Good morning, my name is David and I’ll be your conference operator today. At this time I’d like to welcome everyone to the FuelCell Energy’s First Quarter 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you, Tom Gelston, Senior Vice President of Finance and Investor Relations. You may begin your conference.

Thank you, and good morning, everyone, and thank you for joining us on today’s call. As a reminder, this call is being recorded. This morning FuelCell Energy released our financial results for the first quarter of 2023, and our earnings press release and our annual report on Form 10-K are available in the Investors section of our website at www.fuelcellenergy.com. Consistent with our practice, in addition to this call and our earnings press release, we have posted a slide presentation on our website. This webcast is being recorded and will be available for replay on our website approximately two hours after we conclude the call. Before we begin, please note that some of the information that you will hear or be provided with today will consist of forward-looking statements within the meaning of the Securities and Exchange Commission Act of 1934. Such statements express our expectations, beliefs and intentions regarding the future and include without limitation: statements with respect to our anticipated financial results, our plans and expectations regarding the continuing development, commercialization, and financing of our FuelCell technology and our business plans and strategies. Our actual future results could differ materially from those described in or implied by such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the Safe Harbor statement, in the slide presentation and in our filings with the Securities and Exchange Commission, particularly the Risk Factors section of our most recently filed annual report on Form 10-K and subsequently filed quarterly report on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures. And we refer you to our website and to our earnings press release and the appendix of the slide presentation for the reconciliation of those measures to GAAP financial measures. Our earnings press release and a copy of today’s webcast presentation are available on our website at www.fuelcellenergy.com under Investors. For our call today I am joined by Jason Few, FuelCell Energy’s President and Chief Executive Officer; and Mike Bishop, our Executive Vice President and Chief Financial Officer. Following our prepared remarks, we will be available to take your questions and be joined by other members of the leadership team. I will now hand the call over to Jason for opening remarks. Jason?

Thank you, Tom, and good morning everyone. Thank you for joining us on our call today. Since we met in December, we have achieved some exciting milestones on our journey to enable the world to be empowered by clean energy. Today, we announced strong quarterly results as we continue to execute on our Powerhouse business strategy. Before getting into the business results, I always like to give an overview of FuelCell Energy on Slide 3 for anyone who might be new to the FuelCell Energy story. An operation for over 50 years, FuelCell Energy is a leader in developing stationary FuelCell Energy platforms. Our purpose is to enable a world empowered by clean energy. We are currently in the early stages of a global energy transition to a low carbon future. We believe FuelCell Energy is well positioned to be part of the global solution by assisting customers on a safe, secure, and practical path to net carbon-zero. This important purpose drives our strategic focus and our passion for our work. Our goal is to leverage our proprietary FuelCell Technology platforms to decarbonize power and produce hydrogen. Our platforms operate in North America, Asia, and Europe, and we are focused on entering more markets around the world. We have 95 platform installations and commercial operation, which we believe demonstrate the commercial feasibility of our energy platforms. Next, let’s turn to a few key highlights for this quarter shown on Slide 4. First, we are continuing to make consistent operational progress on key projects. Our project with Toyota in Long Beach, California, our project in Derby, Connecticut, and our carbon capture joint development agreement with ExxonMobil Technology and Engineering Company are progressing well. I will provide more detail updates on these three projects later in the presentation. Importantly, as I previously…

