In New York, Cowen reports disappointing 4FQ results for FuelCell Energy which “reflects the lumpy nature of the company’s project timing”. Cowen reports they don’t expect clarity around future project start dates after seeing delays continue to emerge in Groton, noted a favorable settlement with POSCO secured $60mn in Product sales in 2022, and that they are no longer as optimistic about the early 2022 outcome of the recent CT Bill but see March 2022 investor day as next catalyst to shares.
Key Takeways From The Call
(1) FCEL shares sold off after earnings were released due to the miss in the quarter as well as outlook for elevated expense and capex guidance in 2022 of $45-$55mn in R&D and $40-$50mn in capex. Management is leaning into SOFC which had previously largely been funded by the Dept. of Energy but will now weigh on EBITDA improvement. We had previously expected the company to be nearing or at Adjusted EBITDA breakeven exiting 2022 but no longer anticipate this to be the case in light of the elevated expense outlook. We look to the virtual analyst day in March for additional details on the company’s ever elusive path to profitability.
(2) The CT House Bill 6524, HERE, on expanding the solicitation process for new fuel cell generation projects in the state is no longer expected to be as advantageous to FuelCell Energy as anticipated. The implementation of the bill did not play out as expected and ultimately became an REC-only program. Management indicated that their bids are now likely to be too conservative. Note that the legislation requires RFPs for 30 MW of total fuel cell capacity to be selected by January 1, 2022. REC and fuel risk already compound a higher cost of capital for financing for fuel cells relative to more mature technologies such as solar, wind, geothermal and battery storage. While we acknowledge that green hydrogen will mitigate some of the fuel risk over time, management’s lower confidence in the company’s outcome in the overall process takes away a potential positive catalyst that we saw playing out in early 2022. Note that the company had originally been optimistic about their positioning from a bid perspective given their fuel cells are manufactured in CT and their track record of projects in the state. At the federal level, now that the Build Back Better Plan is no longer moving forward, the potential to benefit from carbon capture or hydrogen production tax credits is also no longer on the table.