PowerCell Sweden AB (publ) (PCELL) Earnings Call Transcript & Summary

Welcome to the PowerCell Group Q2 2026 Report Presentation. [Operator Instructions] Now I will hand the conference over to the CEO, Richard Berkling; and CFO, Anders During. Please go ahead.

Good morning, and a warm welcome to our quarter 2 report. Sorry for the slight delay. We had an issue with the system that we did a reboot and a restart, which is also something that we're doing with PowerCell because what we see this quarter is that we are delivering on what we said we are in a very uncertain, volatile year. Next slide, please. The second quarter was weak. We were reporting a falling revenue of 46% year-over-year, excluding the one-off effects that we saw in license transaction last year. I'm not going to dress that up. That is a very disappointing quarter. But I won't dwell on the number either. What matters is what is behind it and what we can do about it and what we are doing about it. So in this presentation, we're going to be very straight about what we can control and equally clear about what we don't control. But at the same time, I don't want this quarter and the numbers to hide another fact. How is the company reporting these numbers? It's a fundamentally stronger company today than we were just a couple of years ago or 1 year ago. Anders, CFO, will walk you through the details of the quarter shortly. But first, I want to share with you the lens which we will read this quarter numbers through. Next one, please. This is a quarter shaped by the nature of the market that we are in. This is a difficult market. It's a lumpy market. So what we are reporting is not a loss of demand. We are in the middle of an emerging business in a technology shift. We saw massive hopes and expansions in the early stages of 2021 to '23 and then the market reaction setting. Markets like ours, every technology shifts are lumpy. Intake and revenue does not arrive in a smooth line. They come in steps. Individual large orders can change both a quarter and a full year for companies like PowerCell. If we then on top of that, add a year where we have had strong global uncertainty and that unevenness becomes even more pronounced. So this is exactly what we reported at the year-end report in February in which you also circle back to in quarter 1, where we said that 2026 would look much more like '23 and '24 with a significant shift between quarters. And I'm not saying that's a point backwards, but because it matters for how you read us. When we tell you what we're seeing, it most often plays out. So underneath the numbers in quarter 2, the demand signal is moving the other way. Order intake was strengthened, and I'll show you that in a moment. With that lens, let me hand over to Anders for the numbers, calling in from your phone, so you cannot flip the slides yourself. And then I will come back to what we have done and what we're doing going forward. So next slide, please.

Thank you, Richard. I will briefly go through the numbers. I think it's kind of self-explanatory what happens in comparison this year with last year. And after taking the increased sales on IP and royalty away from the quarters, there are still some comparison that could be made. The importance for the quarter is to say that you may feel that the gross profit margin is declining despite you taking the IP sales away. Now there are quite a number of reasons for that, but there are 2 significant reasons that happens at the same time that I'd like to highlight. And I think it's important understanding that the gross profit margin that we are dealing with or that will be for the future. And that is that we were -- when the point in time entered the negative media coverage, we were also at the same stage in final deliveries to customer. That conjunction of events triggered us to be very careful on how we delivered and securing the relationship and the final deliveries to customers, which triggered an excessive cost during that phase that strike our profits in the second quarter. I think that is in itself important to carry. So the final deliveries with the [media] approximately -- and if we would have had a more normal quarter, you would have anticipated a gross profit margin of around 25%, not the 10% we report now. Then you can do the backward calculation how much this is striking us at that point in time. In the quarter, though, there are still one positive thing I'd like to report on, and that is the operating cash flow. Like last year, it's a bit of a bounce back from the first quarter that usually significantly negative. But I think it's important to know that given that some have a very large or a high number of working capital, that certainly helps us when we can utilize what we have in a quarter like this. So despite a very, let's say, small top line, we managed to have a positive operating cash flow in that scenario. With that, we can move on to the accumulated numbers, so we can flip slide to the H2 period. I think numbers are repeating themselves. But on this page, I really like to take the opportunity to say that now for a number of reasons, we also, like Richard say, are in a position where we take actions on the cost base side. I mean there are a number of those background reasons. The first more narrow strategic focus as we move forward. Secondarily, as we look into the time horizon going forward, we know that we need to focus more on tomorrow and the day after tomorrow rather in a very long period of time because we have now come to place with our company where we can swap between short term, long term without necessarily having any setbacks from that. So we are simply more efficient in what we do on that angle and particularly then related to R&D. Thirdly, when you move from -- and you may recall this from the first quarter report. You remember us presenting the capabilities of PowerCell being the fuel stack, the systems and the software. Of course, in that change, that comes with a certain level of competence. So we need to take that into account as well. And last but not least, and here's why I think it makes no sense to you, obviously, with a huge cost base given the turnover we have, we need to revisit and realign the cost base. And the actions are already in place. And the importance when you look at future quarter reports and then start to wonder how much are the reductions, what is actually happening, I would like to take the opportunity already at this point in time to say that these things are happening during '26. The importance for us is to make sure that when we enter 2027, we have a cost base that is a relevant cost base for what we foresee being the revenue levels in '27. Although we will report and you will most likely also recognize the number changing throughout the rest of the year. With that, Richard, I think I'm done with my numbers, and I leave that to you.

