The company also announced its new "Powerhouse" business strategy
Shares of FuelCell (FCEL) are sliding on Wednesday after the company reported wider than expected fourth quarter losses per share and revenue that came in below consensus estimates. During the earnings conference call, CFO Michael Bishop said that "revenue declined primarily due to lower product sales," which was coupled with the "decline in activity in the South Korean market due to the continuing situation with POSCO Energy [PKX]."
RESULTS: On Wednesday, FuelCell reported fourth quarter losses per share of (23c) and revenue of $11M, both missing consensus of (11c) and $11.51M, respectively. "Our results in the fourth fiscal quarter and the full fiscal year reflect our focused execution on right-sizing FuelCell Energy, exiting opportunities that did not meet our margin objectives, and positioning the company for growth in 2020 and beyond," commented Jason Few, President and Chief Executive Officer of FuelCell Energy. "We accomplished a number of strategic initiatives to strengthen our balance sheet and improve our cost structure as we focus on delivering our significant project backlog, which is expected to result in recurring cash flow from our generation assets."
During the earnings conference call, CFO Michael Bishop added that, "Overall, for the fiscal year and the quarter, revenue declined primarily due to lower product sales. […] this is partially attributable to our previous strategic decision to focus on utility-scale power purchase agreements or PPA opportunities to grow our generation portfolio rather than selling our projects outright. This was also coupled with the decline in activity in the South Korean market due to the continuing situation with POSCO Energy."
DISPUTE WITH POSCO: President and CEO Jason Few discussed the ongoing dispute with POSCO during the company’s earnings call, stating: "I want to take a minute to address POSCO. We have made numerous attempts to engage with POSCO Energy to address the need for deployment of carbonate fuel cell technology in the Asian market in accordance with the requirements of our manufacturing and technology transfer agreements, our understanding of the desire of the South Korean government to advance fuel cell and hydrogen technology and the needs of the Asian market, but have made little progress to date."
"In November 2019, POSCO Energy spun off its fuel cell business into a new entity, Korean Fuel Cell Limited, or KFC. As part of the spin-off, POSCO Energy transferred manufacturing and service rights under our manufacturing and technology transfer agreement to KFC, but retained distribution rights, including trademarks and severed its own liability under our manufacturing and technology transfer agreements. We believe that these actions are all a material breach of the terms of the manufacturing and technology transfer agreements and are effectively a misappropriation of the company's intellectual property."
"We have formally objected to the POSCO Energy spinoff, and POSCO Energy has posted a bond to secure any liabilities to FuelCell Energy arising out of the spin-off. In light of this situation with POSCO Energy, we are evaluating all of our options with respect to our relationship and agreement with POSCO Energy, POSCO Energy's material breach of its obligation under our manufacturing and technology transfer agreements and the misappropriation of our intellectual property. It is important to note that the transformation, strengthening and growth of our business is happening and will continue to happen despite our relationship with POSCO Energy. We plan to aggressively pursue resolution as we will not allow POSCO Energy to continue to deprive the Asian market of our technology."
NEW 'POWERHOUSE' BUSINESS STRATEGY: In a separate release on Wednesday, FuelCell Energy announced its comprehensive strategy to strengthen its business and maximize operational efficiencies, which is expected to enable the company to capture future growth opportunities by executing of its core business, focusing on customer relationships, delivering on and expanding its project backlog, and developing and commercializing new technologies with it partners. FuelCell Energy's new "Powerhouse" business strategy is focused on the fundamental pillars of Transform, Strengthen, and Grow.
PRICE ACTION: In afternoon trading, shares of FuelCell have drooped almost 26% to $2.14.