FuelCell Energy Inc (FCEL)

[AgeOfReason]

I have searched for, but have not found, the words "we are going to exceed expectations moving forward" in any FCEL conference call nor in any press release or SEC filing by FCEL. Please provide a specific source from FCEL for the quote.

In a number of posts I have read expectations of FCEL's expected future EBITDA, but note what FCEL itself says. FCEL states in some of its Updates, such as on page 14 of the Update dated June 2020, that FCEL has the fiscal year 2022 target to "Deliver Positive Adj. EBITDA". Page 14 also says FCEL has a future goal (apparently for AFTER fiscal year 2022, instead of for fiscal year 2022, judging by the context) of achieving "Positive EBITDA" and "Positive Free Cash Flow". "EBITDA" and "Adj (Adjusted) EBITDA" are not the same thing. The latter is an adjustment of the former.

For example, https://corporatefinanceinstitute.com/resources/knowledge/valuation/adjusted-ebitda/ says:

"Adjusted EBITDA is a financial metric that includes the removal of various one-time, irregular, and non-recurring items from EBITDA. EBITDA or Earnings Before Interest, Tax, Depreciation, Amortization is a company's profits before any of these net deductions are made. EBITDA focuses on the operating decisions of a business because it looks at the business’ profitability from core operations before the impact of capital structure. ... The purpose of adjusting EBITDA is to get a normalized number that is not distorted by irregular gains, losses, or other items."

Page 22 of FCEL's Update dated June 2020 (in the company's "GAAP to Non-GAAP Reconciliation") shows that Adjusted EBITDA is indeed an adjustment of EBITDA, for it shows the difference between EBITDA and "Adjusted EBITIDA" for FCEL, for the three months ended April 30 of the years 2020 and 2019, and of the six months ended April 30 for those same years. Interestingly that reconciliation states the dollar amount of the "depreciation and amortization" of the company's "Generation portfolio" for those three month and six month time periods.

FCEL is known to have irregular losses (which sadly happen so frequently on its financial statements, that though the amounts may vary, they are a fairly regular occurrence). For examples note the "impairment charge for the Triangle Street Project" and the "impairment charge for the Bolthouse Farms Projects" (stated in the Fiscal Year 2019 on Form 10-K, on page 64), and the the charge pertaining to the "change in fair value of common stock warrant liability" (whatever that exactly means) in regards to warrants issued to Orion (that is listed in each of the last two reported quarters, as stated in their respective quarterly reports in the income report section). These matters are important to keep in mind if we all to have realistic expectations of FCEL's future financials.

Based on FCEL's own official printed statements (which I accept as accurate to the best of FCEL's knowledge) I don't believe FCEL will be profitable prior to fiscal year 2022 on a net income basis, on a free cash flow basis, on EBITDA basis, or even an Adjusted EBITDA basis. However, I do hope that they do become profitable on each of those bases.

On the other hand, for the fiscal quarter ending January 31, 2020 FCEL did report a loss from operations of only -$3.140 million, a positive EBITDA of $1.490 million, and negative Adjusted EBITDA of only -$0.222 million. So maybe FCEL might report a gain/profit on an EBITDA basis and/or adjusted basis (and/or on an operations basis) for the fiscal quarter which ended on July 31, 2020. The good numbers pertaining to the loss from operations, the EBITDA, and Adjusted EBITDA for Q1 2020 gave me hope that Q2 2020 would have a profit from operations, positive EBITDA, and positive Adjusted EBITDA for Q2 2020, but sadly none of those hopes were fulfilled. [Those numbers for Q2 2020 were -$8.1 million, -$3.67 million, and -$3.295 million respectively.] But maybe Q3 and especially Q4 will be much better in those regards. After all, in a press release FCEL announced on June 22, 2020 that the company "has resumed manufacturing at its Torrington, CT facility." Furthermore the Groton project is now likely completed (or at least likely very nearly completed); in the most recent FCEL conference call the company said the generation maintenance cost in Q2 2020 [which contributed to Q2 2020 generation costs being unfortunately greater than generation revenues], will likely be much lower in later quarters; and if the gross margin from the generation of the Groton plant will be positive (namely if generation costs for that plant will be less than the plant's generation revenues) in Q3 2020 and in Q4 2020, that will help make those quarters more profitable than Q1 and Q2 of 2020.

I also hope, and think it might be plausible, for FCEL to report an income from operations (not net income) when they report their financials in September 2020 (next month) for fiscal Q3 2020 and/or for the fiscal Q4 2020 financial report (in January 2021?). If they achieve that, that would be a huge accomplishment and should reassure some prospective new customers that FCEL will not go out of business. If some prospective future customers of FCEL become reassured of that, it will likely result in FCEL getting business from new customers.

I suspect that the main reason, other than the problem with POSCO in regards to the North Korea market, as to why FCEL has not received new customers in quite some time, is due to the likely concern of prospective future customers of FCEL (in my opinion) that FCEL might go out of business within 20 years , or even within 5 years, and thus not be able to service and/or operate FCEL's equipment for them (if they were to become new customers of FCEL). That is an important matter due to the expense of the equipment and due to the fact that when FCEL makes a PPA ("Power Purchase Agreement") for each of its generation power plants, the contracts/terms are typically for 15 to 20 years [and the PPA terms for all of the currently in progress generation projects are for 20 years]. For documentation of the duration/term of the contracts, see page 17 of the Update dated June 2020.

Even if FCEL were to sell products to new customers (instead of obtaining new customers for FCEL's generation plants), potential new customers would still want to be confident FCEL will be in business for many years to service the equipment (or to have its partners service it on behalf of FCEL for the new customers).