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February 24, 2014

ClearEdge expands in S. Windsor, seeks $200M revenues

Photo | Pablo Robles Drew Stolar (bottom left) Dan Welply (top) and Eric Prause test a fuel cell stack at the ClearEdge facility in South Windsor. 
David Wright, CEO & President, ClearEdge Power
Photos | Pablo Robles (Above) The ClearEdge fuel cell stack in the gray padded sleeve makes up a portion of its 400 kilowatt product, which provides nearly emissions-free electricity and heat through an electrochemical process. (Below) The ClearEdge facility in South Windsor can produce eight 400 kilowatt systems per month.

In its first full year since acquiring UTC Power for a song, fuel cell manufacturer ClearEdge Power wants to double its annual revenues to $200 million, CEO David Wright said.

“This was like the mouse eating the elephant,” said Wright, who also serves as the company's president. “We knew if we could make this transaction work, we would be a major player in this market. It was a risky bet, no question about it, but it has worked out.”

To reach its goal, ClearEdge is expanding its South Windsor campus so it can manufacture the company's two types of fuel cells. The firm also is investing $22 million in research and development, mostly in Connecticut; working to drop the price of both fuel cells; and hiring more engineers on top of its existing workforce of 400.

“Energy is a pretty hot space, and we are having a lot of fun,” Wright said. “We are going to grow the company … and we are well on our way.”

A relatively small firm based in Oregon, ClearEdge vaulted into the upper echelon of the fuel cell industry in February 2013 when it took advantage of Hartford conglomerate United Technologies Corp.'s willingness to unload its fuel cell subsidiary, UTC Power, which was the second largest company in the industry.

United Technologies actually lost $227 million on the deal, taking a $179 million impairment charge and paying ClearEdge $48 million to take control of the subsidiary. Like all other fuel cell providers, UTC Power has never turned a profit, and United Technologies wanted to get rid of the company to focus on its core aerospace and building parts manufacturing.

Wright said he knew the acquisition was risky, and his executive team performed eight months of due diligence before pulling the trigger on the deal. In addition to combining the cultures of two East Coast and West Coast companies and making sure key personnel stayed on board, ClearEdge had to clean up a messy financial situation in South Windsor.

Since it wasn't profitable, UTC Power relied heavily on its former parent company to provide cash, and United Technologies financed nearly all of UTC Power's sales to customers.

ClearEdge trimmed a lot of fat when it took over, eliminating the transportation division and laying off more than 100 of the 300 workers in Connecticut. Rather than focus its efforts on developing the perfect fuel cell, the company has concentrated on sales.

Wright said he anticipates ClearEdge will be cash-flow positive by the fourth quarter and profitable by the first quarter 2015.

ClearEdge made the smart move of identifying the key markets for its two products and then refining the design of those products to cater to those markets, said Joel Rinebold, director of energy initiatives at the Connecticut Center for Advanced Technologies.

“They want to sell their product,” Rinebold said. “They have tightened up the industry, and they are aggressively looking to commercialize their product.”

ClearEdge manufactures two types of fuel cells: the legacy UTC Power 400 kilowatt product for large commercial users and utilities, and the legacy ClearEdge 5 kilowatt product for residences and small businesses. The 400 kilowatt version, which costs about $2.5 million, comprises 95 percent of ClearEdge's revenues.

To boost sales of the 5 kilowatt product, ClearEdge is expanding its South Windsor campus first built in the 1960s to make fuel cells for the NASA Space Program and the Moon landing.

By building the 5 kilowatt system in South Windsor, the company can sell more in the Northeast region, Wright said. ClearEdge has shipped 20 of the smaller products since the UTC Power acquisition, mostly to commercial businesses, Wright said.

In a couple of years when the company is able to hone its supply chain and improve its technology to the point where the 5 kilowatt system is affordable for homeowners, Wright said the company will meet his goal of selling 20 systems per quarter.

The real money, though, remains in the larger system. The company shipped 43 of the 400 kilowatt fuel cells in ClearEdge's first year, and Wright said he wants to ship 75 by the end of 2014.

That means maximizing production out of its South Windsor facility, which is ClearEdge's main manufacturing hub. Its demonstrated capacity is eight 400 kilowatt systems per month.

“It is a pretty clean process, and we have honed it over the years,” said Lisa Ward, government relations manager at ClearEdge in South Windsor.

ClearEdge also expanded its workforce to accommodate its anticipated growth. Since the layoffs in March, the company has hired 100 new people in its sales, service, and engineering divisions.

The firm relocated its headquarters to Sunnyvale, Calif., and opened a sales office in Irvine, Calif. The Oregon location now serves as a research and development center, while South Windsor's role is manufacturing and R&D.

“South Windsor is really the hub right now,” Wright said.

Wright expects to make double-digit hires among its engineering workforce this year and plans to invest 12 percent of the company's revenue in R&D, most of which will focus on refining the 400 kilowatt system in South Windsor for efficiency and greater market reach.

“It is an important piece of the business model,” Wright said.

A key part of the R&D is modifying the 400 kilowatt system for the European market, which Wright hopes to enter in the second half of this year.

By adding new markets and more revenues, ClearEdge will make the UTC Power acquistion a successful one, Wright said.

“The energy sector is going through a tremendous transformation, and it is going to be fun,” Wright said. “We are going to stay pretty focused now on what we do.”

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