Good morning and welcome to the FuelCell Energy’s Second Quarter of 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 second 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 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 with Risk Factors section of our most recently filed Annual Report on Form 10-K and any subsequently filed quarterly reports 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, FuelCell Energy’s 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 senior 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. Today we are pleased to announce another quarter of strong revenue growth. We also want to highlight our consistent operational progress on key projects and strategic objectives, including our Tri-generation distributed hydrogen platform at the Port of Long Beach, California, which has entered the commissioning phase. Continued development of our solid oxide power generation and our electrolysis platforms, carbon separation and carbon capture technologies, and our continued focus on extending advanced applications for our platforms. For anyone who may be new to the FuelCell Energy story, we have included a company overview on Slide 3. Our purpose is to enable a world empowered by clean energy. We are proud to be a global leader in clean energy technology. In simple terms, our proprietary FuelCell technology platforms do two things, decarbonize power and produce hydrogen. We operate in North America, Asia, and Europe and we are focused on entering additional markets around the world. We have 95 platform installations in commercial operation and have generated more than 13 million megawatt hours to date. The technology behind these high temperature electrochemical energy platforms underpins both our Tri-generation and carbon capture platforms, which we believe enables FuelCell Energy to leverage 20 years of operating history and sets the stage for us to meet the evolving needs of our current and future customers. Next, please turn to key messages for this quarter shown on Slide 4. First, we are very pleased to announce consistent operational progress on key projects. During the quarter, we completed new module exchanges at the plant owned by Korea Southern Power Company in Korea which achieved commercial operations in fiscal year 2018. The new module exchanges were an important driver of our service agreements…

Thank you, Jason and good morning to everyone on the call today. Let's begin by reviewing the financial highlights for the quarter shown on Slide 6. For the second quarter of fiscal year 2023 we reported total revenues of 38.3 million compared to 16.4 million in the second quarter of fiscal year 2022, an increase of 134%. Net loss was 33.9 million in the second quarter of fiscal year 2023, compared to net loss of 30.1 million in the second quarter of fiscal year 2022. The resulting net loss per share attributable to common stockholders in the second quarter of fiscal year 2023 was negative $0.09, compared to negative $0.08 in the second quarter of fiscal year 2022. Adjusted EBITDA totaled negative 26 million in the second quarter of fiscal year 2023 compared to adjusted EBITDA of negative 21.2 million in the second 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 held total cash, cash equivalents, and short term investments of over $350 million as of April 30, 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 our revenue composition by line item. Looking at revenue drivers by category; service agreement revenues increased to 26.2 million from 2.6 million. Service agreement revenues recognized during the second quarter of fiscal year 2023 were primarily driven by new module exchanges at the plant owned by Korea Southern Power Company in Korea while there were no new module exchanges during the comparable prior year quarter. The company expects a lower level of module exchanges during the balance of the fiscal year. Generation revenues decreased to 8.4…

Thanks Mike. As we have stated in previous quarters, our powerhouse business strategy serves as our framework for achieving long-term growth. I will summarize our approach on Slide 12. The first tenet is growth. We are working to optimize our business for achieving growth in markets where we see significant opportunities for our platform technologies. We have created geographic market segment and application specific playbooks that are focused on building a robust sales pipeline. Our business development team is focused on moving the pipeline from prospects to executed agreements. The second is scale. We plan to scale our existing platforms by investing in, extending and deepening our leadership and total human capital across the organization. Across our operations, we are focused on optimizing manufacturing capacity for our carbonate platform with the goal of achieving 100 megawatts of annualized integrated onsite manufacturing and conditioning capacity. We are also working to expand our solid oxide manufacturing capabilities with a goal of adding an additional 400 megawatts of manufacturing capacity in the United States. We believe that the legislation enacted and being contemplated around the world will over time, serve as a catalyst to support the acceleration of adoption of products like ours and to ultimately drive down cost. And third, innovate. Over our 50-year history, we have never stopped innovating. As shown on the earlier slide, we have hundreds of patents granted or pending in jurisdictions around the world. We believe our technologies and our culture provide the opportunity for our participation in the growth of the hydrogen economy and carbon capture market and will enable us to deliver on our purpose to enable a world empowered by clean energy. We are working to develop diversified revenue streams by delivering a range of solutions and services anchored by our multi feature platforms…

[Operator Instructions]. Your first question comes from the line of George Gianarikas from Canaccord. Your line is open.

