In depth into the numbers, and then, of course, we open up for questions and hopefully a good dialogue. Just a brief background to PowerCell. Hopefully, most of you who are listening knows about us, but if we have any newcomers, PowerCell claim to be the leader in the hydrogen electric solution industry. We're more than just a fuel cell company now. We are active in hydrogen electrification, which is identified as one of the most important solutions for the energy transition that we see. We heard earlier this week about the U.S. investment, where they have identified 7 hubs for hydrogen as clusters, which are extremely important for the emerging business. PowerCell as a company, we have industry-leading growth and margins.
We have leading technology and product offering based on the experience of more than 25 years of research in this field of technology. I came into office two and a half years ago, January 2021, with the assignment to commercialize what was a very promising technology company. And hopefully, we can, in this presentation, share what we have spent the last two years doing and the preparation for what is coming ahead. In short, we have now grown to more than 150 employees organically. Two and a half years ago, we were 40 employees, so it's been a very interesting growth journey.
We have the headquarters in Gothenburg, but we now also have, we more or less have a global presence, both directly from our subsidiaries in the U.S., Norway, Germany, and China, but then also from the collaborations we have with the industrial partners, like, for instance, Robert Bosch, which gives us a global presence and also a global industrial footprint. Why we think this is a very interesting time for the industry is because we are now entering into a new phase. We have tried to convey this in the Q3 report, but I'll try and elaborate a bit more. We are now emerging away from the tech exploration that was driving this industry for the last two years.
What has been present for PowerCell for the last, I would say, 6-9 months, but also for the industry in general, is that we now see growth coming from commercial applications with OEM business, which means that we now see technology being designed into commercial offerings, which gives us new requirements. We need to be able to perform in a different way, but it also gives us new opportunities, more demand on uptime, industrial stability, ability to create value in a customer operation, more than just having technology that is working. So we have had the best fuel cell technology, both on stack and systems, in the industry. That is something we claim, and we can back it up with the measurement on energy density, et cetera. But that is not enough.
This is also what we spent the last two years refining, that we have a product offering that is not just doing what is it intended to do, but it's creating value in the customer operation over a life cycle. That is a new requirement that we have been preparing for for the last two years. We have invested in our product offering. We have invested in the internal abilities and capabilities of the company, but also in the product offering, allowing us also to have a product portfolio with different revenue streams to make us more stable for what is still a fairly volatile market.
But the ability to have product sales, engineering services, the royalty revenue from Bosch, et cetera, gives us more stability when perhaps one of the different revenue streams are accelerating slower than the others, which is also a proof point in the stable, gross margin development that we have seen now for the last two years. We have invested into the productivity and internal efficiency of the company, and also into industrial stability and capacity. And when I go back and look at the quarter report, quarter one report from 2021, and actually my first CEO comment, that was the direction that was set out. That was also the direction sent out from the board and the assignment to me as a CEO to prepare PowerCell for this.
So why we now have a position for the emerging market that is quite strong for us, it's not just by coincidence. We have, as I said, invested into this. So when we now see new requirements from the industry and when we see the new opportunities from the OEM business, which gives us more stable volume development and longer contracts, it's not by coincidence. And the reason why we do this is because we need to prepare a company like PowerCell for the growth journey that is now accelerating. Because when you then scale up, you scale up something that is sustainable and that is lean and efficient, which gives us the operational leverage that Torbjörn will present in the numbers. The opposite would be to scale up something that is not ready for the market that we see now.
So we're quite happy with the direction that we took a couple of years ago, and we now see it pays off, both in a growth that is stronger than the underlying market, but—and I should say, with an ability to leverage that growth into improved EBIT and operating margin, although still negative, but we can see a good trajectory towards break even for the company. So we have said that we have kicked off the growth journey. We have had an industrialized production for more than two years now, so we have been able to refine what we're doing. We did, in 2022, introduce a market offering that we call industrialized innovation, which is something that we feel is very competitive to the market.
The meaning of the industrialized innovation is that we base our growth on customer adaptations on our industrialized components, so we get the best of both worlds. Many companies in a situation like PowerCell and in a technology shift need to optimize either on industrial stability or innovation. We managed to actually be really skilled in both dimensions at the same time. So with the collaboration with Bosch and our industrial core components, we have a very strong industrial stability. That gives us room to be very adaptive towards specific customer requirements, which has given us the strong OEM growth that we have seen in the last year. We also have a strong, what we call first mover advantage, because we have a number of applications out there.
