Nel ASA (NEL) Earnings Call Transcript & Summary

Good morning from Oslo, Norway, we are ready to present our second quarter 2026 results. My name is Hakon Volldal, I am the CEO of Nel and I'm joined today by our CFO, Kjell Bjornsen and our Head of Communications, Marketing and Investor Relations, Wilhelm Flinder. We have the following agenda. Nel in brief, we will skip and we will go to the second quarter highlights by a commercial update, a technology update and as usual and with the Q&A session. In the second quarter, we generated NOK 153 million from contracts with customers. We ended the quarter with a negative EBITDA of NOK 55 million. The order intake ended at NOK 230 million order backlog at NOK 1.2 billion and a cash balance at NOK 1.3 billion. Some of the highlights in the quarter were the following: We launched our new pressurized alkaline platform, what we call the PA series on May 8. We'll come back to that later. We also progressed a new manufacturing line for this technology at area according to plan and we received 2 purchase orders for containerized PEM solutions, each worth approximately $7 million. Looking at the group financials. Revenue from contracts with customers NOK 153 million, down 12% year-on-year. Alkaline revenues declined by 14%, whereas PAM revenues were down by 10%. Total revenue and income, NOK 182 million versus NOK 215 million last year. EBITDA ended at NOK 155 million versus NOK 86 million last year. And this is driven by the settlement with Ibatani. If we adjust NOK 470 million EBITDA was flat versus second quarter last year. And of course, this also impacts EBIT and pretax income, et cetera. So adjusting for the one-off settlement with IvaTani, all figures were actually in line or better than last year. Looking at outline financials. There has been a decline in revenues on the alkaline side. It's not surprising because we have had a few orders for our atmospheric alkaline technology. And that's why -- we have launched a new platform, and it will take a few quarters for orders to materialize and to turn orders into revenue. So this is development, which is expected, not appreciated. But again, the reason we're launching new technology is to bring these numbers back to the 2024 level where the business was EBITDA positive. In the quarter, we had NOK 56 million from customer contracts in revenues and NOK 28 million negative EBITDA. This quarter included NOK 27 million in R&D expenses compared to NOK 18 million in the second quarter of '25 million, explaining some of the difference. In PEM, we have more stable revenues and higher revenues. There is solid demand for our containerized PEM solutions. -- which means we had better revenues in the second quarter of '26 than in the first quarter, still slightly down 10% versus last year. largely driven by kilowatt-type electrolyzers. So the small, what we call SH and C Series electrolyzers for industrial applications and the megawatt type installations had lower project revenues in the quarter. We had also lower other income in the quarter due to delayed or canceled research grants in the U.S. Some of the programs have been reinstated and will be a positive effect in the second half of '26. Also this quarter included NOK 33 million in R&D expenses compared to NOK 33 million in the second quarter of '25. So we keep a steady progress on the R&D side. More orders are needed also on the PEM side to break even, especially megawatt scale projects. Order intake and backlog. Order intake in the quarter ended at NOK 230 million, and that up significantly from a weak quarter in '25 and also significantly up versus the first quarter in '26. With NOK 230 million in order intake and NOK 150 million in revenue. We have then increased our order backlog to NOK 1.2 billion. And as you can see from the bar chart, most of the order backlog is comprised of PEM orders. You can also see on the left-hand side that the dark bars indicate that in recent quarters, we have mostly received orders for our PEM solutions. If orders are not high enough, we need to compensate by controlling expenses. And that's why we have reduced our head count from 430 down to 313 million. mostly in production and project delivery. We have kept on most of our R&D people. This means that personnel expenses are down in the quarter versus last year and of course, versus the peak back in Q3 of 2024. On to the commercial update. Our market perspective is somewhat unchanged from the previous quarters. We continue to see several promising smaller projects and some larger projects in the 50 to 150-megawatt range. These projects are expected to take final investment decision over the next quarters. We see strong momentum for containerized PEM solutions, anywhere from 1.25 to 10, 15, 20 megawatts. And the reason we see a strong demand for these type of solutions is that -- most projects have become smaller or start with the first build-out phase in the 10 to 50-megawatt range, which fits nicely with our containerized PEM offering. Multiple containerized payment solutions offer a proven efficient and standardized alternative to customized solutions. And because we have managed to bring down CapEx considerably, combined with a growing list of references, this also increases nails competitiveness in the market segment. Pressurized alkaline has received concrete interest, and there are several