Earnings call transcript: HydrogenPro Q4 2024 beats revenue forecast

HydrogenPro AS (market cap: NOK 38.76M) reported its financial results for the fourth quarter of 2024, showcasing a notable revenue beat against forecasts. The company achieved a revenue of NOK 70 million, surpassing the expected NOK 52.56 million. According to InvestingPro analysis, the company holds more cash than debt on its balance sheet, though its overall financial health score remains weak at 1.65 out of 5. Despite a net loss, the stock displayed a slight uptick in pre-market trading, reflecting investor optimism about the company’s strategic initiatives and market positioning.

Key Takeaways

• HydrogenPro’s Q4 2024 revenue surpassed expectations by 33%.
• The company reported a gross margin of 41%, with a gross profit of NOK 29 million.
• Strategic cost-saving measures are set to yield NOK 40 million in annual savings.
• The company is advancing its high-pressure alkaline electrolysis technology.
• HydrogenPro is positioning itself for significant growth in the global electrolyzer market.

Company Performance

HydrogenPro’s performance in Q4 2024 was marked by a significant revenue beat, attributed to its strategic focus on innovation and market expansion. The company is leveraging partnerships with major industrial players like Mitsubishi and Andritz to enhance its competitive edge. Despite a net loss of NOK 38 million, the company’s cash position improved, with a healthy current ratio of 2.41x. InvestingPro analysis reveals the company maintains strong liquidity, with liquid assets exceeding short-term obligations. Get access to 10+ additional ProTips and comprehensive financial metrics with an InvestingPro subscription.

Financial Highlights

• Revenue: NOK 70 million, a 33% increase over forecasts.
• Gross Profit: NOK 29 million, maintaining a 41% gross margin.
• EBITDA: -NOK 44 million.
• Net Loss: NOK 38 million.
• Cash Balance: Increased from NOK 188 million to NOK 191 million.

Earnings vs. Forecast

HydrogenPro’s Q4 2024 revenue of NOK 70 million exceeded the forecasted NOK 52.56 million by 33%. This positive surprise is a testament to the company’s robust market positioning and strategic initiatives, setting a precedent for future quarters.

Market Reaction

Following the earnings announcement, HydrogenPro’s stock experienced a slight increase of 0.54% in pre-market trading. The stock’s movement aligns with the broader renewable energy sector’s overperformance, driven by the global push towards green energy solutions. According to InvestingPro data, the stock has faced significant pressure, declining 60.19% over the past year and 53.5% in the last six months. Based on InvestingPro’s Fair Value analysis, the stock currently appears undervalued. Discover detailed valuation metrics and access the comprehensive Pro Research Report, available for 1,400+ top stocks, to make more informed investment decisions.

Outlook & Guidance

Looking ahead, HydrogenPro remains optimistic about its project pipeline and technological advancements. The company anticipates completing key projects like ACES and Salco, while continuing to invest in R&D. Strategic cost-saving measures and market expansion efforts are expected to bolster future performance.

Executive Commentary

CEO Jarlath highlighted the economic viability of solar energy, stating, "Solar energy is the cheapest source of energy today, so the economy is driving it." CFO Martin Holter emphasized the company’s cost-saving initiatives, noting, "We have established a cost savings program where we’re planning to take out more than 40 million in annual savings."

Risks and Challenges

• Supply Chain Disruptions: Potential delays in manufacturing and delivery could impact project timelines.
• Market Saturation: Increasing competition in the hydrogen sector may pressure margins.
• Macroeconomic Pressures: Economic downturns could affect investment in renewable projects.
• Regulatory Changes: Evolving policies in key markets like China and Europe may impact operations.
• Technology Integration: Successful deployment of new technologies is crucial for maintaining competitive advantage.

HydrogenPro’s earnings call underscores its strategic focus on innovation and market growth, positioning the company as a key player in the burgeoning hydrogen sector.

Full transcript - HydrogenPro AS (HYPRO) Q4 2024:

Jarlath, CEO, HydrogenPRO: Good morning and welcome to HydrogenPRO’s Fourth Quarter Presentation. Today, I’m accompanied by CFO, Martin Holter, who will present the financial results. And I will now go through the quarterly highlights. The quarter is recognized by stable delivery, providing equipment to Salcos project and through that recognizing NOK70 million in revenue. The day before Christmas, we announced a capital raise of NOK140 million at a premium of 22%.