Thank you, Jason, and good morning to everyone on the call today. Now that you’ve heard from Jason, I will provide some additional details regarding our financial results. Please turn to Slide 6. For the first quarter of fiscal year 2023, we reported total revenues of $37.1 million compared to $31.8 million in the first quarter of fiscal year 2022, an increase of 17%. Net loss was $21.1 million in the first quarter of fiscal year 2023 compared to net loss of $46.1 million in the first quarter of fiscal year 2022. The first quarter of fiscal year 2022 was impacted by the $24 million of non-recurring legal expense associated with the settlement of the company’s disputes with POSCO Energy and Korea Fuel Cell Company or KFC. The resulting net loss per share attributable to common stockholders in the first quarter of fiscal year 2023 was negative $0.05 compared to negative $0.11 in the first quarter of fiscal year 2022. The lower net loss per common share is primarily due to the lower net loss attributable to common stockholders and the higher number of weighted average shares outstanding due to share issuances since January 31, 2022. Adjusted EBITDA totaled negative $14.4 million in the first quarter of fiscal year 2023 compared to adjusted EBITDA of negative $13.6 million in the first quarter of fiscal year 2022. Please see the discussion of non-GAAP financial measures including adjusted EBITDA in the appendix at the end of our earnings release. Finally, the company has a strong total cash and short-term investment position at over $415 million as of January 31, 2023. Next, please turn to Slide 7 for additional details on our financial performance and backlog. The chart on the left hand side graphically shows revenue drivers by category. Product revenues for Q1…

Thanks, Mike. Turning to Slide 10, I would like to reemphasize again the tenants of our Powerhouse business strategy, which serves as our guiding strategy toward achieving long-term growth. The first tenant is growth. We are working to optimize our business for achieving growth in markets where we see significant opportunity for the clean energy applications our platform technologies address. The second is scale. We plan to scale our existing platforms by investing in and extending the application solutions our platforms address and deepening our leadership and total human capital across the organization. Across our operations, we are making progress in expanding manufacturing capacity for our molten carbonate platform with the goal of achieving 100 megawatts of annualized integrated onsite manufacturing and conditioning capacity. We’re currently in the process of expanding our Calgary manufacturing facility and we also have developed plans to add an incremental 400 megawatts of solid oxide manufacturing capacity in the United States. We believe that our DVD size solid oxide cells lends itself to a modular buildout of manufacturing capacity and advanced robotics manufacturing for rapid scaling as more large scale hydrogen projects achieve FID and long-term off-take agreements. And third innovate, over our 50-year history, we have never stopped innovating. We believe our platform technologies and our culture will provide the opportunity for us to add to our significant global patent portfolio and increase our participation in the growth of the hydrogen economy and carbon capture markets, and will enable us to deliver on our purpose. We plan to develop diversified revenue streams by delivering a range of solutions and services anchored by our multi feature platforms that support decarbonization applications and the global energy transition. As we are growing, I would like to highlight the progress we are making on three important decarbonization, energy…

Thank you. [Operator Instructions] We’ll take our first question from Manav Gupta with UBS. Your line is now open.

I’m very happy for you guys. My question here is specifically related to the Toyota, Port of Long Beach project, if we can get a little more details, and the reason I’m asking this question is your press release says that for, if any, for any reason the operations are not commercial by 8th of July, there is some possibility that Toyota could walk away from this. I’m just trying to understand, can you mitigate that risk? Can you just talk through that, how you can avoid that situation?

Thank you, Manav. This is Michael Lisowski, Chief Operating Officer with FuelCell Energy and thank you for your question. We’re quite proud of the advancements in progress that we have been making on the Toyota project, and as previously reported, we have completed the mechanical construction aspects of the plant and are now engaged in focused on the commissioning aspects. The contract for with Toyota does have a provision that July 8 is a contractual date. However, Toyota is quite pleased with the progress of the plant. We’re working very, very in the progress of, in advancements of construction. They’re quite pleased with, with the work that we have been doing and we’re working very, very collaboratively with Toyota as we work to execute the remaining aspects of project execution towards commercialization. We have great confidence in our ability to achieve commercial operations and that we’ll be doing that in the timeframe that we’ve stated by our fourth excuse me, our third calendar quarter this year, fiscal quarter this year.

Perfect. Second follow-up is, can I go back to the February 16th release of your collaboration with MHP? Can you talk a little more bit more about this collaboration? Help us quantify some of the benefits of this deal, probably two or three or four years down the line and why this deal is important for you? Thank you.

