Fusion Fuel Green PLC Q4 FY2023 earnings call

Key Points

• Received two purchase orders totaling €4.2 million for 1.25-megawatt systems in Portugal, including supply of HEVO-Chain products and EPC services.
• Entered a securities purchase agreement with Belike Nominees, a Macquarie Group Company.
• HEVO-Portugal Project was designated as an Important Project of Common European Interest (IPCEI).
• Raised €5.9 million through an ATM facility in February, with significant trading volume post-IPCEI award.
• Awarded over €1 million grant from the European Commission as part of the H2tALENT consortium.
• Operating costs decreased for the fourth consecutive quarter, with reductions in personnel-related costs and further adoptions in legal, travel, and consulting fees.
• 2024 priorities include delivering 6-7 full HEVO Chain systems to southern European clients, certifying the solution for North America and Australia, strengthening the balance sheet, continuing cost reduction efforts, and pursuing strategic partnerships.
• HEVO Chain commercialization is ongoing, with strong interest, weekly proposals/designs, and a client with multiple projects in the pipeline.

In the fourth quarter of 2023, Fusion Fuel Green recognized €1.6 million in revenue from manufacturing and supplying a hydrogen production system to CSIC. Additionally, there were €0.6 million of inflows that didn't meet revenue recognition requirements in Q4 but will be recognized in 2024. The company recorded a net increase of €6.4 million to inventory impairment provision and a €3.3 million impairment charge on a development project. Revenue contribution from the CSIC project was a key segment, with other inflows and impairments impacting the overall financials for the quarter.

Guidance Details

• Maintained 2024 revenue guidance of €34 million, with €7.3 million already contracted and remaining from ongoing negotiations. Some negotiations are extended due to IPCEI progress but are more significant.
• Forecasted SG&A costs for 2024 are between €14 million and €16 million, and CapEx is between €8 million and €10 million.
• Aiming for cash flow self-sufficiency by the end of 2025 if the business plan is executed successfully.

Risks Identified

• Biggest risk is the time taken to convert tender stage to signed contracts and project execution, especially with increased negotiations due to IPCEI interest.
• Delays in regulatory changes or market dynamics could impact project timelines and revenue recognition.
• Uncertainty around the pace of market development for green hydrogen, which could affect the realization of growth plans.

Q: Whether the company has reviewed and adjusted its U.S. ambitions as a result of the 45V guidance update of the Inflation Reduction Act?

A: Guidance is more stringent than expected, but the U.S. and North America remain near-term priorities with ongoing commercial discussions.

Q: Can you discuss gross margin expectations for 2024?

A: For 2024, gross margins are expected to be in the region of 15% for projects including HEVO Chain, balance of plant equipment, and EPC services; expecting average to increase closer to 20% in 2025 as production volumes at Benavente facility increase.

Q: What are the main risks to hitting our 2024 guidance, and what potential mitigants are there?

A: Biggest risk is time in converting tender to contracts. Mitigant is a strong project pipeline and prudent guidance to realign revenue if delays occur.

Q: What are the next steps or milestones to keep an eye out for with respect to the IPCEI project?

A: Firming up negotiations with partners, discussions with Portuguese government and EIB, with concrete guidance likely in months, and it will be a long-term value driver but not a 2024/2025 success driver.

Q: What is the demand and feedback for the HEVO Chain solution?

A: Interest is high, with proposals/designs for new plants/projects nearly weekly, client momentum with multiple projects in the pipeline for existing clients.