On our focus on technology improvement, the new electrode line in Denmark is now in the commissioning phase. And also, the STACK-one, as we call it, together with Andritz, is being set in operation for full scale testing. All components have now been delivered to the Salco project and we are now going forward focusing on the electrode deliveries. I’m very happy to inform that we have taken major steps in working safely and reduce accidents. Last year, we worked three sixty days without any accidents.

And thereby, by end of last year, reaching a twelve months rolling lost time frequency rate, as we call it, to zero. Most important is that no people are injured, but it also is showing the underlying work and focus on quality and behavior. HydrogenPRO is a focused company. We focus on our core products being the electrolyzer and the gas separator unit, the gas separations kit. But also in the market we are addressing, we are focusing.

We have selected large scale industry segment where we, among the project of ACES, are addressing the balancing of grid and power to gas. The same with the decarbonization of steel production with the Salco project. In addition, we do see market areas where grey hydrogen is already input in the production process to decarbonize, as example, refinery and ammonia. I have mentioned before, but again, I want to emphasize, we’re placing HydrogenPRO in the IEA world map of ongoing hydrogen projects as this is important. HydrogenPRO is one of five to six OEMs having delivered to mega projects.

This puts us in a forefront position with operational projects. Customers are asking for references and installations. And we are now taking customers to visit the site to see the deliveries that we have provided. As our two projects are among the first ones to start operations, few will have the same reference and documented performance as we will provide. Before Christmas, the financial market had more or less taken a Christmas holiday.

But with the capital injection, it was a big Christmas event for HydrogenPRO. This has changed HydrogenPRO from a founder based owner position to a company with now strong leading industrial partners in major positions. Together, the three industrial partners are now controlling 42% of the company. They are investing in HydrogenPRO because they believe in the market, they believe in the company and they believe in the technology. And together, we are now delivering two of the largest projects in the world.

It is three financially strong partners who are where we are well presented on the three main continents in North America, in Europe and in Asia. Lonje, as the newest partner between the strategic owners, are now in the process where they have delivered and applied for the overseas direct investment, which is pending for the final approval of their investment. The progress is going well, and we expect to have the completion April. As with our two other partners, we see strong synergies also with Longyear. Longyear being the world’s leading supplier in PV solar solutions and where contained solar energy, for instance, in area, providing low cost of energy.

Energy represents up to 70% of the hydrogen production. And we see solar parks with low energy cost where it’s captured and difficult to transport. And there comes hydrogen into play, where you can either develop it into value add, ammonia, etcetera. We also see synergies in the manufacturing footprint. We can optimize the supply chain.

And we also see that both companies have technically complementary good solutions. In some cases, Lonje has some technical solutions we see that we can also implement. And also in other areas, we see that we have better solutions that they can implement, as an example, the electrode technology. Lundia has also projects ongoing in Europe where they would need support in implementation and engineering and where we will sell engineering hours, implementation and commissioning hours to launch projects. So we see a synergy in how we deploy our organization together.

The funding side is undoubtedly important. But in addition to the capital side of the investment, the Partnership puts us also in a much stronger position towards the customer. HydrogenPRO is focusing, as I mentioned, in the core delivery of the electrolyzer, the gas separation unit, the electrodes and the assembly. But the customers, they are asking for more. They are asking for EPC.

They are asking for full balance of plant, areas that a company like HydrogenPRO would not be able to support or supply by itself. Together with our partners, we can now go in and we are going in and supplying and providing the full scope, which is also giving the project and also HydrogenPRO a much better bankability. In addition, partners like Andritz and Mitsubishi are already preferred supplier to their customer in other verticals, who are looking at decarbonization and also entering into the hydrogen space, which SALCO again is a very good example of. Also going up the value chain, we see that synergies can be realized on the supply and manufacturing side. And we are now exploring these together with our new partner, Longy.

