Image source: Getty Images.

FuelCell Energy (FCEL -10.05%) recently reported Q3 earnings. Failing to meet analysts' expectations by $0.01, the company reported a $0.38 loss per share. But there's much more to a company's quarterly performance than just one number, so let's dig in and take a closer look at how this fuel-cell leader fared in its third quarter. 

No news isn't good news 

Although management had expected to hear if it had been awarded the Beacon Falls Energy Park over the summer, the project's reviewers announced in July that they needed more time before making a decision. Getting the park would be a major win for the company. Calling it a game-changer would be hyperbolic, but receiving the nod for the project would suggest that FuelCell Energy's vision of a fuel-cell powered future is not quite the pipe dream that it currently appears to be. 

Responding to an analyst's question on the conference call, management reiterated the optimism it has maintained about winning the Beacon Falls Energy Park contract. Arthur Bottone, FuelCell Energy's president and CEO, said that the $34 million the company raised through a recent stock offering is meant to better position the company -- among other things -- to execute the project when it receives the go-ahead. Management estimates that the 63 MW facility could be worth as much as $500 million in revenue between equipment and service. 

The electric revenue slide

While management expects major project wins in its near future, a look at its present state of affairs is less inspiring. In Q3, FuelCell Energy reported a dismal $21.7 million in revenue -- a 48% decline over the same period last year. Management largely attributes this lackluster performance to the ebbing business with POSCO Energy.  

FuelCell Energy, whose current order with POSCO will be finished by the end of the year, is transitioning away from its long-running business of fuel-cell kit and module sales and turning toward a royalty-based model.

Image source: FuelCell Energy corporate website.

In addition to receiving a royalty on each scheduled fuel-cell module replacement under service agreements for modules built by POSCO Energy, FuelCell Energy will receive a 3% royalty on POSCO Energy net product sales manufactured in South Korea.

In addressing the transition away from kit and module sales to POSCO, FuelCell Energy's management stated that it plans to replace its revenue from POSCO with the higher-margin business of engineering, procurement, and construction (EPC) orders from North America and Europe. Evidently, management hasn't successfully executed the replacement yet. For the third quarter, the company reported $1.2 million in revenue related to EPC services -- a 57% decrease year over year.

Don't be fooled

The recently completed quarter -- like so many previous ones -- left much to be desired. Investors desperate to find some good news in the earnings report though may have been drawn in by growth in the company's cash position. The company ended Q3 with $94 million -- a 42% improvement year over year -- in cash and cash equivalents. But this situation can't be taken at face value.

Ideally, the growth in FuelCell Energy's cash position would stem from its operations; however, this isn't the case. In fact, the company reported $46.5 million in cash outflow from operations over the nine months that ended on July 31, 2016 -- more than 30% worse than the same period last year. Consequently, the company has relied on raising capital through debt and stock offerings.

Raising approximately $37 million from one institutional investor in July, the company has reported $68.8 million in proceeds from selling stock and warrants over the past nine months. And thanks to debt, the company has grown its cash position by about $45 million over the past nine months. 

The takeaway

As FuelCell Energy waits to hear about Beacon Falls and the other projects it has bids into, the company continues to limp along courtesy of a decline in revenue and an increase in cash outflow from operations. Compounding the bad news, the company's balance sheet has been weighed down further with debt while shareholders continue to suffer from dilution.

The third quarter proved to be a difficult one for FuelCell Energy. Over the past year, the company has drawn attention to its backlog as a beacon of hope; the second quarter of 2016 marked the fourth consecutive quarter of backlog growth. Sadly, that streak came to an end in the third quarter, as the company reported only $392 million in contract backlog -- shrinking more than 4% from the $411 million it reported in contract backlog at the end of the second quarter.