 megawatts on a single production shift. Production process innovations, lean manufacturing, and other optimization initiatives, elimination of waste, coupled with lean direct labor resource management, are just a few examples of ways in which we strive for operational excellence. Further, our production operations are well positioned for further capacity expansion and will generate operating leverage as we increase our production rate in support of future business growth. Next, on slide 11, I want to provide an update on our powerhouse business strategy, which we announced one year ago. Based on our initial success, we are evolving the three core pillars of transform, strengthen, and grow. The first phase of our plan was to transform the company to build a durable financial foundation and enhance financial results. As we have just detailed, we have taken a number of important steps to strengthen the balance sheet and build liquidity to fund delivery of our backlog of generation projects and accelerate commercialization of advanced technologies. We are now positioned to seek low-cost, long-term financing that, when projects are delivered, can be recycled to finance completion of new projects. Currently, we are focused on the strengthening stage of our strategy by driving operational excellence throughout the business. As we think about capital deployment opportunities, we intend to prioritize investments in our power generation portfolio to enhance operating performance, maximize uptime, and reduce costs. Additionally, operational excellence continues to be a key enabler of success as we strive to execute on project backlog delivery, manufacturing efficiency, extending sales stack life, and customer service and satisfaction. To help us on our journey of continuous improvement, in January, we started the deployment of a new business operating framework across our organization known as Objectives and Key Results, or OKRs. which we intend to become the operating rhythm by which we run our company. Our third pillar is achieving growth. Over the long term, by seeking to penetrate markets where our technology platforms can be the preferred solution, where we have the right to win. To accomplish this, we will continue the optimization of our existing core business to drive sales through enhancing the design of existing products and commercializing new technologies. Our pursuit of commercial excellence is key to our strategy of winning new and repeat business. We are working toward further strengthening customer relationships and building a customer-centric reputation. We are building our sales pipeline by focusing on differentiated applications, product sales, and geographic markets and customer segment expansions in areas where we expect our platform to be the preferred solution. We are investing in industry-leading innovations to continuously increase product life and reliability and deliver one of the cleanest environmental footprints among baseload power generation platforms. We have commercial products available to meet distributed generation and distributed hydrogen applications. We also intend to develop and commercialize our advanced technology platforms across carbon capture, long-duration hydrogen-based energy storage, and zero-carbon hydrogen power generations. Geographic and market expansion is also an important part of our growth trajectory. We are extremely excited to be back in the Asian markets, particularly South Korea, and are now actively pursuing business in these markets. While we have customer interest and inquiries, we expect this growth to take time, as projects in Korea typically require an RFP process lasting six months or longer in some cases. We already have technical support staff in the region servicing our existing platforms that we will look to increase over time as we grow our project base along with anticipated addition of dedicated sales and marketing teams with a geographic focus on Asia. We also continue to work with channel partners to build opportunities in Europe and other markets around the world. Turning to slide 12, I will summarize the four primary growth opportunities we are targeting in clean energy and how these are aligned with our product portfolio. First, It starts with our core platform. Our core platform enables fuel cell energy to deliver bespoke customer solutions across a number of applications. The multi-featured capabilities of our platform delivers power, combined heat and power for district heating, building heating and cooling, hot water, and steam for industrial applications. Carbon capture, separation, and utilization for beverages, food processing, water purification, dry ice, and other applications, and hydrogen for transportation, industrial uses, and repowering. All of these capabilities are delivered through our fuel cell carbonate platform. Today, more than 250 megawatts of our carbonate platform is deployed and has delivered more than 10 million megawatts of reliable and clean base load power adding to the decarbonization of the electricity grid. Our generation portfolio is currently delivering utility-scale distributed generation to utilities, commercial, and industrial customers. Our long-term distributed generation power purchase agreements make up all of our approximate $1.3 billion in project backlog. Next, our tri-gen SureSource platform The first commercial installation, which is currently under construction, represents our core distributed hydrogen offering, which we expect to deliver three value streams. First, carbon negative clean electric energy through the use of biofuels in hydrogen production offsetting