Nel ASA (NEL) Earnings Call Transcript

Good morning from Oslo, and welcome to Nel's third quarter 2026 results presentation. My name is Hakon Volldal. I am the CEO, and I will be joined today by our CFO, Kjell Christian Bjornsen, to answer difficult questions that I don't want to answer, and also Wilhelm Flinder, Head of Investor Relations, Communications, Marketing, and everything else. We are ready to start and let's get to it. We will cover the following agenda topics. We will skip the Nel in brief section. Most of you probably know Nel already, and if you don't, feel free to read through the first introduction slides. We will have the Q3 highlights, commercial update, technical update, and of course, as always, end with a Q&A session. On to the highlights. In the third quarter of 2026, we delivered NOK 112 million in revenues. Our EBITDA ended at negative NOK 93 million. Our order intake was NOK 253 million, which gave an order backlog at the end of September of NOK 1.314 billion. Our cash balance at the end of the third quarter was close to NOK 1.1 billion. In terms of the highlights, we had some nice order wins. We booked a USD 20 million order from Collins Aerospace for Navy stacks for the U.S., U.K., and French submarine programs. We entered a framework agreement with a supplier in the U.K. as an integrator of our PEM electrolyzers. We signed an MOU with Rheinmetall for decentralized synthetic fuel production for defense applications, and subsequent to the third quarter, just a few days ago, we also booked a $12 million purchase order from a U.S. technology company for 3 MC500 products. Group financials. Revenue decreased by 63% year-on-year, due to a soft quarter in our alkaline division. PEM revenues, on the other hand, increased by 65% versus same quarter last year. EBITDA, NOK 93 million negative, a reduction of NOK 56 million compared to a rather strong Q3 last year. Cash flow from operations, minus NOK 200 million, and that gave a cash equivalent of NOK 1.078 billion. So still a solid cash position. Alkaline financials, as I said, a soft quarter. Revenue down 91% year-on-year on the back of few orders in the past 2 years. And that also means EBITDA came in at minus NOK 41 million despite cost reductions. We have secured some paid studies for large-scale projects, and these activities and the launch of new pressurized alkaline technology will lay the foundation for future orders and hence higher revenue bookings. We have adjusted our cost base, both in terms of variable costs in our production and fixed cost in terms of support and project and technical resources. PEM had a good quarter. Revenues up 65% compared to the same quarter last year, and mostly driven by a larger scale or let's call them megawatt type contracts that we delivered. EBITDA improved by NOK 10 million compared to last year, and also quarter-on-quarter, NOK 11 million up. Product and project margins are in general up compared to previous quarters due to better project execution and standardization of our deliveries, which gives a better margin and also a more predictable margin. This quarter included NOK 23 million in research and development expenses, compared to NOK 27 million in the third quarter of '25. Looking at order intake and backlog. We had a strong third quarter compared to last year. I think it was up 340% almost year-on-year for NOK 253 million in the quarter, predominantly or almost exclusively PEM orders. We do see that it's our containerized PEM series that really drives the order intake. With most of the order intake coming from PEM, you can also see the composition of our backlog has changed quite substantially over the past quarters. It used to be predominantly alkaline. Now it's predominantly PEM. Also, please notice that the order backlog has increased by NOK 330 million compared to the third quarter in 2025. Some more details on the commercial side. We do continue to see several promising smaller projects. Smaller projects can be in the, let's say, 1 to 40 megawatt range. We also have some larger projects in the 50 to 150 megawatt range that are expected to take final investment decision over the next quarters. We have especially seen a strong demand for containerized PEM solutions, and the reason is that projects have become smaller initially. They often start with the first build-out phase in the 10- to 50-megawatt range, which fits nicely with our containerized PEM systems. If this first phase is successful, projects can then add new stages and add capacity over time. That makes it easier for customers to balance the capacity installed and the CapEx invested with offtake that will generate income over time. Multiple containerized PEM systems can offer a good setup because it's a proven, efficient, and standardized alternative to customized solutions. Instead of spending a lot of time and money on engineering, putting together different modules, you just go for standardized building blocks. Yes, there will be some redundancy, but because it's an efficient delivery, you may more than make up for that compared to doing a turnkey plant where everything has to be customized and tailor-made. Significant CapEx reductions, at least on our side, combined with a growing list of references, have also increased our competitiveness in this specific market segment. We do receive concrete interest in our new pressurized alkaline concept, and there are several active dialogues with customers ongoing, but it's still early. Remember that we launched this product commercially, meaning we would engage with customers in the spring this year, so we still need some time to mature the concept together with customers. Europe is our most active and promising region at the moment, but as you can see from the latest announced orders, we also have activity and make progress in North America, and we do have opportunities that we pursue in the Middle East and Asia through partners. One of the highlights of the quarter was this contract, a $20 million contract for Navy stacks from Collins Aerospace. This is not the first contract we have received from Collins. It's one out of many that we have booked over the past 15 years and basically extends a long-standing collaboration and cooperation built around reliable oxygen generation for demanding submarine applications. This is life support. It's a backup system for life support to provide oxygen to people on board submarine vessels. It does reflect a growing interest in using electrolyzers in the defense sector, and especially these proven systems that have been out there in the market and shown again and again that they are reliable and work because that is what the military needs. They need reliable operational resilience and long service life. So in an environment where