active and ongoing customer dialogues. However, it's still early phase, and we need some more monthly for the first orders materialize. Europe is currently the most active and promising region for Nel and I guess most other electrolyzer OEMs, but there were also some projects progressing in North America, the Middle East and Asia. In the quarter, we received a $7 million purchase order for containerized PEM equipment. This is from mature process in France, valued at $7 million, its the second purchase order from this customer. And we will supply our measured process will supply hydrogen refueling stations and industrial applications in Europe with hydrogen. Another nice win in the quarter was with Douglas County in the U.S. This is the first system sold that will be owned and operated by a public utility or as you said, the first Nel system sold. The electrolyzers will operate near our hydropower plant and the equipment will be used to utilize excess power to balance the grid and to be used for other high-value applications. This reduces the need for mechanical adjustments to lower wear and maintenance on the turbine units and associated equipment. So a nice and interesting application for this equipment in the U.S. We have also expanded our technology partner network. We have signed a frame agreement with the leading power electronics partner, SMA Tenco for Penn atmospheric alkaline and pressurized alkaline platforms. That means we have on supplier covering all our different platforms with Power Electronics. We have signed agreements with container integrators across the U.S. and Europe, delivering plug-and-play PEM containers similar to the ones we showed on the previous 2 pages. We've also entered into contracts with PEM stack component manufacturers and new agreements with best-in-class partners delivering novel components for our PEM stacks. So a lot happening in the quarter on the partnering side. We continue to progress our solutions together with our strategic EPC companies, Samsung, E&A and in Samsung ENA has recently completed its 100-megawatt wrap for our new pressurized Alkaline solution, what they call the Compass -- as -- that means Samsung ENA can now offer a 100-megawatt or larger bankable solutions across all of Nel's megawatt platforms, atmospheric alkaline, pressurized alkaline and PEM with long service agreements and full system guarantees. Saipem, we continue our close collaboration with Saipem is offering its IV100 replicable and scalable full-scope electrolysis solution with sizes from 20 megawatts up to several hundred megawatts and more based on Nesatmosseric alkaline technology, and we're also working to expand partnership with Saipem to cover other platforms. We have a strategic partner in India called Reliance. They have an ambition to produce electrolyzers for captive use in India. The project to establish a Gigafactory in India remains under development with key supplies for its production facility contracted the planned construction is expected to commence in this year. Nel and Reliance continue to work closely with dedicated teams on both sides, driving the project forward. So again, a very interesting development with Reliance in India that we hope will materialize and bring significant profitable revenue growth for Nel in the years to come. On the technology side, we had a big happening in Norway in early May. That's when we launched our new pressurized alkaline platform, which we call the PA series. Just to remind the audience why we have launched this product, besides having something new to show to our customers, we need to bring the order intake up, we need to get back to the levels we saw in '22, '23 on the revenue side. In order to do that, you need a compelling product offering. The new pressurized solution, we said had to improve energy efficiency over the old platform. We needed to bring the system footprint down. We needed to remove the building for the electrolyzers because that building can be quite expensive. We wanted to dramatically reduce project engineering hours and site work because hours can constitute up to 50% of the total CapEx for the customer. We need to enable a wide operating range where in for instance, Europe with today's energy system, you need to be able to turn the system down to, let's say, 10%, 20% load, and you also need to operate it at full load. And we need to design it for dynamic operations where you quickly shift the load factor up and down. Our answer to this is the new PA series. It's smaller, it's cheaper, and we think it's better. Starting with smaller, the new solution reduces the footprint of up to 80% on Nel's scope. That means thousands of square meters if we talk about a large hydrogen plant. System CapEx, what you see on the picture is reduced by 40% to 60%, and that covers power electronics, electrolyzers and gas liquid separation. System energy consumption is estimated to be in the 51 to 53-kilowatt hours per kilogram range. This is best-in-class today if you look at real performance, not what you find in data sets with real performance. If you want more than the 25-megawatt building block, you can combine them into larger plants. This rendering shows a 100-megawatt plant in just 1,750 square meters for the core system. In addition to this, you will need switchgear and high voltage to medium low voltage, you need water treatment