carbon. Second, the thermal energy And naturally produced water in our platform will be used, letting Toyota avoid the need to use water as a natural resource in port car operations. Third, our tri-gen platform will be used to generate hydrogen. The generated hydrogen at the Port of Long Beach will allow Toyota's operations to use the hydrogen we produce to power zero-admission fuel cell vehicles in California. We are also advancing the commercialization of our current carbonate technology to deliver REP, further extending our distributed hydrogen offerings and providing a means to significantly decarbonize natural gas. Given our view of the importance of the emerging hydrogen economy and the growth of other types of renewable energy, we are also working toward the commercialization of our platform solutions that generate hydrogen through electrolysis, and offer long-duration hydrogen energy storage to address the growth of the hydrogen economy around the world. We continue to advance the commercial development of our solid oxide technology through cooperative research and development agreements with the U.S. Department of Energy and the allocation of capital raised over the last several months. We are excited about our potential to revolutionize long-duration energy storage and better integrate intermittent sources of power into the complex grid of tomorrow. And of course, we also continue to focus on commercializing our carbon capture advanced technologies under our joint development agreement with Emory. Carbon capture has a strong secular tailwind, given the worldwide focus on global warming and sustainability. And we feel confident in our ability to deliver integrated, scalable carbon capture and hydrogen solutions in the future. Next, on slide 13, we want to reiterate and update our long-term targets and goals that we initially provided last year. Our targets and goals are intended to give context around our long-term strategy, and we are looking past the current economic uncertainty with our time horizon stretching into fiscal year 2022 and beyond. Key to achieving our plan is the continued execution of our project backlog and achieving commercial operation for each of those projects, which are expected to deliver recurring revenue through power generation and long-term service agreements. We are also focused on commercializing our advanced technologies, hydrogen and carbon capture platforms, each of which offer new growth opportunities for our company. Turning to slide 14, I will conclude my remarks today by reviewing key investment highlights for fuel cell energy. Over the past year, we have executed several strategic actions that together have strengthened our balance sheet by repaying debt and enhancing our liquidity while reducing our cost of borrowing. Given our enhanced financial profile, we believe we are well positioned to execute on our growth strategy. We have an outstanding organization that is focused on delivering our projects, serving customers, achieving financial milestones, growth, and building upon our operational excellence while adhering to our core purpose. Our company has a robust portfolio of innovative technologies that are expected to contribute to the global goals of decarbonizing the grid, advancing the hydrogen economy, and protecting existing energy and industrial infrastructure investments with a differentiated carbon capture solution. We are working to implement our powerhouse business strategy to transform, strengthen, and grow our company for the long term. As I have just enumerated, we intend to be a leader in sustainability and environmental stewardship by delivering on sustainability throughout the full circular life of our platforms. We have made progress over the past year, and we look forward to the year ahead. I will now turn it over to Amy to begin Q&A. Mike, Tom, and I are joined by a couple of our colleagues for the Q&A portion of our call. Mike Lazowski, EVP and Chief Operating Officer, and Tony Leo, EVP and Chief Technology Officer. Amy?
spk04: At this time, ladies and gentlemen, if you would like to ask a question, please go ahead and press star then the number one on your telephone keypad. Again, that's star then one to ask a question. Your first question today comes from the line of Jed Doshamer with Canaccord Genuity. Please proceed with your question.
spk11: Hi, thanks for taking my question. I have a couple, if you don't mind. I guess first, regarding the kind of re-engagement with the South Korean market, I'm just curious, is that going to be in the form of product sales? Is, you know, historically that's how that was booked? Or does that change in terms of this new effort?
spk03: Jed, thanks for the question and thanks for joining our call today. No, we expect that that will continue to be a product sale market opportunity for the company.
spk11: And did you give any timeframe or expectations around that, or is it still too early in terms of that geography?
spk03: Yeah, no, we haven't given any specific timeframe. As I said in my prepared remarks, it's generally an RFP process. Those RFPs can go on for some time, six months or longer. So we've not given any specific time about when we expect to see the product sales hit the market.
spk11: Got it. Thanks. And you provided a lot of details, so I apologize if you addressed this. But maybe just in simplistic terms, if I look at the quarter over quarter in terms of generation and backlog, backlog picked up only 100 kilowatts, it looks like, with Toyota. So I'm just wondering, you know, why is that flat and we're not seeing that either the backlog grow or the generation pull down?
