Nel ASA
OSE:NEL
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Nel ASA
Earnings Call Analysis
Q3-2023 Analysis
Nel ASA
Nel ASA, a hydrogen technology company, has marked a tremendous milestone. In just three quarters of 2023, they have outscored their entire previous year by generating NOK 1.2 billion in income compared to the full 2022 revenue of NOK 994 million. This signifies a leap in their journey, demonstrating significant revenue growth, particularly in their electrolyzer sector, which saw a 116% increase from the previous year, and in their fueling division with more than a doubling of its revenue.
Nel's focus isn't confined to the present; they are eyeing future growth and stability. With a keen vision, they're working on transforming their product line with the introduction of the next generation pressurized alkaline system and a PEM stack redesign in collaboration with General Motors, aiming to climb onto new S-curves of product innovation.
Despite witnessing a downward trend in order intake in recent quarters, Nel's confidence in their market position hasn't wavered. Their order backlog remains strong at almost NOK 3 billion. They explain the variances in order intake as a product of missing large contracts, not an indication of their market competitiveness or win rate.
Nel anticipates realistic shifts in the electrolyzer market due to factors like increased interest rates and renewable energy costs. These changes have affected the market timing, with clients taking more time to secure financing and complete planning before placing orders. Nonetheless, Nel adapts and stays committed to growth.
On a positive note, the operational improvements made in the last quarter have led to better financial results. There's been a significant decrease in 'cost of poor quality' and improvements in the functionality of fueling stations. Order intake for Fueling reflects a shift in market sentiment towards heavy-duty vehicles as well. These steps are seen as crucial for the trajectory towards profitability.
Nel faces the challenge of project timeline variations. They explain that the time from delivery of equipment to site acceptance testing can vary greatly. This variation can be due to multiple factors, including how clients plan and execute installation and commissioning. However, the trend seems to be towards faster project completion, especially with their containerized PEM solutions.
Despite the challenges, Nel remains dedicated to investing in research and development, with an estimated NOK 300 million budgeted for R&D in 2023. They emphasize the importance of this investment to stay ahead in technology and innovation, which is crucial for their long-term strategy.
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Welcome to Nel's Third Quarter 2023 Results Presentation. My name is Hakon Volldal. I am the CEO. Today, I will be joined by Kjell Christian Bjornsen, our CFO; and Wilhelm Flinder, our Head of Investor Relations.Today, we have the following agenda. Nel in brief, the highlights from the third quarter, commercial developments during the quarter and our outlook with respect to market and technology, and then, we do a quick summary before we dive into questions and answers.Nel in brief, we are a pure-play hydrogen technology company with a global presence, specializing in electrolyzer technology and hydrogen fueling equipment. Our mission is to unlock the potential of renewables and enable global decarbonization. We went public in 2014 on the Oslo Stock Exchange, so approaching our anniversary being a publicly listed company.We have delivered more than 3,500 electrolyzers to more than 80 countries since 1927 when the company was founded. We also produce and deliver hydrogen fueling stations, more than 120 station modules sold to 14 countries around the world, manufacturing facilities in Norway, the U.S. and Denmark, a global sales network and offices, 650 employees, a preferred partner with industry leaders in many different sectors and industries and close to NOK 4 billion in cash reserves.Then we can go to -- get on with what I guess most of you are interested in today, the third quarter results. Highlights include revenues of NOK 405 million, EBITDA NOK 109 million negative. Order intake of NOK 352 million and order backlog at the end of the quarter of NOK 2.85 billion, a cash balance of NOK 3.8 billion.Key developments in the quarter that we have announced. EUR 9 million contract for alkaline stacks to France and EUR 11 million contract for alkaline stacks to Portugal, $6 million in additional funding from the Department of Defense for accelerating PEM electrolyzer development. We've also selected our site for a potential gigawatt factory in Michigan. We have secured $50 million in support from Michigan so far. That amount could increase to $125 million in total, pending approval of additional applications on federal and state level.We've also in this quarter reached a milestone. It's the first time we have exceeded NOK 1 billion in revenues, and there's still 1 quarter to go. We are at NOK 1.2 billion compared to full financial year revenues last year of NOK 994 million.Revenues, as I said, NOK 405 million, up more than 120% from the corresponding quarter last year. EBITDA is a significant step in the right direction. We improved the EBITDA margin by 90 percentage points. EBIT is also close to NOK 100 million better than what we reported last year.Pre-tax income and net income negatively impacted by fair value adjustments to external shareholdings of roughly NOK 90 million, giving us a net cash flow from operating activities of minus NOK 200 million.If we look at the year-to-date figures, we are more than 100% above what we reported at the end of the second -- or the third quarter in '22. On a year-to-date basis, we're also significantly better on EBITDA, improving margins by more than 60%. And as you can see, pre-tax income, to a large extent, negatively impacted by fair value adjustments to external shareholdings.To add a bit more color to the financials in the third quarter, let's look at the