Hi, Manav. This Jason Few, really appreciate that question. We believe very strongly that one of the things that has to happen to achieve, the global goals that we have around decarbonization is large scale hydrogen. When you think about MMHE and not only MMHE, but also the parent company of MMHE being Petronas and the ability to establish a partnership in Asia that gives us the ability to implement large scale hydrogen projects with a partner who has proven capabilities in delivering large projects. It’s a really important collaboration for us, and we think that around the world, partnerships are going to play an important role in really delivering projects that require infrastructure and that will deliver large scale benefits to, customers in that part of the world. And so for us, having a partnership with someone like MMHE delivers significant value.

Thank you for answering those and congrats on a good quarter.

Thank you.

Okay. Next we’ll go to George Gianarikas with Canaccord Genuity. Please go ahead.

Hey good morning everyone. Thanks for taking my questions. So just a couple. First, I’d like to focus on the Inflation Reduction Act and potential other measures across the world really, when – what kind of conversations are you having? What has – what have these government initiatives done to the conversations and the backlog? And I’m just curious if you can help us quantify how you expect momentum to kind of build this year and into next year?

George, good morning and thank you for that question. We are, as a company, we’re very, optimistic about what’s happening with the IRA and with other programs around the world as more governments look to find ways to basically, what I would call, replay what happened with wind and solar, how do you create incentives that help companies like our scale and rapidly bring down costs to meet the market demand for the energy transition? So when you think about IRA and in the U.S. and then you add to that also the infrastructure package. I mean, you’re over $400 billion of capital that’s going to be allocated to really advance projects around hydrogen and carbon capture, grid resiliency and reliability. And so for us, those programs represent a great opportunity for us to enhance the value proposition that we offer our customers given those incentives, it also creates an opportunity for us to make investment as well as to leverage those programs to aid our investment in things like scaling manufacturing. And so we’re seeing, a lot of positive reaction from customers. We like everyone else anxiously awaiting, their Treasury Department to finalize all the rules so we can really begin to fully take advantage of the IRA. But we see lots of interest and excitement around it.

And maybe as a follow-up, just on the product revenue, just to make sure that we understand it, you recognized $9.1 million this quarter as, and this is your impression as if the option had been exercised. So it appears that there was no – cost associated with that revenue exits [ph], do you expect to recognize the cost of any potential module sales in the future, is the first question. Second, has this changed the overall opportunity you see with POSCO over the next few years or is this just kind of part of that overall, several $100 million opportunity for the next, I think it’s a 2025 or 2026. Thank you.

Good morning George. This is Mike. Yes, I’ll take those questions. So on the first question regarding the revenue recognized in the quarter, that was revenue that the company had to had deferred, it was tied to an option agreement that POSCO could potentially exercise, and it was essentially a material right, related to a long-term warranty. That option agreement expired at the end of December, so as a result, recognized the revenue in this quarter. There was no cost tied to that revenue, and there will be no cost tied to that revenue in the future related to future modular replacements. As far as the opportunity in Korea, as Jason said in his opening remarks, significant opportunity in Korea, just with the installed base, there’s greater than 110 megawatts of opportunities to essentially replace modules for the existing fleet in Korea. And as we said in our remarks in the last quarter and this quarter as well, we’re actively targeting that opportunity now in Korea. Our sales folks are in Korea. We and under our settlement agreement with POSCO, we can now work directly with those end customers. So very excited about that opportunity, that’s right in front of us.

Thank you.

Thank you. Next we’ll go to Jeff Osborne with TD Cowen. Your line is now open.

Hey, good morning. I just wanted to follow-up also on Korea. The 116 megawatts, how many of those were sold, more than five years ago? Do you have a sense of sort of the vintages of those and what should be coming up for replacement here? If I was a bit surprised given you’ve had the sales force out there, I think for 18 months or so that the product backlog now has been worked down as zero and there was nothing, no movement there.

Jeff, good morning and thank you for the question. This is Mike Lisowski. So of the installed base that, that we’re referring to all of the technology and pedigree and generation of platform there is the five year technology. So we do expect, strong line of sight to the replacement of that equipment and those assets to restore power generation at each of those critical customer infrastructure sites.

Maybe just another way of asking the question is, what percentage the 116 megawatts is older than five years?