spk07: Good morning, Jed. It's Mike. Thanks for joining the call. So on backlog, we recognized, obviously, revenue this year as we executed on the business plan. We did not add, obviously, any product sales. Product sales are zero. And as Jason just said, Korea is a big market for that. We would expect to see product sales in Europe as we continue activities there in the future as well as the U.S. You did see increases in the backlog year over year. related to advanced technology as we brought in the ExxonMobil joint development agreement. And you would expect to see increases in generation backlog in the future as we convert our sales pipeline into backlog. But where we sit today, yes, it's down a little bit over the prior year.
spk11: Okay. And then I guess just With respect to product, the Biden administration, President Biden signed as an executive order one of the Clean Air Acts or an amendment to the Clean Air Act that has a methane component, which it would seem as if you had the advanced technology ready that that would be able to capture that value proposition. Do we need to see a milestone that's hit in terms of the availability of the advanced technology before you're able to participate in this effort? So I guess I'm coming back to that product, which it seems like you have a couple different irons in the fire in terms of that, but it also seems like that's a year or two out there. Is that the right way to think about that?
spk03: So, Jed, you know, as we are, as most people probably are, absorbing all of the things that are going on with the new administration right now, but as I talked about, with our product portfolio, we have the ability to deliver, you know, through the use of biofuels, carbon neutral to carbon negative products. Power production today, in the Toyota case, for example, we're going to be delivering green hydrogen. So as we look across our product portfolio and what we have commercial today with our carbonate platform, we will look to see how we apply our technology to fit the needs the new rules or, you know, things that the current administration is going to do. And then as it relates to our ability to deliver electrolysis and hydrogen generation with our solid oxide platform, you know, we announced earlier plans around a demonstration project that we'll execute on. But, you know, in terms of commercialization of that, we'll see that happen, you know, outside of our demonstration efforts.
spk11: So thank you for that. I guess just more specifically, if I am a utility or a PPA right now and I've just had imposed a methane cap on my generation and I've got a combined cycle or a peaker, And I want to look at strategies of addressing that. Are you able to sell that technology, or is there a milestone that needs to be hit for your solid oxide, which I think falls under your advanced technology? So maybe I asked the first question wrong. Or do you need to achieve something?
spk03: Well, I'll give you an example. So you could take an example where you could take our Trigen platform today and use Trigen to generate hydrogen to blend down the carbon intensity in the natural gas as one way in which you could leverage our technology today to address that if you were a utility. Tony, I don't know if you would add anything else to that in terms of existing technology and how we would apply that. No, I think that's exactly right, Justin. The tri-generation technology can produce clean hydrogen to decarbonize natural gas. When you say they're running up against methane caps, you're perhaps talking about carbon dioxide emission caps. Efficient power plants that produce less carbon dioxide, as well as our current platforms that can be modified, to extract the carbon dioxide from their emissions. That's the technology we have today. It doesn't require a special milestone. So we do have technologies today that can address these decarbonization requirements.
spk11: Great. I'll jump back in the queue. Thanks, guys. Thanks, Jed.
spk04: Your next question comes from the line of Paul Koster with JPMorgan. Please proceed with your question.
spk01: Yeah, thanks very much Jason. There's a lot going on and it's quite big and you've alluded to a few of the opportunities you're pursuing. That includes Korea and Europe and you've obviously seen one of your competitors land partnerships to get into those regions quickly. Can you talk to us about your strategy for moving into those regions?
spk03: So, you know, in Europe, Paul, you know, we already have a presence there. We have customers in Europe today. And what we're doing there is really continuing to, you know, expand the work that we're doing with Eon and other partners that we're working with from a channel development standpoint and market opportunity, in addition to adding additional, you know, resources to the regions. And Asia or across Asia, including Korea, we have an existing team in Korea today that supports our existing platforms that operate in the market. And we're adding additional resources from a channel development standpoint to help us drive sales in that market and exploring opportunities for businesses various channel partners in different markets in Asia where we have a focus. So we'll have both a direct sales effort as well as channel partnership efforts in those markets.
