FuelCell Energy(US:FCEL)2021-06-09 16:00PART I Financial Statements The financial statements for the period ended April 30, 2021, reflect a significant reduction in liabilities, an increase in equity, and a widening net loss across both quarterly and six-month periods, with increased cash usage from operations Consolidated Balance Sheets As of April 30, 2021, total assets slightly increased to $535.6 million, while total liabilities significantly decreased to $166.7 million, leading to a substantial increase in stockholders' equity to $309.0 million Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | April 30, 2021 | October 31, 2020 | | :--- | :--- | :--- | | Total Assets | $535,591 | $523,538 | | Cash and cash equivalents, unrestricted | $139,086 | $149,867 | | Project assets | $187,242 | $161,809 | | Total Liabilities | $166,685 | $269,133 | | Current portion of long-term debt | $8,575 | $21,366 | | Long-term debt and other liabilities | $75,580 | $150,651 | | Total Stockholders' Equity | $309,049 | $194,548 | Consolidated Statements of Operations and Comprehensive Loss Revenues declined 26% to $14.0 million for the quarter and 18% to $28.8 million for the six months, resulting in gross losses and widening net losses, including an $11.2 million loss on debt extinguishment Three Months Ended April 30 (in thousands, except per share data) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total revenues | $13,953 | $18,880 | | Gross (loss) profit | $(4,756) | $167 | | Loss from operations | $(17,390) | $(8,142) | | Net loss attributable to common stockholders | $(19,717) | $(15,569) | | Net loss per share | $(0.06) | $(0.07) | Six Months Ended April 30 (in thousands, except per share data) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total revenues | $28,830 | $35,144 | | Gross (loss) profit | $(8,374) | $3,448 | | Loss on extinguishment of debt | $(11,156) | — | | Loss from operations | $(31,763) | $(11,282) | | Net loss attributable to common stockholders | $(66,477) | $(56,651) | | Net loss per share | $(0.21) | $(0.27) | Consolidated Statements of Cash Flows Net cash used in operating activities significantly increased to $41.2 million for the six months, while financing activities provided $42.5 million, primarily from stock issuance offset by debt and preferred stock repayments Consolidated Cash Flows for Six Months Ended April 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(41,162) | $(14,719) | | Net cash used in investing activities | $(22,172) | $(14,299) | | Net cash provided by financing activities | $42,466 | $62,750 | | Net (decrease) increase in cash | $(20,870) | $33,641 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 26% Q2 revenue decline to a lack of module exchanges, leading to a wider operating loss, while liquidity was significantly bolstered by a $156.4 million stock offering used for debt extinguishment Results of Operations Revenue declined 26% for the quarter and 18% for the six months, primarily due to reduced Service and License revenue, resulting in a gross loss and widened operating losses, including an $11.2 million debt extinguishment loss Revenue by Segment - Three Months Ended April 30 (in thousands) | Revenue Segment | 2021 | 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Service and license | $660 | $6,972 | $(6,312) | (91)% | | Generation | $6,185 | $4,631 | $1,554 | 34% | | Advanced Technologies | $7,108 | $7,277 | $(169) | (2)% | | Total revenues | $13,953 | $18,880 | $(4,927) | (26)% | - The decline in Q2 Service and License revenue was primarily due to no new module exchanges occurring in the quarter, compared to exchanges that generated approximately $5.5 million in the prior year quarter152 - Administrative and selling expenses for Q2 2021 increased to $9.7 million from $7.2 million, partly due to $0.8 million in additional share-based compensation from new Long Term Incentive Plans163 - For the six months ended April 30, 2021, the company recorded an $11.2 million loss on extinguishment of debt, which included a $4.0 million prepayment penalty and a $7.1 million write-off of unamortized costs related to the Orion Credit Agreement repayment205 Liquidity and Capital Resources Unrestricted cash stood at $139.1 million as of April 30, 2021, significantly bolstered by a $156.4 million stock offering used for debt and preferred share extinguishment, with management projecting sufficient liquidity for the next year despite increased expenditures - The company closed a 25.0 million share offering in December 2020, raising net proceeds of approximately $156.4 million215 - Proceeds from the offering were used to extinguish the Orion senior secured debt ($87.3 million) and the Series 1 Preferred Shares ($21.5 million), with the remaining $47.5 million allocated to working capital and strategic initiatives215216 - Management believes unrestricted cash, expected receipts from its $1.32 billion backlog, and release of restricted cash will be sufficient to meet obligations for at least one year217233 Fiscal Year 2021 Expenditure Forecasts (in millions) | Expenditure Category | FY2021 Forecast | FY2020 Actual | | :--- | :--- | :--- | | Project asset expenditures | $65.0 - $90.0 | $31.5 | | Capital expenditures | $5.0 - $10.0 | $0.4 | | Company funded R&D | $15.0 - $18.0 | $4.8 | Quantitative and Qualitative Disclosures about Market Risk The company faces minimal interest rate risk on cash, minor foreign currency exchange risk, and derivative fair value risk from an interest rate swap, which generated a small gain in Q2 2021 - The company is not significantly exposed to market risk from changing interest rates on its cash holdings299 - Foreign currency exchange risk is present but has not been significant to date, with about 1.0% of cash held in currencies other than the U.S. dollar300 - An interest rate swap agreement fixes the interest rate on the BFC Credit Agreement at 5.09% Fair value adjustments for this derivative resulted in a gain of $0.1 million for the three months and $0.2 million for the six months ended April 30, 2021301302304 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of the reporting period, with no material changes in internal controls over financial reporting during the last fiscal quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the quarter306 - No changes in internal controls over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control307 PART II - OTHER INFORMATION Legal Proceedings The company is involved in significant legal disputes with POSCO Energy, seeking over $200 million in damages for alleged breaches, while POSCO Energy has counterclaimed for approximately $880 million and initiated other legal actions - The company terminated its license agreements with POSCO Energy and filed a demand for arbitration, seeking over $200 million in damages for alleged breaches including failure to commercialize technology and unauthorized disclosure of proprietary information313316 - POSCO Energy has filed a counterclaim in the arbitration seeking approximately $880 million in damages, alleging misrepresentation of technology capabilities316 - POSCO Energy has also initiated other legal actions, including obtaining provisional attachments on revenues owed to the company by KOSPO, which has delayed payments As of April 30, 2021, outstanding receivables from KOSPO were $8.0 million312 Risk Factors Updated risk factors include ongoing COVID-19 impacts on operations and supply chains, alongside potential SBA audit and SEC inquiry risks related to the company's repaid PPP loan - The COVID-19 pandemic continues to pose risks, including potential facility closures, supply chain disruptions, increased costs, and adverse effects on the economy that could impact product demand325 - The company's now-repaid $6.5 million PPP loan may be subject to an SBA audit regarding the necessity certification, which could lead to enforcement actions, fines, or penalties328330 - The SEC's Division of Enforcement has made a voluntary inquiry requesting information about the company's PPP loan application and its relation to the company's financial condition and disclosures The company is cooperating with the request331 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered equity sales but repurchased 65,212 shares at an average price of $13.49 to satisfy employee tax withholding obligations on stock-based awards Stock Repurchases (Q2 FY2021) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Feb 1 - Feb 28, 2021 | 2,432 | $21.60 | | Mar 1 - Mar 31, 2021 | 982 | $17.51 | | Apr 1 - Apr 30, 2021 | 61,798 | $13.10 | | Total | 65,212 | $13.49 | - The shares purchased were surrendered by employees to satisfy statutory tax withholding obligations related to the vesting of stock-based compensation awards333