The fact that we have a fairly diverse segment strategy gives us a lot of information and feedback into the company, which makes us, which we then can take back and refine the product offering and improve. Because this is still a fairly novel market, the magnitude of segments have made us very, very strong and also made the product offering very strong. We see a strong growth in commercial orders, and we see now that the timing we had with ramping up production is fairly well aligned with when the underlying market is now improving. This is also then supported by very strong market drivers that is perhaps not necessarily on behalf of PowerCell. We see a lot of initiatives, both in the U.S. and in Europe, with regards to hydrogen electrification.
Both E.U. and U.S. are investing heavily into this area, where I think that, or actually, my opinion is that the U.S. market has more precision in what they do. The decision earlier this week to identify seven hubs is crucial for PowerCell, because that is indicating where will we see an infrastructure around the whole hydrogen logistics and value chain, and where we will see the different customers emerge. So for our U.S. entity that we formed this year, now we are in a new phase where we are looking for where is the actual location going to be, and that is a dialogue that we are ongoing. We also see a strong trend of the different companies now signing up or committing to zero emissions.
Although the zero-emission strategy or commitment quite often is related to 2045 or 2050, 2030 is a very important intermediate goal. And what we now see is a number of companies in every industry that we're active in who are fairly late. So the demand for zero-emission solutions, regardless of it being hydrogen electrification or battery electrification, the demand is surging. So we see a very strong trend towards this, and I will come to the product offering that is going to to meet that demand. Key events in Q3 , of course, we see a very strong product sales growth is there, especially, rolling 12 months is a very strong number. Torbjörn will comment more on that one.
We are happy to report a strong gross margin, which is important for us, because when we continue to grow, we need to grow something that is sustainable for PowerCell. With the accelerating market and accelerating volume, we need also to be able to share some of the scale of economy with the customers. We expect to lower prices together with our partners and customers, but we will do that with a maintained gross margin. So it's important to focus on productivity and efficiency. And these are the kind of traditional, slightly boring factors of a company, and many startups or fast-growing companies in a technology shift, they tend to overlook this and do this quite late. We have done this now for the last two years. This is why we are well prepared for the growth that is coming.
What we continue to see is that the aviation segment is accelerating and is pulling the market ahead. At the moment, we have 18 different projects with aviation customers, which is really important for us because it is a really high demand segment. Requirements on technology is extremely high, requirements on safety, stability, performance, et cetera. So being active in that segment gives us a lot of valuable lessons back to the other segments, but also a strong proof point that we have, that we have a very solid product portfolio and technology portfolio to base the growth on. And in Q3 , we completed the first phase of the aviation certification testing together with ZeroAvia.
10 test flights up to 5,000 feet without any issues, which was a very important milestone for PowerCell and ZeroAvia as a company, but also in the certification process for their aviation propulsion unit to be commercialized and introduced in 2025. So really important milestone for the company. And then, of course, Torbjörn can elaborate more on the application for relisting on the Nasdaq main market to be completed sometime Q4, Q1. Recent key wins. We have had a number of orders coming in in Q3 , but the most significant one was to have additional fuel cell systems delivered to H2FLY in the magnitude of 1.8 megawatts of power.
Interesting because this is a follow-up order from the order last year, which once again is a strong proof point of the value that we have together with our customers and partners in the industry. Moving over to the numbers, Torbjörn.
Thank you, Richard. And yes, strong growth in product sales. I think that was one of the items you brought up as well, Richard. And I think it's important to bring up in this sense, because that is a sign of the maturity of the market. It's getting more and more product orders that comes in, and we are able as a company to deliver on that as well. So we are up 84% versus Q3 last year, and that's a stability for the company and a proof point of the maturity of both the market and also us as a company in ourselves.
And then highlighting the 43% rolling twelve-month growth that we see, and that's also on the trajectory that we are looking for and we are working with. And that's strong, and we keep continuing on that journey. And then the last one, royalty increases. That of course affects sales, but also with a 100% gross margin on that, it also affects the leverage going further down on the P&L. Strong gross margin. We are increasing with a great gross margin number versus Q3 last year. And also then having a gross margin rolling twelve that is above 47%.
It's really, really good numbers, and this is done at the same time as we have done some changes that we have presented before on how we present the gross profit or cost of goods sold, where some of the previous OPEX costs have moved into cost of goods sold. But still very good numbers, but it is not an isolated event that we have really good gross margin in one quarter, because we can see that going backwards, this happens, and we won't have it every quarter, but it's not an isolated event. It has happened, and it will happen again.