Jeff, this is Mike Bishop, so we haven’t put out that level of granularity, but if you look at it, kind of the, the units that have been installed in the past, it has been over the last, 10 to seven to three year period. So, you would expect to see module replacements coming up here soon, but the exact timing around that, we have not put that out there.

And just to be clear, Mike, that would flow through the product backlog as those orders come in?

Yes. So the, so, and just to back up a little bit, the $60 million that we recognized last year, that was a sale direct from KFC, subsidiary a POSCO. When we booked that order, it came through product backlog. And as we ship those modules recognized through product revenue. The same will be true as we work directly with customers. Those orders would come through product backlog more than likely, and then get recognized as product revenue. There is potentially an opportunity to do service as well, but the way that we’re initially thinking about this is product backlog.

Makes sense. And just that one last line of question on the 400 megawatt facility. I know it’s early, but can you remind me of what the, the expenditure was to go from 40 [ph], or sorry, four to 40? Is there like a rule of thumb of, current CapEx per megawatt trends in, any expectations on how much that facility in the U.S. would cost?

Thank you for that question. This is John Torrance. We are investing approximately $45 million to expand for that first 40 megawatts. We do anticipate some of that involves some infrastructure related to testing in our product development, which we would not replicate as part of a 400 megawatt manufacturing only facility. We also expect as we continue to progress on our manufacturing readiness, that we will optimize our processes and decrease our capital costs per megawatt of manufacturing capacity. Somewhere, without getting too far ahead, we would expect somewhere in the 25% to 30% reduction as we go up in orders of magnitude. But that has yet to be fully verified.

So horseshoes and hand grenades number, maybe like $250 million to $300 million or 400 megawatts does that…

Sound, we’ve got about a $250 million [ph], 250 numbers, a walking around number at this point based on preliminary designs on the envelope that we’re looking at.

Perfect. That’s all I have. Thank you.

Thank you.

David, do we have the next question?

And sorry about that. We’ll take our next question from Eric Stine with Craig-Hallum.

Good morning everyone.

Good morning, Eric. How are you?

Hey, doing well, thanks. So maybe just on ExxonMobil obviously extended and expanded the amount allocated to the JDA, maybe, how do we think about potential next steps for the long discussed pilot project in Rotterdam? Is that something where those two are kind of separate things? Or is it fair to assume that you would need to see the joint development that process play out, come to completion before, they might think about moving forward with a pilot project?

Eric, thank you for that. You can think about it as a continuum, right? Part of what we’ve been doing in the initial work with Exxon is really optimizing the technology around two core aspects. One is what we refer to as carbonate transfer, and the other one is just in terms of power density. Proving that out through the work that we’re doing, through the R&D effort has always been a part of demonstrating the capability and then getting alignment with Exxon on the demonstration project. Those two things are tied together. We are very comfortable in the progress that we’ve shown. As you know, last year we hit, milestone payments that we achieve around the technology demonstration. So, we would expect that Exxon through their process, which we do – which we don’t control their process, is trending in the right direction relative toward moving to that demonstration project. One of the things that you might also consider when you think about a facility like Rotterdam, timing of that is also tied to how they might think about their plans around turnover service or other things that they might be doing at the facility to allow time to implement the demonstration. So there’s factors that are going to drive timeline that go beyond just our technology capabilities.

Understood. So don’t – no one should read into timelines specific things. I mean, there’s a lot of factors that go into that. That’s helpful. Maybe, a lot of questions have been answered, but maybe just on OpEx, I think last quarter you might have given some, might have given some details that would’ve indicated a higher OpEx level, in this quarter it was not a meaningful sequential uptick. So how should we think about OpEx going forward?

Good morning, Eric. This is Mike. I’ll take that question. So, what we have put out there around a portion of operating expenses is that for fiscal 2023, we expect company funded R&D expenses to be in the $50 million to $70 million range. And if you just kind of run out where R&D is, in our first quarter, we should be in that range. We have not put out specific guidance around SG&A, but you have seen a tick up over the prior year anyways as we’ve been adding folks on the sales side as we grow our global reach. So that’s how I would answer that question, Eric.