and some other things, storage. But for the core system, you're down to less than 2,000 square meters for a 40 tonne per day or 100-megawatt solution. That's quite good, as I said, 80% down versus Nel's previous offering. More importantly, the new system redefines the cost of clean hydrogen for a full turnkey capex comparison you can look on the left-hand side, what we see in our reference projects, 20 to 30 megawatts projects using the old technology, you ended up around $3,000 per kilowatt, a similar scope with the new pressurized alkaline system reduces that down to $1,400. That means you bring the levelized cost of hydrogen at 30 bar pressure down from $7.8 per kilo to $4.5, a significant reduction that enables new projects to move ahead. And please bear in mind that these figures are for small let's call it, small-scale projects of 20 to 30 megawatts. We're not talking hundreds of megawatt or gigawatt scale projects, then the CapEx, of course, would come down further. Looking at Nel's buildup of the CapEx. We have -- for this 25-megawatt module, roughly $1,000 linked to the hardware that you see at the bottom and then $123 for services provided by Nel. Other hardware and services not included on this picture is $346, and that includes water purification, dryer purification, compression from 15 to 30 VAR additional cooling equipment and nitrogen for purchasing, et cetera. So this is an almost all-in cost estimate of $1,400 per kilowatt for a 25-megawatt system. Again, if you bring the size of the project up to, let's say, 100 megawatts, a lot of the labor costs will come down and there are also some scale benefits on the hardware side, which means for larger-scale projects, it's possible to get the $1,400 figure down further. The good thing about this is that it's not only a PowerPoint concept, it is a real concept. And to prove that the system actually works, we have built it at Hydra outside our manufacturing facility. What you see on the picture is a plant with the gas liquid separation to the left you have an electrolyzer and you have the power electronics transformer and the rectifier to the right. This system is 1/4 of a full system. That means it can deliver 6 megawatts if you have all the electrolysis in the kids, but it can be built out to do 25 megawatts. And this is what we showed the world on -- in May, early May, where we took the curtains to the site and allow people to inspect it and have a look at how it's constructed and why we have designed it the way we have. To deliver this, not only build a prototype, but to deliver and scale, we need a production line for some components. We will not build a huge manufacturing site where we make all the different components. We will have a capital-light approach to this, but we do need a production line for some components. And this production line is taking shape. There are ongoing tests that we have conducted that conform good product quality, and we actually exceed prototype production results. We see clear quality improvements with higher yields and fewer critical defects. Cycle times are coming down and support higher capacity and improve efficiency. We have a strong process understanding. The baseline production run, plan to look -- plan to lock in learnings with further improvement expected during the autumn. In terms of capacity, 500 megawatts will be installed by the end of '26. This can be expanded to 1 gigawatt by 2027 through increasing the cycle time. I want to remind everybody, especially the analysts that CapEx per megawatt is significantly lower than for atmospheric alkaline and PEM. Again, back to the point that we will not make all the components to ourselves, we will just make a few critical components and do the final assembly and testing in-house. The project is also funded by the European Union. We have received EUR 135 million in funding. It has to be matched by Nel, and we have received already the first milestone payment in the second quarter, which is good. That shows progress, and it shows faith in what we have done so far. Final point, I will step down as President and CEO of Nel to pursue another professional opportunity. I have been with Nel since July 1, 2022. It's been a fantastic journey, great company, and I will still be around. I have a 6-month notice period, and I will continue in my role until further notice. The Board of Directors has already initiated the process to recruit my successor. I think it's important to say that we have gone through quite a bit of strategic shifts in organizational developments over the past 4 years. It's been a hectic period, but the strategy remains intact and it remains unchanged going forward. It's supported. It's not just me pursuing this strategy. It's anchored with the rest of the management team and the Board of Directors. So the current strategy, including technology, and product road maps, project scope, target geographies and the pursuit of partnerships with leading industrial players will remain unchanged. Going forward, the continued rollout and commercialization of the recently launched pressurized alkaline system and the future next-generation PEM technology will remain Nel's top priorities. With that, we conclude the presentation, and I will be joined on stage by our CFO. Before we start answering questions, you will read the script that you normally follow Wilhelm.