And in Europe, we have a joint assembly together with Andritz, reducing the capital burden of HydrogenPRO, but expanding the capability and the capacity. Although we are focusing on the large scale market, we do see that we have several projects, which are in beginning or at a smaller scale. So do not forget JHK. Maybe not as large as the three others, JHK has already a good foothold with smaller entities in the private and public sector on energy supply and electrical equipment installation and who they are now working on decarbonisation and or hydrogen distribution. To illustrate the type of partnership we are developing, common for all these three partners is that they are committed to the energy transition and to hydrogen.

Mitsubishi, in addition to the initial investment in developing the ASUS project, they have also invested several hundred million in the Takasako plant in Japan, where HydrogenPRO’s electrolyzer is a vital part in the world’s first integrated validation center for hydrogen related technologies, covering hydrogen production, storage and utilization. Longey is investing in the diversification from solar to hydrogen as their commitment to carbon reduction. Andritz is at the forefront of the green transition, integrating environmental awareness with technological innovations. They are investing in the entire value chain from carbon capture, green hydrogen production to e methanol and e ammonia. We are clearly in a time with uncertainties and unpredictability.

As most others, I do also not have the answer to the outcome of the current geopolitical tensions. But Hydrogen Pro has made several proactive messier to maneuver. In today’s uncertainty with the market slower than expected, increased competition from Chinese OEMs and also an increase on focus on track record, safety, reliability and documenting the technology. So we can only focus on maneuver with the uncertainties. And we have taken already steps and actions.

And HydrogenPRO has like HydrogenPRO has a small headquarter in Oslo, combined with a cost leading supply chain positioned also in a global scale. We have raised capital from strategic partner at a premium. We have a strict capital discipline, both in what we have already invested in manufacturing capacity in China and Denmark, but also by postponing U. S. Expansion as it was originally planned.

We have entered into the partnership with Andritz. We are now entering into the partnership with Longey to strengthen competitiveness further. We are delivering to two of the 10 largest projects globally, excluding China. And we are offering well documented high pressure alkaline with advanced electrodes. Hydrogen is lagging according to previous expectations.

But there is a huge overperformance in the renewable sectors of Solar and Wind, which will also drive the hydrogen development. The need for stabilizing and utilizing the variability in the Renewability sector is where is hydrogen medium in a steady supply. For instance, within storage and also in periods with negative pricing, hydrogen will be an element for evening out the energy transmission. And also, decarbonizing is driving hydrogen projects going forward. China is leading the way and recognized by our partner, Lonji.

The previous estimates from reaching net zero emission in 02/1950 has come down, which also has impacted electrolyzer deliveries. But we do still see that the global market is very large. Actually, the next two years, global electrolyzer deliveries are expected to be close to 20 gigawatt during this year and next year, which again translates to more than NOK 50,000,000,000 in the same period. China is by far the largest market, but we still see significant volumes in the rest of the world, particular in certain areas of Europe, Germany, Spain and also other Nordic areas, are growing more rapidly than many other regions. India also being an example of where we see growth coming.

And despite the slowdown, I do remain positive. The total number of projects in our pipeline has not increased. But the increase of prioritized project is a clear sign that projects are maturing and getting closer to FID. And based on how I see the development of these projects, this is the main reason for my now higher optimism entering 2025 than what I was in the beginning of 2024. The European Hydrogen Bank announced last fall, EU funded projects will have to fulfill certain criteria for European manufacturing in order to qualify to obtain the funding.

We have gone carefully through the criteria and we see that with our setup of assembly in Germany, electro production in Denmark, there are only minor changes in our current supply chain that we need to change or alter. Also, our suppliers in China have alternative supplies outside China if it needs to come from outside China that we can draw on. With that, we can continue to utilize also our plant in China for some of the production and also then combined with supply in rest of Europe. So let me state clearly, with our setup, we are complying to the European Hydrogen Bank requirements. As I mentioned in the beginning, we are continuing to focus on product and technology enhancement.

Compared to substitute technologies, we are with our high pressured and electrode technology positioning HydrogenPRO in a superior position. With further design improvements, we are also improving the operating cost of the electrolyzer with the best capability. Based on this, again, we have delivered two of the largest projects. And an update on the project execution. We are continuing with stable delivery and the project execution is going well.