segments we have. We have the Electrolyzer Division, and we have the Fueling Division. In the Electrolyser segment, we reported NOK 320 million in revenues. That's 116% up from last year. And we had an EBITDA, which is getting closer and closer to black figures, minus NOK 31 million compared to minus NOK 94 million in the third quarter last year. That gives us an EBITDA margin of minus 10%.The reason we see these improvements is, of course, that we now have started to monetize some of the new contracts signed, but we have also monetized what I had previously referred to as legacy contracts with lower margins. So this doesn't represent the full potential of the backlog profitability. This is just part of it. We're getting better at executing contracts. We're getting better at managing margins and making sure that we take the right steps towards profitability. The revenue increase was primarily driven by alkaline with 194% increase. 51% in PEM is also good, but below what we had on the alkaline side.If we look at Fueling, total revenue, NOK 85 million, more than a doubling of the results in the third quarter last year. EBITDA, although minus NOK 47 million is also a substantial improvement versus last year and is due to the fact that we now see the first positive results of all the work we have done to improve performance. Targeted investments in service and maintenance, robustness and reliability are starting to pay off. We will continue to incur high costs in the Fueling Division in coming quarters, but the efforts to reduce losses are starting to take effect.Order intake and backlog. If you start with the order intake, you can see a downward trend. It's still in the third quarter, NOK 352 million and above what we typically reported in 2021 and first part of '22. But compared to the previous or say 4 quarters, it's a step down. It's important to bear in mind, though, that if we go behind the numbers and look at what has actually driven the order intake, we're talking about one sizable contract in the third quarter last year, 2 contracts in the fourth quarter, 2 contracts in the first quarter, 1 contract in the second quarter, and in the third quarter, we had 2 contracts. So our win rate on contracts is consistent.What we did not get this quarter was 2 sizable contracts. So the work going into winning a smaller-sized project, 20 megawatt, 40 megawatt is almost the same as winning a 200 megawatt and 400-megawatt contract. So there's nothing wrong with the win rate and Nel's competitiveness in the market, but we did not manage to win large contracts. We won a 20 megawatt and a 40-megawatt contract, and I will comment later on how the backlog and pipeline is developing.What we are now working on are orders that -- or say opportunities that started to materialize maybe in '21, '22 and projects were smaller. Going forward, the average project size and -- or the median is way higher. I think I'll come back to that, but we're talking about an average project size of the 20, most important opportunities we're working on of 350 megawatt, meaning that if we can maintain the same success rate, hit rate on projects that we win, this number will go up.Order backlog then impacted by the order intake being slightly lower than what we recognized in revenues and also currency adjustments still at almost NOK 3 billion, giving us close to 2 years of current revenue recognition levels.The main commercial developments in the quarter. Let's start with the -- the first contract, a 20-megawatt electrolyzer equipment contract in France. The client is Hyd'Occ. The value of the contract is EUR 9 million. The French renewable energy producer Qair is the main shareholder in Hyd'Occ and the local government is also an owner. This facility will supply renewable hydrogen to local industry and transportation in the southern part of France. It's a firm purchase order for alkaline stacks and balance of stacks, so the gas separation equipment. And the stacks are planned to be delivered to the client around end of this year.The second contract we won was with Bondalti in Portugal, a 40-megawatt delivery of alkaline stacks worth EUR 11 million. Bondalti is the largest company in the Portuguese chemical industry. Our equipment will supply hydrogen to the clients' chemical processes, as well as long-haul transportation and gas grid injection. The facility is targeting production in the beginning of '26 and Wood has been contracted to do the FEED study on the project. And as you might recall, we have a long-term partnership with Wood.We have also sold a containerized PEM system not disclosed, who the customer is, and I don't think we even announced the contract because it's below our threshold, but it's a containerized PEM system to be deployed in Australia. Year-to-date, we've sold 3 systems and the demand for these type of containerized solutions continues to be strong. Reasons being, it's a complete system. It's a short delivery time and it's easy installation. So for small projects requiring 1.25 megawatt, 2.5 megawatt or close to, let's say, [ 1 ton ] or 2 tons of hydrogen per day. This is a very good solution.In the quarter, we went to Sweden and witnessed the inauguration of Ovako's pioneering hydrogen project in Hofors. They will use our equipment to produce the world's first fossil-free hydrogen prior to rolling. So they will use the hydrogen to heat steel prior to rolling. It's Sweden's and actually one of Europe's largest electrolyzer plant, 20 megawatt for renewable hydrogen production. This is the second 20-megawatt alkaline system delivered by Nel in Europe. It will provide important learnings for future projects, and it will showcase a real experience for larger electrolyte systems. If you want to buy a large scale project, then there are not that many systems you can go visit. This is now one of [ that ] proving that our equipment works and that it can do the job also in the steel sector meeting the tough requirements of our steel clients.We do want to comment a little bit on what is happening in the U.S. Sometimes we get the question, so now