failure is not an option, the continued trust from Collins Aerospace underscores Nel's engineering track record, and it also confirms Nel's position as a dependable partner for critical life support systems. We entered a framework agreement with Hydrasun as a European integration partner. Hydrasun is based in Scotland, and we onboarded Hydrasun as an integration partner for our containerized PEM series. What that means is that we will retain PEM stack production in Wallingford, and then Hydrasun will integrate these stacks into the containers, what we call the balance of plant, and the complete turnkey containerized systems. So this Aberdeen capacity improves Nel's delivery flexibility, scalability, and supply chain across Europe. Our current integration partner is in the U.S. That gives us a cost advantage and also local content in the Americas. But in Europe, we do not have it. So having Hydrasun on board means that Nel can deliver systems specifically to the U.K. market and meet local content requirements, for instance, in HAR 1, 2, and 3. It also means that we can avoid a lot of the freight costs connected with transporting containers from the U.S. to Europe. Talking about containerized PEM products, we received a nice $12 million order from a U.S. technology company. Would have loved to disclose the name because it is a household name that you are familiar with, but there is some secrecy around what this will be used for. So we cannot do it. But it is a very prominent company in the U.S. that ordered this equipment from Nel. We continue to see strong momentum for this platform, and this specific customer is a rather demanding customer with high technical and operational requirements. So we are quite proud to have landed this. It underlines the quality and also the maturity now of our containerized platform. We have sold more than, I think we are getting closer to 30 containerized units, and the confidence in this platform is increasing day by day. We announced a partnership with Rheinmetall on their Giga PtX project for decentralized synthetic fuel production. This is motivated by the energy security that is increasingly becoming a strategic priority as countries seek to reduce dependence on vulnerable fuel supply chains. In case of war, you need diesel, marine diesel, and SAF to basically operate planes, vessels, and artillery and vehicles. With, as we can see now from the war in Russia, a vulnerable infrastructure and Ukraine, of course, the infrastructure around energy is vulnerable. Most of the refining is done at a few large refineries, especially in Europe. If these are taken out, it will basically harm the entire ability to defend Europe as a continent. So the idea behind this is to have a cluster of decentralized, smaller production plants where you use renewable energy to produce synthetic fuels. Synthetic fuels means that these fuels coming out of this setup involving hydrogen from Nel and CO2 and other things that you need will be exactly what is used today. That is diesel, marine diesel, and SAF. We will not produce hydrogen per se. We will use hydrogen to produce the synthetic fuels, the fuels that are needed to continue to operate aircraft and vehicles and ships during a war. This combines Nel's electrolyzers with Rheinmetall's concept to basically set up a network of synthetic fuel production sites. We will jointly assess the technical and commercial feasibility, including potential sites, infrastructure requirements, renewable power access, sustainable carbon sources, and priority use cases in close collaboration with local armed forces and defense governments. Technology. We continue to advance our pressurized alkaline system through testing and customer discussions. The prototype we have at Heroya provides valuable insights. We continue to test it to cover different operating modes, different test protocols, and of course, to do further optimizations of the plant design. We are in advanced customer discussions for early adoption of this platform. It will take, as I said initially, a few more months at least before I think we have the first customers announcing that they will test this concept. As part of the process to mature the concept and make it, let's say, more available to end customers, we have worked with Samsung E&A to develop what we call the Compass H2-A+, which is a 100 megawatt system concept built around our pressurized stacks. It is a full system, including everything you need on the balance of plant side to build a complete hydrogen generation plant. We also this year celebrate 30 years of PEM innovation. In 1996, Proton Energy Systems was founded with the ambition to make hydrogen available where it was needed by producing it directly from water and electricity. What began with a relatively small team in Connecticut working out of a garage would grow into a technology used across industries and countries around the world. The next chapter will be built on everything we have learned from the people that founded this company 30 years ago and that Nel acquired some years later, and on the people who continue to challenge what PEM technology can become. What we are envisioning and maturing is the next generation PEM stack. The work builds on years of research and also years of collaboration with General Motors, combining experience in electrolysis, fuel cells, and automotive manufacturing. It is designed for increased efficiency and reduced production cost, as well as mass production. Currently, close to 3,000 hours of subscale stack testing has been done, and we are taking steps towards full-scale testing. Full stack testing is expected to commence in 2027. The design principles or the design goals for this are more hydrogen generated, so more than 1,200 kilos per day, and that means we go from a 1.25 megawatt stack to a 3 megawatt stack. The important thing is to get the cost down, and if we compare the cost of the new concept with what we currently have, which by the way has been cost reduced over many, many years, we are talking about a 70% cost reduction. That is massive. Higher efficiency. 48 kilowatt hours per kilogram of hydrogen at stack level, compared to 52, 53 on the current platform. That is also close to a 10% improvement in efficiency, which will translate into lower OpEx for the customer. To achieve all of this, the complexity also has to come down, and that means fewer parts. We are working on now a design that has a 50% reduction in components used, which will, of course, again, dramatically reduce the assembly time and also the complexity involved in putting stacks together. That is it from our side. I will now be joined by our CFO, Kjell Christian Bjornsen, to answer any questions that you might have. Wilhelm, you will do the usual script.