And also, this is why looking at the rolling twelve months, both on top line revenue, and also gross margin, is important, because this is still a market where in between quarters, you can have slight volatility. Also, going back to what we said two years ago, it is important to develop a product offering. That is the number one thing that we can affect us as a company, to build more stability in between quarters and also in the whole growth journey. So it's important to look at it the right way, and we're quite happy with the development.
Great. Switch.
Switch.
And then getting to operating leverage, of course, I mean, relating to the previous slide there, gross margin is one important part of the full leverage that we're looking for. This is of high importance to us and a high-focused area to really get leverage on the sales growth that we have. What we can see here is that we are then decreasing, even though in comparison to last quarter, I mean, the decrease is not really great, but still we are on decreasing trajectory. This is then being done with the increase of FTEs of 44% versus the Q3 last year.
So we are growing the company substantially, and we are matching that together with the sales growth that we see and keep a lot of track on this. It should be said that some of the product development expenditures are capitalized. It's the development of the next generation of the PS 200, the 200 kW system that we have. And then it should also be said that we have increased funding for EU projects in comparison to Q3 last year, and that's not seen in the operating leverage graph that we're showing off here. So that's why we can see an even better leverage on operating profit line. So that's a bit on this one.
And then lately, the last financial slide here on cash flow, and it is impacted by investments, and one of the investments here are the expenditures that we put on product development for next generation of the 200 kilowatt system, but also quite impacted by the higher sales activity that we see, because it's a lot of the working capital impacting cash flow negatively, but that's more of a cut-off effect. So a lot of customer sales going into accounts receivables that will eventually then be paid in next quarter. And also that we've seen sort of the seasonality of having quite high inventory or supplier agreements, where we have bought quite a lot during Q2, and that has been then paid in Q3.
So more of a cut-off effect, and, and that will even out going forward in the coming quarters.
Looking then at what we're doing in the industry and how we support it, what we see now, as I said before, is growth from OEM customers and also commercial applications. We have solid growth in all our segments from that type of customer. In aviation, of course, we have the highlight from the ZeroAvia collaboration, where we are on track for commercial introduction in 2025. We have, as I said before, 18 different projects in aviation, where some of them will move over to a commercial phase going forward. What is important to note or to comment is the fact that we have always selected customers with a very solid foundation themselves. As the financial market is a bit in turmoil out there, many startups will face issues with refunding.
It's important to say that PowerCell is not looking for additional cash. We have stated this many, many times. We will break even on the cash position that we have today, and also all our significant customer contracts out there, especially the commercial ones, are with well-founded companies, well funded companies, with a solid financial position and a good plan to be able to execute. So we feel very confident in this rather challenging financial environment, that we will be able to execute, and our customers that we have selected are able to execute. Also, downstream in the value chain, the partnership we have with Bosch gives us a massive stability when it comes to the value chain and supply chain. So that collaboration is also a good foundation for growth going forward.
In the marine segment, we have the Torghatten agreement that is starting to be executed in both development and production. We have a number of more OEM customers at the moment, where we are in deployment of a number of different installations, so that is also moving well. The only segment where we see a slight delay compared to what we expected is the off-road segment. That's because many of the off-road OEMs have tried fuel cell electrification and hydrogen electrification, but have an intermediate step to run combustion engines on hydrogen, which is a good enough step. That means that they will be part of the hydrogen hype, as we call it them.
It's not as efficient as if they would go for the full installation with hydrogen and fuel cells, because you get better fuel efficiency, and you get rid of all the emissions. If you run hydrogen in a combustion engine, you still get CO2 emissions as a consequence of it. But it is a good intermediate step, and it's better than to burn diesel in a combustion engine. So off-road is the segment where we see a slight hesitant market development. Power generation, we will invite, together with Hitachi, energy customers and other parties to PowerCell in November to participate in the launch of the high-power unit that we have developed together with them for the last 2.5 years.
Being able to do that together with a partner like Hitachi is, of course, important because they have a global footprint, both when it comes to sales and aftermarket. And it's also a proof point on how now attractive the power generation industry is attracted by the hydrogen electrification. And we see many, many companies now demanding test objects and proof-of-concept installations to move away from a diesel generator for backup power, to hydrogen electrification. So we expect to see power generation have a strong interest in the upcoming years. So that is a very interesting market development. What was important to also acknowledge now in quarter three is that we received the first deliveries from Bosch.