Nel is moving to the United States. Why? And we would like to point out that we have been in the United States for 27 years. Since 2010, we have received more than $50 million in funding from U.S. authorities to drive technology development, and we will receive additional funding for projects going forward.We have engaged with a wide range of national labs, technical universities, industrial players, and we have delivered military-grade equipment for the U.S. Department of Defense. We've also put PEM stacks in submarines for creating hydrogen -- no, oxygen for live support for the people on board the vessels. As now, we've been in the United States for 30 years, and we have multiple clients, and we have close to 250 employees in the United States in total.Now, as the U.S. has taken a leading role in the development of the global hydrogen economy through the implementation of the Inflation Reduction Act is important for Nel to strengthen our presence in the United States. We will continue to work with our [ web of partners ]. We will continue to expand our production capabilities in Wallingford, but we also want to be ready when IRA, the hydrogen hubs, additional funding from the Department of Energy starts hitting the markets and helping to bring projects to FID, final investment decisions. Therefore, we prepared the ground for expanding our production capacity in the United States.We have secured, as I said, more than $50 million in funding for this gigawatt factory. We have selected Plymouth Charter Township, a suburb of Detroit, as the specific site for the Gigafactory. The $50 million we have received are a combination of tax credits, exemptions from fees that you would normally have to pay and cash support. The most important part is yet to be decided and that is the $75 million in additional federal/state support that could come our way and predominantly will be cash payments. The support is given by state and federal authorities to support the creation of green jobs, and they are, of course, subject to firm investments made by Nel. As I said, this now makes Nel ready to quickly expand production in the United States if demand starts to take off.This is a section that I think we need to spend a little bit of time on the market and the market outlook and some of our technology ambitions. Let's start with the project pipeline. We do get a lot of questions about where are the big orders and the pipeline, where we measure all the potential projects out there. And bear in mind that we also delete the projects that we don't believe in. So we're trying to keep the pipeline database up to date.There is continued development in that pipeline. There are new projects being announced. And if you look at the most mature opportunities, the projects that we are working on are top 20 list, the average size of that -- of those projects is now 360 megawatt. If you look at the median, it's 250 megawatt. Why is that important? Well, first of all, if we can maintain our hit rate of 1 to 2 project wins per quarter, of course, this is going to translate into higher order intake and higher revenues and revenue growth. But as the average order size increases, it takes more time to mature the projects.Large-scale projects have higher complexity, and the overall risk is increasing both for the project developers or customers and Nel, as a technology provider. We need to carefully think through permitting, locations, power supply agreements. This is not typically something you can just source from the grid. You might need dedicated power supply sources.And that means that in this environment, where we have increasing cost of capital with rising interest rates, and we have increasing renewable power prices and lack of visibility on funding schemes at least in Europe and a reduced concern amongst some customers about available electrolyzer capacity, it takes a longer time to mature the projects. Not all of them will take FID, but we see that there are enough high-quality projects in our target list that we think we can convert them to actual orders for Nel.Another development, which also explains a little bit the lag between previously announced large-scale contracts and future large-scale contracts is that some months ago, customers were willing to place advanced purchase orders on equipment prior to doing FEED studies, prior to taking FID. I think now people are a bit more careful. They would like to do the FEED study. They would like to do the overall planning of the projects and secure financing before they place the contract with Nel for electrolyzers. And that means we go from a period, where we could early on secure orders to a period, where we have to wait a bit longer to secure the orders. And that means there's -- there's a transition period that negatively impacts order intake, but it doesn't change the fundamentals.We believe, by the way, that when we look at these large-scale projects, clients place a stronger emphasis on track record that you have experience, that you have working products, that your technology is proven in the field and that you have, you can offer an acceptable risk profile. That means, Nel is one of the few companies in the market that can offer that.You don't want to buy paper electrolyzers for a large-scale project. You might have very important offtake customers that you need to deliver hydrogen to, and then the equipment and the solution has to work. So I actually think despite some negative market sentiment in hydrogen, this is a good development for Nel. It sets us apart from a lot of the other electrolyzer OEMs. When money is cheap and free, everybody can do things. When it's more difficult, only the best can do things. And we happen to believe that we are one of the best.Second point, we would like to address is the global manufacturing capacity misconception. We see the analyst reports come out with estimates for how many gigawatts that are available. And I just said that some clients also believe that it's easy to source electrolyzers. Other clients say that they believe it's tricky to source