We'll come back to that during the questions. If you flip side, you will see the upcoming events and reports. Quarter 3 in October 22 and quarter 4 on February 3 in 2027. So if we move on. Next slide. Thank you. As Anders said, we have already acted. We have now worked hard to increase focus and build on the discipline that, that delivers. We have a harder market. We have had that for the last 9 to 12 months. Our response has been to become a better company. Three areas that we are working on. One is resilience, as Anders was talking about. We are rightsizing the organization, adapting the cost base to the current market conditions. And as Anders pointed out, to be very fit for the market entry in 2027. We see the effects materializing in the second half of 2026. The balance point we need to preserve is to have long-term competitiveness and the ability to scale. So resilience to protect profitability has been in focus for the first half of 2026, and you will see effect in '26 and '27 going forward. Then we have also increased focus because when the market is difficult as it is, it's important to concentrate your resources where your competitive advantage is the strongest. So Marine remains our commercial foundation. I was really happy to see the order being signed here in the late part of June. Power Generation with the order that we signed as a subsequent event to quarter 2, the data center order from California is a very important first step to establish Power Generation as the second growth pillar to double the potential served market for PowerCell. What we also have seen is a focus on technology where improvement performance on current generations allow us to postpone investment into next generation, which is also very important and a valuable thing. It gives us 2 things. One is, of course, lowering cost and pushing investment further out in time, but also longer time to live and build the company on what is already invested, which is really, really strong. And then third, precision. We are increasing customer value and improving our differentiation. DMC, the Dynamic Master Controller, which is the software platform that is integrating large installations with multiple megawatts of fuel cells. That is a really strong differentiator, and we'll come back to that one. Software and controls in general allows us to control a drive collective, protect lifetime and durability, but also orchestrate energy in hybrid installations, which is becoming much more important in the market that we're entering at the moment. It's not just about Power Generation, but how to orchestrate energy in an installation. And then, of course, working on the application-specific integration and value that you create for earning customer, Power Generation customers, et cetera. So if we move to the next one. Order intake was up in the quarter. The number shows that we are heading in the right direction in that one. The order intake is leading and then revenue follows. Revenue is trailing in this market. Sometimes we deliver within 6 months, 3 months. Other times, it's 18 months. But it's a very important signal to us that we saw order intake rising to SEK 86 million new signed orders in the quarter, up from SEK 50 million in quarter 1. Even more importantly, it accelerated towards the end of the period and continued now into the second -- third quarter. In Marine, we saw Proven Foundation signing an order with LH2 Shipping, which was exactly the kind of customer that is driving this transition. In Power Generation that we have identified as the second growth pillar for PowerCell. We signed our first multi-megawatt order with ECL signed just after closing of the period. But this gives us the 2 pillars that we have been focusing on the strategy that we have to build PowerCell going forward. Revenue lagged this quarter, but intake accelerated. And this is just how business looks in building a company in this technology shift. Sometimes demand is building faster than delivery revenue yet to show. So let me now show you where this actually really sit. It's not just the hardware. So next slide. We are talking more and more about software and features and integration, and that is becoming more important for PowerCell and the industry. The foundation of PowerCell will always be to do the right side. We're extremely proud of the S3 stack that we have. We have products and technology, which is creating massive value for us. But what we have learned in the last 18 months is not just to have good technology, but to become an industrialized product company. So if we start at the right, the S3 stack is a very versatile and a robust