spk01: Do you think there's an opportunity to enter into JVs or partnerships where you get some additional capital and maybe a really big heft from a large partner in pursuing these opportunities? It feels like a way to get there faster and place seems important at the moment.
spk03: Yeah, no, Paul, that's a good point. I mean, we are not foreclosed on opportunities to work with other partners in a more strategic relationship or, you know, a way of doing that, and that also including attracting capital from those partners. And then the things that I look for for that are not only just, you know, capital from the partner, because that's – although that's important, that's not the core – you know, metric I would look toward in determining a strategic partner, I really want to look at strategic partnerships or relationships that create expanded opportunity for the company from a market perspective and or brings something unique to the relationship that allows us to extend our platform in a new and compelling way to create differentiation in the market. So although capital is an important factor, it's not the only factor that we'll look at in terms of evaluating a partnership.
spk01: Just turning to long-duration storage for a moment, and particularly that which relates to wind and solar, not to gas, it seems like solid oxide fuel cell is the way that you're pursuing that particular opportunity, but those are intermittent resources which stop and start, and of course solid oxide fuel cells seem poorly utilized. position for that despite their merits in terms of efficiency. Can you just talk to us about how solid oxide fuel cells play in wind and solar intermittent power as long duration storage solutions?
spk03: Yes, I'll let Tony jump in and provide some more color on that. But just in general, right, electrolysis gives us, I mean, our solid oxide platform gives us the ability to implement electrolysis. And, you know, the one thing or the biggest problem that, you know, intermittent technology has is that no one's figured out how to control Mother Nature yet. So, you know, the wind often blows when you don't need the power, or the sun shines when you don't need it, or the reverse, right? When you need it, the wind's not blowing or the sun's not shining. So with all that excess electricity that is often on our grid, when you talk about it just in terms of green hydrogen for long-duration energy storage, it's electrolysis that we'll leverage to create that hydrogen storage in our platform, which is a closed-loop platform, which then will have the ability in a reverse mode to use that same hydrogen in an on-demand basis to actually generate power. And I'll let Tony speak to that. Yeah, I mean, what solid oxide brings to its application specifically is it's a really, really high efficient way to do electrolysis compared to... The conventional electrolysis is here today. So that's one thing. The other thing is the solid oxide cells that we developed, the same cell can be an electrolysis cell and then can be switched in mode of operation to be a fuel cell. So you can create hydrogen, store the hydrogen, and then send it back to that stack to make more power. Because you've got one stack doing both things, you're reducing the capital cost of the application. So that's what you need about solid oxide, the ability to be reversible and at very, very high efficiency.
spk01: So I just want to make sure I understand then, because it sounds like you've made a big breakthrough. It's the ability to do that immediate switch from electrolysis to fuel cell mode without any loss of heat. Because I understand that these solid oxide fuel cells otherwise take a day to heat up and cool down. Have I got that right?
spk03: Well, it's a high-temperature system, so it does take some time to heat up, but our solid oxide stacks are extremely lightweight, so they don't take all that much to heat up. Plus, it's easy to keep the things warm so that they can be ready to spring into action whenever they're needed. Maybe, Tony, you could speak a little bit about the demonstration project that we announced with the DOE. Yeah, and you mentioned the breakthrough. I mean, we've actually been working at this for a long time, making a lot of successes leading up to this, and we're moving from that core R&D activity into the demonstration phase for this technology. We have a system that's running here at Danbury now. We just announced an award from the U.S. Department of Energy to do a 250-kilowatt electrolysis demonstration at Idaho National Laboratories. We have some additional DOE funding to do a test in our Danbury labs with this reversible concept in addition to what we've done in the past. So it's a steady progression from the R&D phase, comfortable that the technology works going into the demonstration phase. and marching this toward commercialization.
spk01: Okay. Last question. Just CapEx associated with ramping up the solid oxide fuel cell business. Do you have a handle on that yet?
spk07: Hey, Paul. It's Mike Bishop. How are you? So as far as CapEx, what we put out there in our 10-K and our remarks, there's really kind of So what we're doing this year is, as Tony mentioned, is working on funded advanced technology projects, and those are funded with the DOE. The company is also making additional investments in company-funded R&D. So last year our company-funded R&D was about $4.8 million. This year we'll be in the range of $18 to $20 million. We are, in addition to that, making capital expenditures in our factories, laboratories, and business systems across the company. That will be in the range of $5 to $10 million for fiscal 21 compared to less than $1 million last year.