As referred to again in my first one of my first slide, HydrogenPRO being among the five, six suppliers of mega projects in the world, being this, ASUS and the SATCO project. And the development of this project is that we will then be among the first to commission and operate mega projects. The ASUS project is in commissioning. It is a large and complex project. And the final commissioning might be late compared to the initial information.

But we have delivered all the equipment. It’s placed in at site. It’s installed. We have our commission engineers at site. And any delays in start up compared to early announcement is not related to HydrogenPRO delivery.

For the Salco projects, there was a groundbreaking ceremony that took place five days ago and this is also running well according to plan. We do put a lot of effort and resource into enhancing our technology. And one of the major things that we are doing and an important milestone in this is the production of Generation III electrodes. And here, we are now in the start up phase of the project and preparing for full production. The project is on time and below budget.

Another example of our focus on technology improvement is the full scale production at Hawea, which is also now in the start up phase. The electrolyzer is being electrified this week and will then run for approximately one month. The electrolyzer is equipped with 50% of the Gen III electrodes and 50% of the conventional Generation II electrodes. So we have a direct comparison. It also has an improved design for LifeFlow, which will further enhance the performance.

And this is the first electrolyzer as it’s made, which will then be delivered to Salco after the validation. With this, I would now like to hand over to Martin to go through the financials. Thank you.

Martin Holter, CFO, HydrogenPRO: Thank you, Jarlath. Then I will walk you through the fourth quarter financials. So during the last quarter in 2024, HydrogenPRO generated revenues of SEK70 million. The gross profit, which is measured as revenues minus Direct Materials and that $29,000,000 which equals a gross margin of 41%. EBITDA ended at minus $44,000,000 and the net loss was $38,000,000 So then comparing with the third quarter last year, the revenues are CHF2 million lower while the gross profit is CHF10 million higher.

And the major explanation behind that is that we have in the fourth quarter recognized less costs on the ASES project compared to the third quarter. Personal expenses was CHF 42,000,000 in the fourth quarter compared to CHF 40,000,000 in the third quarter. And if we then look at the other operating expenses in the fourth quarter, this was at CHF 31,000,000 or SEK13 million higher than in the third quarter. So SEK6 million of this increase is related to a reversal of a provision that took place in the third quarter. And then the remaining 7 out of that 3,000,000 is mainly related to professional services in connection with the capital race we announced just before Christmas and the remaining 4,000,000 is related to mainly related to an increasing operating expenses at our factory in Tianjin.

We have initiated some cost measures already but the bulk of this will now come into effect during 2025, later this year. And I will get back to that later now in the presentation. Then let’s look at the development in the liquidity position during the quarter. So the cash balance at the start of the fourth quarter was at NOK188 million and it ended at SEK 191,000,000. So an increase of SEK 3,000,000.

And bear in mind, this does not include the private placement, which was announced just before Christmas. So the first SEK70 million was settled now in January and that’s from Andres and Mitsubishi. And the remaining SEK70 million equity injection by Laundry, which is then contingent upon approval by the Chinese authorities, is expected to be settled now in the second quarter of this year. So the changes then in the cash position were as follows. So the EBITDA came in at minus CHF44 million.

Changes in net working capital had a positive impact on the cash situation of CHF58 million mainly related to payments on the Solkos order. And then we had investments in Denmark of NOK9 million in the quarter. And the expansion now in Denmark has been completed now in February on time and below budget. This is a slide I have presented before and I want to repeat it now because it’s important for us to convey this message. We see also that we differ from a lot of the other companies in the electricizer sphere with our very keen focus on capital discipline.

As Jarl alluded to the market is more challenging right now and it’s important to be even more conscious on spending. Throughout Hydropro’s history we have demonstrated a strict capital discipline with a sound foundation in place. We have chosen one core electrolyzer technology large scale high pressure alkaline. So a focused offering that is scalable to meet different project sizes and we couple this then with strong partners. So this platform gives us operational leverage where we can grow and maintain a lean global organization.

And not the least, we have a cost competitive supply chain. So if combining this foundation with a list of focus areas So we can rather quickly adjust some of the cost base in line with the project activity as we will now do in Tanden. We will reduce the running cost in our manufacturing site there. The expansion in Denmark was delivered on time and below budget. And our top priority is to invest to spend our funds to invest in technology to be to take a position as a technology leader.