electrolyzers that they have to spend a lot of the Phase I or II funding that they raise on securing electrolyzers and power equipment because those are long lead items, and there are not that many high-quality suppliers out there.There's a big difference between PowerPoint capacity and real electrolyzer production capacity. Difference between nameplate, what you say that you can produce. If you have a gigawatt factory, it doesn't mean that what comes out to that factory is a gigawatt. The actual capacity is less than the nameplate capacity. You might not be running full shifts. You might not get to 100% quality. You might not have 100% availability on the equipment. Usually, the actual output is far less than the nameplate capacity, and the analysis don't correct for that.There's a misalignment between announced capacity and availability of required components. Even if you have production capacity, assembly capacity to produce a gigawatt per year, that doesn't mean that your suppliers are ready to give you all the parts and components you need to do it. The value chain has to mature. You need your suppliers to grow with you. And we see that a lot of the actual factories are empty because they're not supplied with the needed parts to produce.There's also a substantial difference between companies that have proven and bankable technology and those who don't. It doesn't matter if you can produce 2 or 3 or 4 or 5 gigawatts or something that doesn't work. And I think as a consequence of this, a substantial number of claimed electrolyzer technology providers will likely not survive in this environment.We believe Nel is one of the few companies that can do this. We have proven manufacturing capacity. We are at 1 gigawatt at Heroya [indiscernible]. We are approaching 500 megawatts in Wallingford, and these are facilities that have produced electrolyzer for decades. We have the experience to actually make sure that what we announced as capacity is also something we can deliver.Third point, we want to comment on is technology. You might not fully see what the picture to the left represents, but it's an old electrolyzer facilities. One of Nel's first installations, I believe, is from the 1950s. And we are proud of our history in Nel. We -- as I said, we believe we are a trustworthy partner. We have the experience. We've done this for decades. And we emphasize that when we meet with customers and when we communicate to the capital markets and to shareholders and investors.But we also realized that by focusing too much on this, we might have left you with the impression that Nel is a dying dinosaur, that we are only working on the old stuff and that we don't have anything new to offer and that we will be outcompeted. I've read analyst report saying that Nel doesn't have modern technology and we're being surpassed by competition.So today, I would like to debunk that myth. Yes, we have 100 years of experience. Yes, we have proven technology in operation, but we are also investing in future technologies. We're not standing still. We have a road map, where we try to capture the full potential of our current offering.If you want to build something today, you basically have the choice between alkaline and PEM, and they have different advantages and disadvantages. We produce both, so we can be honest about it. Both these platforms will benefit from volume scale up, they will benefit from improved sourcing and further product enhancements.But the products are nearing the end of what we call the first S curve. There is a limitation to how much potential or how much improvements you can make to the current designs. That's why Nel is now preparing the launch of new offerings, which will take the products onto a new S-curve. To be very specific, we're talking about the next-generation PEM stack based on our collaboration with General Motors, giving us amazing insights into how we can fundamentally redesign the PEM stack to improve both energy efficiency and at least get the cost significantly down from today's level. And we're talking about the next generation pressurized alkaline system.On top of improving the first S-curve and also getting ready to tap into the second S-curve, we are looking into the future at the third S-curve. We don't know when exactly these technologies will be available. We believe at least into the next decade before they will be mature enough to be deployed at scale in the markets, but we're talking about AEM, and we're talking about also other investments we're making regarding direct integration between electrolyzers and offshore wind and smarter integration with power equipment, meaning, we are selectively investing also into future platforms.Our estimated spending on R&D alone in '23, not including engineering, but real R&D, NOK 300 million with 25% to 30% grant coverage split between PEM, pressurized alkaline and atmospheric alkaline. And as you can see, most of the investments actually goes toward pressurized alkaline and atmospheric alkaline being the 2 platforms that we're now targeting to launch in the market.This is a sneak peek of our next generation pressurized alkaline concept. And I would like to say that we used to have a pressurized alkaline solution similar to what is being offered in the market by others today, but that did not bring any benefits to Nel's product portfolio. We pulled it from the market.Our next generation is a fundamental redesign by a dedicated Nel team assisted by external experts that have been working on this concept for more than 5 years. We've not talked much about it. We are now getting ready with the concept. We -- this is a mockup, but we're getting ready to do the prototyping and the piloting of a concept that we really think will be better than what's out there today. If we launch something, it has to work, and it has to be a lot better than what we currently offer.What is unique about this is that we're taking the full system optimization approach, looking at the levelized cost of hydrogen in every detail from electrode design and production to system integration, everything