Okay. Thank you.

Thank you. Next, we’ll go to Ryan Pfingst with B. Riley. Your line is now open.

Hey guys, maybe following up on the EMTEC contract going up $10 million here, is that a reflection of higher costs on your end? Or are you guys increasing the scope of what you’re doing with those guys?

Good morning. I’ll take that question. This is Mike. So no, that’s really a function of additional time being added to that contract recall. We extended the contract with ExxonMobil EMTEC to bring us into the summer timeframe. So it’s really adding additional time to it.

Got it. And then turning to the Toyota project for the $7.1 million of non-recoverable costs, can you just talk about what’s included there? And do you expect any similar types of costs before we potentially reach commercial operation this summer?

This is Mike again. I’ll take that one as well. So, what’s in that number and you’ve seen this over the last several quarters. As the company has been building out the project at Toyota. We have essentially been expensing the portion of the construction costs that we wouldn’t otherwise be able to recover by potentially, redeploying assets somewhere else. Although this is a long-term asset, basically because we have not locked in the underlying fuel agreement. So not able to perfectly estimate the project economics in the future. You will see this trail off, as we said in our earlier remarks that we are in the commissioning period now. So the construction activity will trail off here over the next several quarters.

That’s helpful. Thanks guys. I’ll turn it back.

Next we’ll go to a Noel Parks with Touhy Brothers. Your line is open.

Hi, good morning.

Good morning, Noel.

Hi. Just a couple things. I was wondering if you could talk about with the capacity expansions, the cost today or those still forecasted is there in inflation impact beyond sort of your original estimates for those. I didn’t know, if any of the aspects of those were sort of contracted pre-COVID or during the slump from shutdowns? So I was just curious kind of where things stand as far as cost you’re expecting now versus where you started?

I think you can take our view on cost right now to be current cost estimates for the current environment in which we’re operating in.

Okay. And just I guess I’m thinking a little bit more in terms of as you look down the road, and your economics, as, I guess as you negotiating for future projects just whether you’re in a position that you would be able to sort of incorporate any inflation you’ve had to date, do you expect you’d have any trouble passing that along in terms of your pricing to customers?

Yes, so from a overall pricing rate, when you think about the way in which we go-to-market, if I just broadly talk about the two ways, one is under, power purchase agreements. The other is when we’re actually just selling the platform. In both of those cases, we look at the real cost that we have, when we deploy those assets and we incorporate that into our pricing decisions. I think some of the things that will help us deal with that and help customers deal with that is as we take advantage of things like the IRA, we take advantage of the existing ITC that allows for some offsetting costs, which helps us continue to remain competitive relative to other alternatives.

Great.

Noel, the other thing that I would add to Jason’s remarks is that while we continue to thoughtfully deploy capital and increase our capacity and expand our capacity, we’re squarely focused on continuous improvement and operational efficiencies. So, as we continue to grow, as we continue to expand things like reduction in elimination of our bottlenecks, improvement of our yields, overall process efficiencies is really a key area of focus for our business, and we expect to continue to see reduction in costs as we continue to grow and scale up capacity.

Great. Thanks. And I do just want to ask about the Exxon JDA and the R&D budget increase. And I’m just curious the $10 million increase, is that related just to sort of the ongoing duration of the project? Or I was wondering those earmarked for anything in particular personnel or accelerating timing equipment?

Hi Joel [ph], this is Mike. So no, the $10 million is related to the extension of time on the contract. That contract will run through the summer. So that was essentially the reason for that change.

Great. Thanks a lot.

And that does conclude today’s question-and-answer session. I’ll now turn the call back over to Jason Few for any additional or closing remarks.

David, thank you very much for that. And I want to thank everyone for joining us today. We will continue to execute on our Powerhouse business strategy, working to deliver growth and optimize returns. The FuelCell Energy team is excited about the momentum we are building as we deliver on our purpose of enabling a world empowered by clean energy. And we look forward to updating you again next quarter. Thank you for joining and have a great day.

This concludes today’s conference call. You may now disconnect.