Thank you all. Before we start the Q&A session, just a few practical points. [Operator Instructions] As a reminder, we will not comment on outlook specific targets, detailed terms and conditions for individual contracts or questions about specific markets. Also, modeling questions are also best handled off-line. With that, let's get started. First question comes from the line of Arthur Sitbon. Please go ahead, sir.

Thank you very much I would be I would just pick in to have your thoughts on the funding of Nel at the moment. So you report a NOK 1.3 billion, NOK 1.3 billion cash position, you are still burning cash on a quarterly basis at the moment. And the order backlog seems to take a bit of time to pick up while you're investing in the manufacturing platform. So I was wondering basically, are you -- do you consider yourself as being strong enough funding position at the moment to turn the group into a growing entity and a profitable entity. Or should we think about potential avenues and potential action plan on the funding for the coming 12 months?

So we do have the a solid cash position as of now, and we have no urgency to do anything about it. However, we have done many steps in the past to strengthen ourselves, including the spinout of Cavendish frequent capital raises. -- but also working with customer and customer contracts to ensure that we get paid early, so that we don't build up too much working capital. So a long way of saying that we have a good position now, but we will, of course, make sure that we remain in a good percentage of the position in the future and take actions if required.

Thank you, Arthur. The next question comes from the line of Federal.

Yes. I was wondering a bit about a bit about the overdue receivables. Could you provide an update on the ones with -- that are more than 91 days passed overdue? And do you expect to see anything happening here in the immediate future?

Yes. So let me just hand that over to your receivable. We have one very large overdue receivable that's been out for a long time. That's related to a bankruptcy in Germany for a project developer last year, and it remains on our balance sheet until that is closed. -- as we communicated at that point in time, the net effect, if we get nothing out of the bankruptcy estate will be 0. We do have a hope to reclaim some inventory and which we have a strong position to reclaim. So this is a net 0 cash effect on that one, and it will remain there until the bankruptcy proceedings finalized in Germany.

Okay. And you do not have any sort of more clarity on the timing of that?

Unfortunately, it takes longer than what it would do in Norway. But again, the total balance, there are also -- and we can follow up this on modeling questions with William afterwards where the countable position to do that overdue receivables.

Thank you, Elena. I see no further questions here, but we have received some written questions that we can go through from David Lopes, following cost-cutting measures and the evolution of demand in recent quarters, what level of plant utilization do you consider necessary to achieve positive EBITDA? And what's the most realistic time frame for achieving this?

I think that varies depending on which platform we look at for PEM, the plant utilization has to be around 20%, 24%, maybe of the installed capacity, whereas for alkaline, it has to be a bit higher. And of course, it depends on margin where initially you have a lower margin on the equipment and you will have over time. I think we need to come back to precisely what the load factor has to be, but it's fair to say that we need to move into the hundreds of megawatts per year on alkaline and tens of megawatts for PEM in order for this to be a profitable business.