done in order to improve the levelized cost of hydrogen. This system will have higher efficiency, reducing the OpEx for the customer. It will have a very short response time, meaning it's fit for operation, where it's linked to wind farms and solar parks, which again will impact your OpEx positively. It has a very simplified system design, which means you reduce CapEx. There are lots of modules you can just remove from your system because it's designed in a way that will make these modules redundant.It's a significant footprint reduction, which, of course, will impact your CapEx and your land cost, and it's fit to be installed outdoor, which again, means you save a lot of money on -- on the building -- on the civil works. It's also prepared for easy shipping and installation. These are 20-foot containers, everything containerized, [ skip based ], which means we can even do most of the factory acceptance testing prior to the equipment arriving on site, reducing the project management cost for the customers.So this is a concept we will now mature further and bring to market. We're not ready to give you the exact launch date, but we're comfortable in the technology. We've done all the hard work of going through the fundamental design and figuring out smart ways of doing things, and now it's about commercializing this and setting a launch date for when we can bring it to market.So then we have commented on a little bit the order intake situation, where you need to look at the win rate and the average size of contract in order to understand how this develops. The problem or the challenge in the third quarter was the size of the contract, not the hit rate or the win rate. We talked about the importance of understanding real delivery capacity and not just to look at claimed nameplate capacity, and we talked about Nel's ambitious on the technology side.With respect to the third quarter, and the summary, again, just to repeat it, we think we have a strong value proposition. There are not that many companies out there that have the same track record as Nel. We have decades of experience. We have a large installed base. We have technology leadership. We're not a dinosaur. We have multiple technology platforms and proven solutions and exciting new innovations to bring to the market.We also have cost and scale leadership. We are a front-runner in cost reductions when it comes to automation, when it comes to design through market-leading production capabilities. So with increased size, complexity and risk, the need for competence and experience increases accordingly, which favor Nel in the current environment.Summary then of the third quarter, significant revenue increase, 120% top line growth and continued positive margin development. We're not happy losing money, but it's a significant step towards profitability and it's according to our expectations when it comes to the trend line that we need to be on. We have 2 - signed 2 alkaline electrolyzer contracts and 1 PEM-containerized contract, nothing wrong with the hit rates, just the sizes of the contract could have been bigger, and we'll make up for that later. And the capacity expansion is on track towards 1 gigawatts at Heroya and 500 megawatts in Wallingford. We've also concluded the U.S. gigawatt site to be ready if additional capacity is needed in the U.S.And just to comment a little bit on the capital situation and the financing situation, which I know some people are concerned about. With this expansion, Nel can handle a top line that is probably 3x to 4x bigger than our current run rate, but there are significant additional CapEx, so bear that in mind. We have already taken a lot of investments to be ready to grow the top line.And so, the challenge for us is to understand whether the market will grow at 100% plus per year or whether the market growth will be a bit slower, and we will be disciplined when it comes to matching our investments with the revenue growth and what we see in terms of order intake and order backlog development.Then I think we move to Q&A Wilhelm, and I will be joined by our CFO, Kjell Christian on stage.
Thank you. I see we have some -- some questions coming in -- coming in already. And as a reminder, for the ones that want to ask a question, please use the raise hand function. And we will call up the name and activate the microphone on the one next in line. Please also make sure to activate the microphone on your end as well. Note that we will keep cameras for the ones dialing in disabled. Please keep a maximum of one question per person due to time constraints. We often get a lot of questions. If more time, you can always go back in the line. If we have time, we will also take written questions submitted through the Q&A function. If there are questions, we don't have time for, please reach out to us on ir@nelhydrogen.com.And as a reminder, from also previous quarterly presentations, we will not comment on outlook specific targets, detailed terms and conditions on contracts, as well as questions on specific markets. [ Modeling ] questions, we will also appreciate is taking -- taken offline.So let's just kick off. We have the first question coming in from Yoann Charenton. Please activate the microphone on your end, and please go ahead.
We'll have a question on your backlog. And if we think about the industry overall, we have continued to see project delays and a lack of FIDs overall for electrolyzer projects. When I'm thinking about Nel, would it be possible on your end to quantify the share of your backlog that is attributable to projects that have yet to reach FID. Does this correspond to the higher margin portion of your backlog? And also, what is the share of an order that can be recognized as revenue before FID, basically in the Electrolyzer Division. Any color you'll be able to provide will be welcome.
We're not ready to share more data on that today, but we note your questions, and we'll see if we want to add more color and be a bit more transparent about the state of the backlog. Perfectly understand the rationale for asking those questions.