component that we have now pushed in test. So we see that we have performance and durability beyond the spec. We have a very wide operation window, which is important when you go into more demanding applications like data centers because they have a very active dynamic load. So a fuel cell in a data center is not just operating on its optimal workload, but it needs to have a wide range. So the S3 stack is really competitive and strong when you operate it between 40% load and 80%, 85% load. And that is a very wide operational window, which gives us the opportunity to use the same core technology in different demanding segments. We have validated it beyond its spec, both in high-end temperature and using grey hydrogen, which has less purity than the green hydrogen. So we see that we have a very strong foundation going into the market. Then the PS190 system that has been developed in collaboration with Bosch. It's been running now in daily commercial operations at the ECL MV1 site, a 1-megawatt AI data center site. ECL selected this one after doing side-by-side testing with a number of other fuel cell manufacturers over more than 2 years' time. The DMC that we'll talk about more is protecting the system from the anomalies that come in a very demanding high-end application. And then once again, the DMC, which we are now seeing becoming a strong strategic differentiator. It allows for a single interface in a multisystem installation. So for instance, when we deliver 5 megawatt or 10 megawatts, we are talking about installations between 30 and 60 and 70 units to make that integration and then the optimization between systems is a very complex but also very value-creating operation. That is what we are doing with this dynamic master controller, which is a control platform for optimization. It gives us uptime and redundancy from the drive collective and not the individual system, which is very important going into more demanding applications. And we can also, with this optimize the fuel efficiency, lifetime and load balancing when we go into the hybrid prime power applications. Next one, please. So talking a bit more about ECL. ECL is an AI data center company in California. They have been running 2 years of operations with liquid hydrogen, batteries and also power generators with diesel, creating this multi-hybrid installation with different energy sources. They have been running real technologies in real conditions before choosing PowerCell. The firm order is for the PS190 system, around 5 megawatts with the DMC licenses on top. The value is approximately SEK 30 million, and it will be fully delivered in 2026. The order value is not the main story here. The significance is far greater than the size of the order. It is a reference case that opens up the door for future multi-megawatt installations in Power Generation. So this is an early proof-point. This is not the final proof point. The real test for us is to secure order # 2, 3 and 4, both with ECL and alongside others. We also signed a nonbinding Memorandum of Understanding covering future capacity of around 300 megawatts. That figure is the ambition of ECL and their growth plan. It's not our guidance, and it's nonbinding with no committed volume or revenue. I want to be crystal clear on that one. But the most important thing about ECL is not the order size. It is how the system will be used. And if we go to that, we will now talk about something. Next slide. That was outside of scope for PEM fuel cells for a long time. This is not backup power, and it's not peak shaving. This data center and our installation is designed for continuous prime power operation, which is a very, very valuable and also demanding application. That distinction is the whole point because the traditional PEM fuel cell role has been around backup sitting idling, waiting for an outage. ECL is deploying our system as part of their primary continuous power supply for mission-critical infrastructure. That is a fundamentally larger role and a fundamentally larger potential market for us. And the question I get here is where does the hydrogen come from? Well, the growing availability of grey and blue hydrogen is making prime power commercially relevant today. This is especially visible in the U.S., but we are seeing the same trends also in Europe. That opens up for a market for renewable green hydrogen when that volume and offtakers are out there. So let me then step back from ECL and more look on the markets underneath it. Next slide, please. So behind the short-term volatility, the long-term drivers are not slowing. They are accelerating. We have talked more about energy