And our high R and D activity is largely enabled by R and D grants. So very conscious spending and we’ve tried to then, of course, seek as many R and D grants as possible to keep the activity level high. And lastly, we focus on retaining a sustainable net working capital when we take on new contracts. So given the slow market we’re facing, we’re now taking some additional measures to meet this situation. We have established a cost savings program where we’re planning to take out more than 40,000,000 in annual savings.

This will be implemented now and it will consist of downsizing in Europe, reduced use of external consultants. We are bringing down the activity and cost level in Tiandin in line now with lower production activity. And lastly, we will keep our Shanghai office in a dormant position only now. But important to say, while we’re taking down the costs, we need to keep some core competencies in place to deliver. In this company, there is a lot of special competence and experience which is extremely valuable and we need to keep that afloat when the market improves.

So with that, that concludes the presentation. And now over to Q and A. So please join on the stage, Jarek.

Christian, Moderator/Analyst: Thank you. We have received some questions related to your presentation. And I think I’ll start out with questions related to your projects. And one is very concrete, and that is, is the Cooper NSC project in Kristina Stad among the cancellations?

Jarlath, CEO, HydrogenPRO: Well, as I said, I’m optimistic for this year in terms of maturity of the pipeline, as I showed you. But we are never commenting on specific projects and development, not because of our own position, but from the customer perspective. They are deciding on what to be communicated and not communicated related to their progress. So I cannot comment specifically on this project, but remain positive.

Christian, Moderator/Analyst: Okay. But then you also answered a couple of other questions related to your backlog and contracts. But it’s one more also one more concrete questions related to the DG fuels. What are the standing on that project now?

Jarlath, CEO, HydrogenPRO: With DG fuel, I can also only relate to what is publicly announced. And it’s announced and we know that they are working to conclude the FELL3 study and coming to the final FID within the next quarter. We also know that the Louisiana project will be blue, but we also know that they are working with other green hydrogen projects in Maine and Minnesota among others.

Christian, Moderator/Analyst: And then a question related to the emission done in December. There were 12,700,000.0 shares issued, of which 3,700,000.0 were allocated 200 and to Mitsubishi, respectively. Why were there an additional 5,300,000.0 shares issued at this point?

Martin Holter, CFO, HydrogenPRO: Yes. So there is a limit in terms of the number of shares that can be registered. So it’s up to 20% of the share capital during a twelve months rolling period. So we are now in a process of submitting a prospectus to have all of the shares then call it approved and registered. So once that prospectus is approved, all of the 12,700,000.0 shares will be registered and call it part of the share capital.

Christian, Moderator/Analyst: As a part of the emission in December, it was also communicated that there might be a compensatory emission. Why has there been no communication regarding this?

Martin Holter, CFO, HydrogenPRO: Yes. So we’re currently assessing that situation, whether we will go forward with subsequent offering or not, and we will get back to the market in due course on that. But of course, the share has now traded sort of below the issue price for quite some time. So that’s one of the considerations to make in that respect.

Christian, Moderator/Analyst: A question related to the manufacturing capacity that is building up in Denmark. What is your factory utilization rate for your Advanced Electrodes in Denmark in 2025 given your recent orders booked?

Jarlath, CEO, HydrogenPRO: Well, as we have informed, we will supply the Saalco project with the Generation III electrodes. So for the first half year and well into third quarter, we are fully booked of that operation.

Christian, Moderator/Analyst: Is the increased electrode building capacity connected with expectation that Longi is ordering HP (NYSE:HPQ) electrodes for their orders or sales?

Jarlath, CEO, HydrogenPRO: I think it’s natural that once we start talk about incorporation and they are investing in the company, as I mentioned, we have technology that we see that there is synergy with them and vice versa. And obviously, our electrodes being one of the, let’s say, major assets we have on the technology side. It’s still early in the phase of, shall we say, all the details of the corporation, But it’s natural to be part of the discussion.

Christian, Moderator/Analyst: You also mentioned that something about your supply chain, and it’s one question that states as follows. When will you make your minor necessary adjustments to your supply chain?