Next question, I know, Erwan Kerouredan from RBC has tried to raise his hand. I've activated your microphone on your end. Erwan, please go ahead.
Can you hear me? Hello.
Yes. Yes.
Perfect. Okay. So I have -- have 3 questions, please. Woodside alluded to some delay at one of its hydrogen projects. I was wondering, if it affects Nel in any way? This is my first question.Another question, are you involved? Can you clarify if you're involved in any of the hydrogen hubs announced by Biden in the U.S.?And then, I've got a last question for Fueling, but if you could -- if you could give some visibility on the first 2 questions, that would be great.
So you ignored the -- the warning that you could only ask one question [indiscernible]. Yes. I'm not aware of any major setbacks to the Woodside timeline. We continue to mature and progress the project in Oklahoma together with them. So nothing negative on that project that I'm aware of.When it comes to the hydrogen hubs, we -- we participated in one hub with a minor amount that hub was not selected. If you look at the other hubs that were selected, a few of them have already selected electrolyzer OEMs. Hence, we work with many of the projects, the proposed projects in the hubs to qualify Nel's solutions for these projects specifically. So I think it's important to distinguish between the company names that were listed, and who will actually do what in the different hubs. So even if Nel wasn't included in the actual application, it doesn't mean that we cannot win a contract supported by [ Hub Money ].
Right. Next question comes from Arthur Sitbon. Your microphone has been activated. Please -- please go ahead.
The question is on the outlook that you shared in your 9-month report. I've noticed a slight change in wording you used to say that you expect to win large-scale orders, now you talk about having the ambition to win these orders. I was wondering what exactly has changed? Is it that there was one particular order that you expected to win that you didn't get? Or is it something broader? And in particular, you also talked in the presentation about the 20 top [ leads ] that you have with a median of 250 megawatt. Can any of these orders contribute to revenues for 2025 or before? Or is that unrealistic?
I'll take the second question, and then Kjell Christian can take the first one. The answer to your second question, whether these projects that we are working on now could have a revenue impact before 2025? The answer is yes.
And then to the outlook question, we changed the outlook in the report on the current wording that used to be in that came in around midyear last year when we had a massive shift in the market going from no big orders to suddenly everybody wanted to go through the door at the same time. I would say there's some -- some more realism into the market now.We also commented in the report about raising interest rates, increasing cost of renewables, and we operate in the same market as everybody else. So it takes a bit more time, as also was said earlier in the presentation. Not so many think they need to secure electrolyzers before they do the FEED study, just to be ready to deliver quickly. So there's a -- there is a slight shift there. It is correct, and that is in line with the fact that we're operating in the same market, as everybody else.
Okay. Next question comes from Alex Jones. Please activate the microphone on your end and go ahead.
If I can just ask a little bit about pressurized alkaline, which is helpful for the detail. Could you give a little more color on the timeline for potentially commercializing that? And in terms of manufacturing it, can you retool your existing alkaline facilities fairly easily to produce that? Or would you need sort of dedicated pressurized lines once you commercialize it?
Again, I fully understand why you ask, and I know by sharing some details, you are eventually forced to disclose more details. I do think this is more of a topic for a Capital Markets Day or later presentations to give you more details on the timeline. But we spent 5 years qualifying the technology. We won't spend 5 years industrializing it. It will happen as -- we will work as fast as we can to bring it to market, but we will never launch something that is not fully tested.And compared to some other companies in this space, unfortunately, we don't rely only on accelerated bench testing. We also need calendar time we take to prove the concept, which means, we will build a prototype before we do a full-scale pilot implementation with the customer in the market. I think we should get back to you on the timeline.When it comes to the production concept is very different from the current atmospheric alkaline concept. But bear in mind that there is a market for atmospheric alkaline equipment also, and you need to produce spare electrodes to replace current stacks that have been sold. Hence you need capacity for atmospheric alkaline, but you need also capacity for pressurized and the pressurized manufacturing setup looks to be actually a bit simpler than the atmospheric one. It will be a simpler line to set up for Nel requiring less CapEx.
Okay. Next question comes from James Carmichael. Your microphone has been activated. Please go ahead.
Hi, guys. Can you hear me? Yes. Okay. I -- just coming back, I guess, to the comments on the U.S. and hubs [indiscernible] you've sort of -- you've agreed to site and potentially the funding. What do you actually need to see in the U.S. to get comfort enough to take FID on that plant?And then, I guess, just secondly, if there's any sort of comments you can give around the refueling business. I know you've mentioned before that you're sort of reviewing that it had a good Q2 in terms of order intake, not so much this quarter. Just any sort of thoughts you can give around that would be helpful as well.