As we point out, Bosch is a very important partner for PowerCell when it comes to industrialization and production. So we received the first deliveries of our own fuel cell stack, which has been industrialized together with Bosch. This, of course, increased the product production capacity of PowerCell, as well as the global footprint. So now PowerCell is accelerating our own production and assembly of fuel cell systems and rely more on the stack supply from Bosch. So, all in all, we say that we all continue to accelerate our growth journey. We do that with a strong focus on operational leverage to be able to have a sustainable business going forward.
We see that our growth is then supported, that the underlying market is also picking up, both in general, but also then supported by strong initiatives from both U.S. and Europe. We claim that we enter into this accelerating market with the best leading technology in the industry. We have validated not just the core components, but also now the product packages and the system deliveries. So we have a very reliable product, and I think that the aviation test cycles is the most important proof point of that, because if you can fly with it, it's actually fairly good. So we are now in entering into a new phase, as I said, commercial deliveries, not tech exploration.
We are starting several deliveries to commercial applications, and we are scaling up the production within the existing footprint. So, all in all, we're quite pleased with the outcome of the Q3 and how we enter into the Q4 . Upcoming reports, we will report the year-end and the interim Q4 report on February 8th. So look out for that one. With that, we open up for questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad.
We have a question here from Jonas about stationary or power generation with Hitachi, if we have any orders or forecast. As always, PowerCell has not been commenting on forward-looking business development and forecast. We are reviewing that going into 2024 and the releasing, but at the moment, we're not commenting on that one. But of course, having a joint event together with Hitachi as a public market introduction will be a strong statement. So we're happy with that one and looking forward to the outcome of that.
And then we have no questions at this time, so I hand the conference back to the speakers for any written questions or closing comments.
So we had questions about the market development in marine, and just to comment on that one, well, what we see in the marine industry is the fact that hydrogen is becoming recognized as a very important energy carrier for marine applications. With both liquefied hydrogen, but also green methanol and green ammonia that is reformed to hydrogen and then enter into the fuel cell. You get much longer operational cycles and distance. So hydrogen is now becoming more and more attractive for the marine industry. I would say that the center of gravity for that is actually in Scandinavia, more precisely Norway, which has a long tradition of gaseous energy solutions.
And we expect to see a number of commercial orders, not just to PowerCell, but other colleagues in the industry as well, for introduction. And that is also supported by the fact that the marine industry will be part of the CO2 tax cut in tax regulation in 2025, and IMO's initiatives to decarbonize the whole marine industry. So the marine market is really accelerating now, and we have a number of very interesting projects together with, for instance, Amogy, when it comes to ammonia reformed hydrogen installations. We have it with Hydrogen One and Maritime Partners in the U.S. on methanol, and then of course, our own installations with pure hydrogen.
So being fuel agnostic is quite, quite valuable in this, market segment because there will be a number of sources, and the availability of hydrogen is a very, very important accelerator of the growth in that industry. We have a question now, regarding the ZeroAvia contract. We have a SEK 1.5 billion contract with ZeroAvia that was signed October fifth, 2022. As we said then, it is conditioned that they receive certification for their aviation propulsion unit. And the question is: How is this proceeding? It's proceeding well. As we said before, we completed the first test round on time in Q3 , together with ZeroAvia. We're doing all the preparations for certification.
When you do an aviation certification, you're not just certifying the core technology that is installed in the airplane, you're also certifying the design process and manufacturing process, both at, of course, ZeroAvia, who is owning the certificate, but then suppliers or contributors like PowerCell. And everything aligned with that is going according to plan.
Maybe, Richard, you should also mention that although the major part of this SEK 1.5 billion in orders will be part of a serial delivery in the end-
Yep.
But meanwhile, doing the project work now, we also have engineering services to be sold and also hardware.
Right.
So during the project, that's an important revenue stream for PowerCell, going forward towards the certification and the serial delivery.
Mm-hmm. I think we have some more questions.
Yeah.
Yes.
Exactly. I think we've got another question on sort of the overall market activity.
If we see any slowdown, or if it's on par or the situation on market activity, in an overall context then.
Yeah, then it's truly accelerating, and it's accelerating with the right type of customers. As I said before, we see a shift in the industry. It's a new phase that we're entering into.
More demanding customers, demanding technology to be integrated into their operational use and not just for tech exploration, and that is a different characteristic. You need a different skill set.
Yeah.
So once again, going back two years, why did we prepare for this? Well, it just because we know that this is what is required to be a valid and value-creating supplier to the industry.
Any technology shift is difficult, and I think that we have experienced the first phases where customers and markets are trying out technology.