Jarlath, CEO, HydrogenPRO: We are doing that continuously. And it will depend on the project. With a project funded by the European Hydrogen Bank, the adjustment is not a matter of any investment or building capacity. This is a matter of where we are being supplied from the components that we are not making ourselves. So again, we are assembly in Germany.

We are making an assembly and coating the electrodes in Denmark. And the rest are just minor adjustments together with our mostly current suppliers.

Christian, Moderator/Analyst: Christian related to your cost saving initiatives. What are the costs for your cost reduction measures?

Martin Holter, CFO, HydrogenPRO: Yes. So, I would say we have, as we mentioned also in the presentation, a flexible supply chain set up with our manufacturing site and being sort of the major cost driver with regards to supply chain cost. And we will reduce that cost now during the next few months as the activity level will be reduced in at our factory in Tianjin. So I would say very little, call it additional costs with regards to cost reductions. And I’ve also it’s also externally known that we have done some layoffs in our temporary layoffs in our organization in Norway.

So that’s the status for the time being. So some meaning very limited additional costs to implement these cost measures.

Christian, Moderator/Analyst: Regarding investors in general, who are Clearstream and what are your relationship?

Martin Holter, CFO, HydrogenPRO: Clearstream is a nominee account mainly then consisting of both institutional and retail investors, mainly in Germany. So again, that account consists of several different investors. Not much. It’s hard for me to give that breakdown further. But as you might be aware, there is now a new regulation in place on February 1.

So we will also now open up, of course, for requests in case external stakeholders have questions regarding the ultimate owners behind the nominee accounts.

Christian, Moderator/Analyst: Another question on the backlog. It might be you are not able to answer it, but I’ll put the question anyhow. How much of the NOK305 million order backlog is for 2025 execution?

Jarlath, CEO, HydrogenPRO: Well, we disclose the total backlog. We are not breaking it into the years. We have our assumptions. But it all depends on when it will mature and materialize in an FID by the customer. So obviously, as soon as we have any further development on that, we will inform on that.

Martin Holter, CFO, HydrogenPRO: But if they are referring to backlog and not pipeline, the three zero five million backlog, that is now remaining related to the SolCo’s delivery during this year mainly or this year. And the remaining chunk of that is mainly related to the ACE as a service, call it, after sale and service contract, which is primarily linked to a large overhaul, which will take years, several years down the road, say, eight to ten years down the road.

Christian, Moderator/Analyst: Then a couple of questions in the end related to the more common perspective of the market. And one question is there are voices saying a consolidation in the electrolyzer market may come and only five, maximum 10 Western companies will survive. What is your opinion about that?

Jarlath, CEO, HydrogenPRO: Well, I guess my speculations will be as good as the other speculations that it’s natural in an oversupplied market as it’s described now, that consolidation is part of that. I think we have already shown that we have taken measures with our now partnership with Longi. So we have already taken measures, and we will now see how we can utilize the manufacturing footprint together.

Christian, Moderator/Analyst: And then it’s related to the they call it the elephant in the room, is heading out the question. What are your take on the green transition in relation to the development in the world at the moment? Trump, Ukraine, etcetera?

Jarlath, CEO, HydrogenPRO: I think it’s important to have more than one thought in the head at the same time. And we also see, particularly in Europe, that the politicians are talking about, yes, we have some immediate and urgent issues to handle. But at the same time, they are devoting time, energy and also resources that we have seen now with the latest funding sources provided with the German government to build, for instance, European manufacturing. So the the my take is that the politicians are still obviously concerned about the climate change, about the energy transition. But I think the most important is not just the political environment.

I showed you the picture of the development in the renewable sector, solar and wind. This is going on beyond anyone’s expectations, also the politicians. Solar energy is the cheapest source of energy today, so the economy is driving it. But it’s not stopping there. As I said, with overproduction on solar and also wind, you have to store that energy and you have to also even it out as it’s fluctuating.

And there is where hydrogen is coming in.

Christian, Moderator/Analyst: Okay. Thank you. I think that concludes the Q and A session.

Jarlath, CEO, HydrogenPRO: Thank you.

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