I think for us to do something in Michigan, we first need to utilize the capacity that we are building now. It doesn't make sense to build another factory in Michigan and run our current facilities with utilization rates at 60%, 70%. What it would take then would be large-scale orders that have to be delivered from Europe or from Heroya and Wallingford that we ideally, we don't like to produce in the U.S. And I believe that we can see more orders of a similar size that makes it smart to produce the equipment in the U.S. meaning, we will not invest a lot of capital upfront and wait for the orders. I think we will like to see the orders materialize before we invest. And that's why we don't give an exact schedule for when we start the construction work. We just want to have everything ready because in this market, everything can change really fast.What if we get to a gigawatt order, then Norway is fully booked. What if somebody then comes and says, well, I also want the gigawatts. Then we need additional capacity. And maybe then it's smart to build it in the U.S. provided the equipment will also be delivered to a customer or a site in the U.S. So I think that's what it takes. We need to [ approach ] capacity limitations on the existing plants before we build something new, and it has to be backed by firm orders.Now, I've spoken so long, so I forgot your second question.
Fueling.
Fueling. Fueling is improving both in terms of site availability, meaning how much of the time they're up and running and customers can use them and the money we spend to secure that uptime. So that's a very positive development. A lot of hard work going into identifying then the key failure modes ] and the components that have not been fit for continuous operation.Bear in mind that some of these products were developed when there were not parts and components, specifically made for hydrogen. So you had to do something with just a specification that -- that would fit and then it turned out that it didn't fit. So we've done retrofits in the field on installations. They're proving to work well. We now see just the cost of poor quality coming down. We get better at installing equipment in the field in a good way and secure a good, stable operation from day 1. So all of these -- all of these initiatives have translated into better operational KPIs and now we start to see the financial impact of it.The order intake, so we expect that Fueling will still lose money, but lose less money than we have lost before. It's trending positively. And that we could always wish for a steeper curve, but we're doing everything we can to stop the bleeding and bring it down to a level that is tolerable.When it comes to order intake, it basically reflects the current market sentiment that the light-duty vehicle segment is a bit tricky at the moment and that a lot of customers turn their attention to the heavy-duty segment. We see some bridging segments in between the light-duty segment and the heavy-duty segment, but we also gradually shift our attention towards the heavy-duty segment.An interim solution could be stations to serve taxi fleets or fuel buses in Germany, for instance. So there are opportunities in the market to sell light-duty or close to light-duty fueling stations. But I think eventually, the market demand will come from the heavy-duty side.
All right. I see there's one more question in the line. So as a reminder to everyone, please use the raise hand function if you want to ask a question. So next in line is Elliott Jones. Please go ahead.
Just a quick one on the working capital movements. Is there any commentary you can -- can you say anything about how you expect that to develop for the remainder of the year? Any color on that would be helpful.
So on the working capital movement, we have given some detail on the overdue receivables in a note. And of course, that -- some situations there, where we are working with customers, and that is dependent on customer funding to really work that down. As of now, we remain more or less fully booked for the current year on the alkaline side. So we will -- should be able to ship what we -- more or less what we produce.On the industrial side in the PEM unit, we have had a bit of a working capital build up this quarter because of, again, customers not being ready to take orders or other disruptions. So we will be closely monitoring that and working with the customers.
So we have another question coming in, question from Deepa Venkateswaran. Please go ahead.
So I think I just wanted to pick up, Hakon, on your comment on the -- if you keep up the current win rate, but then you translate that into a higher average or median size, but you also highlighted that these larger projects are taking longer. So would it be fair to assume that, again, a win rate of 1 to 2 per quarter might not be possible given the size rather than -- because you did highlight a number of reasons, including [ now ] the higher renewable PPA costs and so on. So how should we think -- do you think it's realistic to assume that you might still be able to get that 1 to 2 orders?
I think it's very hard to give a good guidance on that because I honestly don't know. There are so many factors impacting this. Sometimes, we are very surprised to see how fast some customers move and how little time we spend to agree on something that works for both parties. [ All the ] times, we've worked on projects for years, years.If we look at the top projects we are targeting now, I think there could be quarters, where we signed no contracts. There could be quarters, where we would sign 2 or 3 or 4. This is really hard to tell. But I would say in -- in the past 2 quarters, we have transitioned a little bit from a period, where customers place orders early until now where they place orders late, which gives us that 6-month transition period that we're coming out of.So I'm positive about our pipeline and the quality of the projects and opportunities we are working on, how we are positioned. But it's super hard to figure out exactly when customers are happy and confident enough to place the purchase order with Nel and do the down payment on the order because we don't only do stack capacity reservation agreements. We do require a down payment on the equipment.
And then we have another question coming in from Yoann Charenton. Please go ahead.