spk01: Gotcha. Thank you. Thanks so much.
spk07: Thanks, Paul.
spk04: Your next question comes from the line of Lawrence Alexander with Jefferies. Please proceed with your question.
spk05: Good morning and thanks. Just three quick ones. Can you talk a little bit about your bandwidth for managing projects? I mean, how many projects, if you really flex, could you manage at the same time? And secondly, how are you thinking about grant revenue, if any, in 2021 and 2022? And finally, the new run rate for R&D, should we think of this as a kind of steady run rate from here, or is it reasonable to expect it to continue to increase over the next several years to keep up with the range of opportunities that are opening up.
spk03: Okay. Great. Lawrence, thank you, and thanks for joining the call. I want to make sure I got all three. The first question was around bandwidth around projects. I didn't quite get the second question. I know it was something to do with revenue.
spk05: Oh, how do you think about grant revenue from DOE or other sources? I might put it through the P&L.
spk03: Okay. And then in R&D spending, do we expect that to be kind of the new normal, if you will? So maybe on the first one on bandwidth and projects, I'll ask Michael Zasky to speak a little bit about how we manage projects or project management process and how we deploy the resources against those efforts.
spk09: Thank you, Jason, and thank you, Lawrence, for the question. So really, you know, we're well-positioned to scale to concurrently manage many, many ongoing in-flight projects. We leverage qualified EPC firms and partners that we work with. to execute on the projects. We have a foundational, deep supply chain that we leverage for all of the direct equipment. And as projects become active, we engage the EPC firms and can very effectively concurrently manage multiple projects at one time. So to be straight away, we really don't have a limit, I would say, as we sit here today, on the number of projects that we can concurrently manage. and we plan to scale our resources in kind with our project backlog to support that business.
spk03: And then, Mike, maybe you could talk about how we think about grant revenues and the R&D and go forward.
spk07: Sure. Really, when you look at our revenues, our revenues come in the form of as we sit here today, three elements, right? You have advanced technology contract revenue, which does have an element of government-funded R&D in it. We have generation revenue. In generation revenue, there's an element of renewable energy credits that flows through that. And from time to time, there is some grant revenue that flows through that. And then you have service and license revenues. So from a grant revenue perspective, it's kind of nominal, but what I would say advanced technology contract revenue, you've seen backlog for that increase year over year as we brought in these additional DOE projects as well as grants. as well as the ExxonMobil contract. So you'll continue to see, you know, high advanced technology contract revenue kind of if you go back, you know, fiscal 2019, we're in the $20 million range. This past year, we're in the $25 million range. So with a strong and growing backlog. In addition, you will see our generation revenue continue to increase significantly As these projects come online and we get the benefit of electricity sales and renewable energy credit sales as we continue to bring that into an operating portfolio, and that's what drives our targets for fiscal 22 as we bring the company to EBITDA positives. As far as R&D spending, I mentioned that as an answer to the last question. You will see that increase this year as we execute our commercialization plans around our advanced technologies, including distributed hydrogen, hydrogen-based long-duration energy storage. And the spending targets that we put out is that'll be between $18 to $20 million compared to about $4.8 million in fiscal 2020.
spk04: Thank you.
spk03: Thank you.
spk04: And callers, we'd like to ask that you please limit yourselves to one question due to timing. Your next question comes from the line of Colin Loosh with Oppenheimer. Please proceed with your question.
spk10: Thanks so much. Can you give us a sense of what inventory levels you're going to be carrying on a go-forward basis? It sounds like you've got a bunch of finished goods inventory. I'd love to understand how that flows through the balance sheet over the next year or so.