Now we see that hydrogen electrification has a very strong potential in certain areas, especially the more demanding the application is. And then having an industrialized solution where you can integrate it together with a customer, that will give a very solid growth path, because you don't need to, you get repetitive business.
And also you integrate your solution together with the customer, which also creates industrial stability in the operational process.
Because as soon as you go into commercial contracts, traditional, competitive, requirements like uptime, mean time between failure, et cetera, becomes really, really important. So this is also a way of maturing the whole industry. So now growth is accelerating, and it's accelerating with the right type of customers. Any comments on the stock market? Not at the moment. Of course, we follow what is happening on the stock market, but my previous IR manager, Mårten Wikforss , always said that the market is making the right judgment. What we can say out there is, of course, that it is a slightly volatile industry, but that goes for the whole industry. PowerCell is performing according to the industry and our peers.
So, we're just trying to focus on building a very solid industrial foundation within PowerCell, filling PowerCell with substance and presenting a growth journey that is sustainable, and not just trying to short-term opportunistic. And when we introduced the direction we did two years ago, we were clear that this might be something that is affecting growth, because we wanted to not just go after every sale that we could do, but also build something and select growth that is sustainable. But we actually have been outperforming the industry also when it comes to top-line growth. So it paid off faster than we anticipated, and I think it's important as a CEO and a management team-
-to be able to do the right calls long-term, and not just try to cherry-pick for having a short-term growth. Thankfully, it paid off also short-term.
Mm.
I think that we are even more well-prepared for what is happening going forward.
We got a question here on how we see the financial position, and if we do need any more funding to build our production.
You want to take that one?
Yes. And I think the short answer to that, we don't need any more funding, and we are happy with the financial position we have. And I think to elaborate a bit more on that is really what you mentioned earlier on there, Richard, in the presentation, that we have the collaboration with Bosch, and one part of the most CapEx-intensive part of our hydrogen electric systems, that is the fuel cell stack. And now with the collaboration with Bosch, I mean, they then have invested in CapEx. They have a high-volume production when it comes to fuel cell stack. And being in collaboration with Bosch on this, we are able to source the stacks. We do the fuel cell systems, and that's not so CapEx-intensive.
I mean, it's relates back to workforce, but we are able to scale that in another way than what the CapEx need would be for building a full fuel cell stack production line. So by that said, we do see that we can follow the growth going forward in a very good way and an agile way, without needing to invest a lot in CapEx, and doing this together with the collaboration with Bosch. And then also expanding geographically, if needed, into U.S. or wherever it could be, whenever the volume need is there.
Yep, and this goes back to the decision made by the previous management and the board back in 2019 to have a collaboration with Bosch. So we have a benefit of really good decisions also in the past. So as Torbjörn is saying, we have scale of economy and volume factor on the stack assembly and stack manufacturing together with Bosch. There, we can get a lot of value from their volumes and our volumes. But then we have a different break-even point on the system assembly, which allows us then to have smaller hubs closer to the end customer without extensive CapEx. So we know that we can grow organically-
Mm.
And that we have a cash position to fund this. A bit speculative: "Will you be able to meet the volumes when the market will take off?" from Hans. The short answer is yes, but if I could be open, I could say hopefully not, because then the volumes are accelerating far beyond our expectation. But yes, as we said, together with Bosch, we have an industrial capability and capacity that is strong. We can supply stacks from their factory in Bamberg, but also from their emerging factory in South Carolina and in China. And the system assembly is something that can be scaled up on short notice, so we don't see any limitations at the moment.
But if that would happen, and that the market is taking off to an extent that we have supply issues, I will be more than happy to come back and tell you that, because that would be good news.
Let's see if we have any more questions. Otherwise, perhaps we should round this one off. As always, please stay in touch. You're more than welcome to come and visit us here in Biskopsgården. Visit the factory. We're quite proud of the manufacturing we have here-
of the deliveries that we make out of the factory at the moment. We are scaling up. So, we have an operation that we're quite proud of, so please stay in touch to come and visit us. We had one last question here from Hans again: "What will happen after 2027 when the agreement with Bosch ends?" The agreement doesn't end at 2027. It's a longer agreement than that. So we are quite confident in the collaboration with Bosch, and we see them as a very solid partner, both industrial-wise, but also as a market channel to automotive for the foreseeable future. So we're quite happy with that collaboration and the position we have with them. So with that, thank you very much. Enjoy your Thursday, and let's stay in touch.
Thank you.
Thank you for participating. The conference has now ended.