Yes, if I may. Would it be possible to have a better understanding in the current environment of the timeline between a delivery of an equipment and this SAT that is required basically to recognize fully revenues from a given contract?
So if you look at revenue recognition on the project, that is normally done over time, and a huge chunk of it is being as -- done as we deliver the equipment. So be that equipment will produce in-house or the balance of stack equipment that we produce at third parties. And then there is more hours coming towards the end related to installation, commissioning and other things. So related to these large contracts, you would see a fairly large chunk of it being linked to what we actually produce and what we [ source from ] third parties.In addition to that, of course, we are running FEED revenues and running engineering revenues. And again, back to earlier comments on pipeline, we don't announce every FEED we sign, even if there's a [ hundreds ] of megawatts potentially coming up there. We don't announce it until we have the equipment contract in place. And there, we would be recognizing revenues, as we deliver on that and basically spend the hours.
This makes sense. And just as a follow-up on site acceptance. I mean, would you be able to say because of some disruptions we have been noticing on certain projects in the industry overall? What is sort of the time it takes once equipment have been fully delivered to a site for that site acceptance test to be then completed?
That is a very tricky question to answer because what we do is that we come in and then we deliver our stacks and we assemble our equipment, and then we help supervise and monitor certain parts of the older components, but customers might plan the installation and commissioning very differently. It depends on how much they preassembled how the equipment is brought to site, how ready they are. They could be delayed with the electrical wiring, with the piping. They could have during the project, an idea about changing something to the original schedule that doesn't really impact Nel's equipment.So there is no given answer to that. It could take few months, or it could take [ a year ] or 2 really depending on how they schedule and plan the project. But the important thing, as Kjell Christian said, is that the payment linked to SAT acceptance is rather limited when you look at the total contract value.
And then the overall trend is that it goes faster and faster. If we look at the containerized PEM solutions, the first ones were painful. The last ones we've done is more straightforward.
Then we have a question from [ Abigail ]. I've activated your microphone. Please go ahead. Abigail, are you there? You need to activate the microphone on your end as well. No. Then we'll jump to the next one in line, [ Damien Sputterga ]. I've activated your microphone on your end. Please go ahead.
I'd like to ask about SG&A cash costs. And looking back to 2022 in the first 3 quarters, you had an average SG&A cash costs of around NOK 240 million. And in the fourth quarter, it suddenly increased to NOK 460 million circa. It is 90% higher than the average in 3 quarters. And this year, we have about around NOK 330 million. And should we expect a similar story in the fourth quarter this year, as in the preceding year?
Of course, we work to avoid huge fluctuations between quarters. Sometimes, especially on the line you're referring to, that is also linked to progress on R&D efforts, which is again linked to grants. So in some quarters, you may have large chunks of externally done research ready that qualifies for a grant. So it's fully -- no from a -- from an EBITDA and also cash flow is neutral, but it could -- could hit in any given quarter. And then, I guess, you could follow up with IR on the details around that. That's your question.
All right. We'll try one more last time from [ Abigail ], if you're there. You need to activate the microphone in your end as well. No. Then it seems we are done with all the questions on the line. I'll give the word back to management for last final remark.
Yes. So thank you for attending. We're quite pleased with the operational improvements we're making in Nel, leading to better financial numbers, still not fully where we need to be, but we are tracking the curve that we want to track. And of course, the goal is to get to profitable numbers. For that to happen, we need continued revenue growth. I think right now, we're experiencing extraordinarily high revenue growth, and it will be interesting to see whether it will stay at that level or come partly down. But there is no doubt, revenues will continue to grow going forward in the coming quarters.As a result of that, we also see the EBITDA improvement, especially in the Electrolyzer Division. We're getting close to the black figures on the Electrolyzer side, a bit more work to do on the Fueling side. And as I said, we were not that concerned about the order intake in the quarter. There was nothing wrong with the win rate. It was just the average -- that the project size, that was wrong. And I think we -- we commented on the fact that now the projects we are working on are much bigger. That means, even in quarters, where we get some of the smaller projects in our current pipeline, they will be bigger than the smaller ones that we worked on and now came to conclusion in this quarter. So not that worried about order intake.We also commented on the importance of having real manufacturing capacity, which we have. We also talked about the importance of not scaling capacity too fast, but be disciplined when it comes to how fast we build the capacity, we will match that to market demand. And we also alluded to the fact that the Nel is not only doing old stuff, we're definitely spending much more time and money on the new stuff that will come out. And I think we will continue to give you updates on how that is progressing and probably share the granularity of the information and the details that we give you. But at least, we are very excited of the Nel sites to bring our new innovations to market in the not-too-distant future. So thank you.