[Operator Instructions] If we do not get your question, feel free to reach out to us at ir@nelhydrogen.com. As a reminder, we will not comment on outlook, specific targets, detailed terms and conditions for individual contracts, or questions about specific markets. Modeling questions are also best handled offline. With that, let us get started. I see we have one question already from Skye Landon. Please go ahead.

Couple of questions from me on the orders and partnerships that happened post the quarter. Apologies if you went over some of this in the presentation, I joined a bit late. The 12 million purchase order for PEM stacks from a large U.S. tech company, can you elaborate on what the use case for the hydrogen will be in that contract? That is the first one. And then the second one on the MOU with Rheinmetall. Obviously, you are the second OEM to have a partnership with them following ITM. How do you see this very large, decentralized project being shared across potentially different OEMs like yourself, like ITM? That would be great.

I think I cannot comment on the use case for the $12 million contract, because then you might be able to figure out which company it is. As I said in the presentation, it's a household name. It's a large U.S. technology company. We're extremely proud of becoming a supplier to this company, but unfortunately, we're not allowed to disclose it, also because the secrecy surrounding some of the things they are doing. So I cannot specifically comment on the use case for that, unfortunately. On the Rheinmetall order, or MoU, I think Rheinmetall is targeting decentralized fuel production across a number of European countries, and essentially all of NATO. That means there's quite a number of production sites that will have to be built. I don't think any single supplier can handle all of it, and we also have different relationships with the end customers, being armed forces or the marine and the air force in different countries. So I think the more the merrier. It gives the initiative a chance of succeeding, because there's not one company that can do all of this. We need to be several partners in this. So, happy to share the spotlight with other OEMs. I think together we can mature this and ensure that we have a decentralized fuel production across a number of European countries, and not only in the U.K. or in Norway.

Next question comes from Helene Kvilhaug Brondbo. Please go ahead.

I have a question related to your backlog at-risk, which has increased quite a lot over the quarter. I was wondering if you could comment on why it has increased by this much related to the HYDS Projects. I am also wondering if there is a chance, is there any more backlog related to that project that is not yet classified as at-risk?

To take that, if you just compare the notes from second quarter to this quarter, what you will have noticed is that we have moved one of the 2 sites in the second quarter to 2 of the 2 sites at-risk. There is nothing more to be put into the at-risk backlog bucket. We would, of course, have loved for this project to move out quickly. The same goes for the customer, but due to continued delays, we think it is prudent to signal to the market that this now may not come as a delivery in 2027.

Next question comes from Anders Rosenlund. Please go ahead.

Could you split the backlog in the alkaline segment in equipment and, I don't know, service revenues or future service revenues and already installed equipment?

To give the very quick answer, about half of it relates to future milestone payments under a technology licensing agreement. The rest is small and many orders.