spk07: Hey, Colin. Good morning. It's Mike. Thanks for joining the call. So when you think about inventory, we've obviously had some transitions during the during fiscal 2020, where, you know, we came into the fiscal year, we're operating at around 20 megawatts. We actually brought the factory back down to zero during the COVID shutdown. And as Jason said in his remarks, you know, we have now, obviously the factory came back online in the June, July timeframe, and we're now ramping the factory up to 50 megawatts. So what you'll see from an inventory position – I'm sorry, up to 45 megawatts during fiscal year 2021. So what you'll see from an inventory position, you'll see inventory start to grow a little bit as we bring in additional raw materials, work in process from that ramp activity, which is really a function of deploying – assets into our generation portfolio. So as assets are finished, we'll deploy those into the generation portfolio. They will become project assets on the balance sheet. So as projects get closer to COD and as we're in construction, you'll see finished goods come down, but I would say that will more than likely be replaced by, you know, raw materials and work in process, and inventory probably be, you know, consistent or higher from where we sit today, given the production ramp.
spk10: That's it, Ralph. Well, thanks, guys.
spk03: Thank you.
spk04: Your next question comes from the line of... Your next question comes from the line of Eric Stein with Craig Helen. Please proceed with your question.
spk08: Good morning, everyone. Hey, Eric, how are you this morning? Hey, I'm doing well. I guess for me, I'll keep it brief, but, you know, just could you give a little more color on the product sale opportunities given, you know, I mean, I know that's been an objective, but, you know, had some headwinds there and would just love to know when you think about your fiscal 22 objectives, I mean, what kind of contribution are you anticipating or, you know, baking into that to reach those objectives?
spk03: Yeah, Eric, we've not traditionally given projections to that level. What I will say, though, is as we think about some core markets where we're seeing strong activity in our pipeline, for example, like Europe, we expect a significant number of those opportunities will be product sales as opposed to PPAs. And if you look at the relationship we have with Eon. That relationship was effectively set up to drive that type of business model. And as a company, we had a pretty focused effort on winning project opportunities and developing those projects as on balance sheet projects, largely because of our integrated business model and the decision that we've made corporately to continue to have engineering, manufacturing, sales and marketing and all as an integrated company. And so now that we've built a backlog and a set of opportunities for the company that will get us to a point to where we'll get to adjusted positive EBITDA through 2022, it gives us a lot more flexibility in terms of how we think about the product development opportunity, whether it be a PPA or a product sale. And so we expect that to become a bigger part of our mix as we move forward.
spk07: Okay. I'll take the rest offline. Thanks. Thanks, Eric. Thank you.
spk04: Your last question for today comes from the line of Noel Parks with two brothers. Please proceed with your question. Good morning.
spk08: Good morning, Noel. How are you?
spk02: Real good, thanks. Just was wondering, as far as the expenses that you recognize for module exchanges, as you have more projects implemented over time, do you have any visibility into or modeling for sort of the expected timing of likely module exchanges?
spk07: Good morning, Noel. This is Mike. I'll take that one. And just to provide a little bit of background on how revenue and cost is recognized for our service portfolio, and our service portfolio is assets owned by third parties, but we have long-term service agreements where the company essentially operates the assets for the owners of the projects. That revenue is bifurcated into two streams. Routine maintenance is essentially amortized over the life of the agreement, and these are typically 20-year agreements. The major maintenance activity is a module exchange. Today, our modules are seven-year life. So the company defers revenue recognition and cost recognition until those modules are actually deployed into the platform. So if you're thinking about modeling these out, you would essentially model every seven years there's going to be a major revenue element. When you look at our service agreements generally, the major maintenance piece is about half, and the routine maintenance is the other half. So that's how you would think about modeling this out.
spk02: Great. Thanks a lot.
spk07: And I appreciate you joining the call.
spk04: And I'll now turn the call back to Jason Few for closing the mix.
spk03: Amy, thank you. Thank you again for joining us today. We continue to execute on our powerhouse business strategy, working to strengthen fuel cell energy with the goal of delivering profitable growth and optimizing returns. I am encouraged by the teamwork I see on display in our organization day in and day out. And I'm excited about the our work, and the opportunity we have to deliver on our purpose to enable the world to live a life empowered by clean energy. We are committed to delivering long-term shareholder value and appreciate your continued interest in fuel cell energy. In closing, I want to wish God's blessing on President Joe Biden, Vice President Kamala Harris, and the United States. Please stay safe and healthy. Thank you for joining, and have a great day.
spk04: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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