resilience, power demand, data center is crowding out capacity and in parallel to that, also improved hydrogen availability. Grey and Blue today, what we are reading constantly about new FIDs on green hydrogen as well as deployment of green hydrogen production and distribution. Pollution, emission, regulation, those are still drivers that are extremely important for PowerCell. But the demand of power, speed to power and energy resilience, those are the drivers in the market that we see today. Those drivers are real and they are strengthening. Again, I'm citing constraints, capital discipline in the market, geopolitical uncertainty and also sometimes lack of infrastructure. That combination is exactly what we have been trying to describe for a long time that we have strong demand drivers, but we also have slow decision cycles. So the question is whether or not we're positioned to capture the volume that are out there when the cycles turn. And we think that we are with the product portfolio we have, but also with the industrial setup that we are representing. Next slide, please. So when we say that we are positioned to capture it, this is why we think we are. Power Generation isn't a new thing within PowerCell. It is the same core technology as Marine with the same volume benefits that from both ways through Bosch and through our Marine applications. Our portfolio is also optimized for it. The performance, price in combination with the Dynamic Master Controller gives us a very, very competitive component for Power Generation. And the contribution to this is additional growth potential, of course, but without the proportional capital spend. We are doubling our growth pillars. The growth potential for PowerCell is stronger with Power Generation, but we're building it on an industrial setup that is protecting EBITDA in a soft market, but it gives us an opportunity to stay ready when the market turns from the setup we have with Bosch that is sourcing and supplying the complete system for PowerCell, and we are doing the application and integration at the customer side. So what can we expect from this when we look forward? Next slide, please. Let me be very straight about what to expect. The volatility will continue. We are in a market where a number of customers -- customer decisions can move a whole quarter or even a year. And the timing of those decisions are hard to predict. We won't put a number on what is not signed. We have a very active sales pipeline at the moment. We have worked hard on the commercial process within PowerCell. But we need to acknowledge the fact that before it's signed, the value is 0. My conviction has strengthened throughout the quarter, especially the end of the quarter. Customer activity is rising. Quotation requests are growing. And with ECL, we have tangible proof of the strategy is gaining traction, but also creating value for the customer. We are also prepared either way. We have focus and the measure to continue to defend breakeven, as Anders was saying, in the low end of the scenario going forward, but we also have a capability to act and deliver on the higher end of any outcome, which brings me to where I want to end. Next slide, please. So let me bring us back to where I started. We own this weak quarter. This is the volatility that we flag for. It's not a loss of demand. We're focused, more focused than before commercially, technically, structurally, and we are prepared. We also see the very important indicator that order intake is going up. Just in the last 2.5 months -- 2.5 weeks, we signed 9 megawatts of orders late June and now early July. So what we cannot control is when the market turns into activity and that turns into order. We can control how well we prepare for it and when it happens, how well we execute. My ambition with PowerCell is to continue to manage this uncertainty with very strong product offerings to the market, very close collaboration with customers, making sure that our products are not just delivered, but also creating value in the customer operation. And we feel that we have positioned PowerCell to do that in a good way. So with that, thank you very much, and we will open up for questions.

[Operator Instructions]

So the first question is for Anders. Our cash position seems to be low at SEK 76 million. Will you raise cash? Or how do you tackle that problem?

We tackle the problem by being careful about how we spend cash, and we think that the position we have right now is just a natural position given the business situation we're in. Are we concerned about the near future? No, we are not, and we feel comfortable at the level where we are.