Hey, everyone. Good morning and thanks for taking my questions and congrats on the financing. Maybe just to start, you're very close to commercial launch of your Toyota Tri-Gen project. And I'm curious if you can kind of help us understand what the bottlenecks that are left are and making sure that you get that up and running shortly and whether or not you have seen any additional interest from others as you approach commercial launch with Toyota?

George, good morning and thank you for being on the call. This is Jason. I'll ask Mike Lisowski to give you a little bit more detail on where we are on the commissioning phase of our project at the Port of Long Beach with Toyota. But the first thing maybe I'll just say, and then I'll pass it over to Mike, is that we really are not seeing bottlenecks relative to getting to COD. It's just a normal part of our commissioning process that we go through on a platform like our Tri-gen platform. But Mike, maybe you can give some more insight on where we are on commissioning and our timing for Q3 COD.

Yes, thank you Jason and thank you George for the question. So the Toyota project is advancing steadily forward and Toyota is pleased with the progress and the status. As we've reported, the construction work is now complete and we're in the final phase of the work, which is the commissioning phase. Overall, the system process and controls testing has been successfully completed and we're focused on the process of finalizing the subsystem optimization. This is the work that we'll do prior to preparing the plan to ramp up to commercial operation, which, as we've reported is expected and will be achieved this summer.

Great, thank you. And just as a follow up, I'd like to switch gears a little bit and ask about things related to Washington and the Inflation Reduction Act. There are a few issues outstanding in terms of additionality, deliverability, and matching. I'm curious as to whether what your view is on where you think Washington ends up and how that could impact your business? Thanks.

That's a great question. And, we clearly don't have a crystal ball in terms of where Washington is definitely going to land, but we expect that we'll get more clarity this month is kind of our view of where things stand today. We think that the IRA in general was a real positive for us as a company. We think that what the IRA is trying to deal with is both kind of driving demand and then also helping on the supply side. When you look at the ITC and the ability to get somewhere up between 50% to 70% cost recovery on these projects that's really helpful to drive momentum from an adoption standpoint, really helpful to help drive scale to bring down costs, and we saw this play out with wind and solar. We think, ultimately decisions around additionality when the DOE and the Treasury Department really looks at that or the administration, I think that they're going to land probably in the right place and really look at the practicalities of implementation around IRA, how they're going to get the biggest momentum around this. And then phasing in maybe more aggressive things over time but I think additionally, I think they're going to be really constructive on supporting projects that we're engaged in.

Thanks so much.

Thank you, George.

And your next question comes from a line of Manav Gupta from UBS. Your line is open.

Good morning, guys. I want to go back to the May 1 announcement of ExxonMobil. Looks like you are making strong strides towards commercializing your carbon capture technology. So help us understand what could be the next steps in terms of your outlook, how much of this business could grow for you guys, and what else should we watch for more customers, [Indiscernible], how should we track the progress of this, specifically, as it relates to the last May 1 announcement that you had?

Manav, thank you very much for your question. This is Jason, again. You know, look, we are really excited about the progress that we're making on our carbon capture technology as a company, right. We believe very strongly that carbon capture is one of the essential elements to achieving decarbonization. I think if you look at the IRA and legislations, like we talked about the EU carbon border tax, you see clear policy driving the need for solutions around carbon capture technology. If you look at just recently, in May the EPA ruling around power generation and decarbonization and what needs to happen there, you've got really strong support globally to address what the EIA forecast to be roughly 38 gigatons of Co2 that we need to we need to deal with. With our technology and Exxon and the May announcement, what that is driving toward is long lead items in support for the possibility of doing a demonstration project. That is driven largely by our demonstration of technical milestones that we continue to demonstrate with our carbon capture technology and the enhancements that we're making really around two things, we refer to as carbon transfer and power density and we feel really good about that. So we think over time, as we outlined previously in an Analyst Day little over maybe a year ago, we see carbon capture. And our technology really being able to participate in about $1 trillion market between now and 2030. So the things that you should look for are additional demonstration announcements, not only with Exxon, but with other customers where we have the ability to showcase the technology which is differentiated from the aspect of the only technology we're aware of that can capture carbon from an external source, produce power, and hydrogen simultaneously. And the extra benefit of doing something that is really also unique to our platform and that's the destruction of NOX. So we feel really good about where we are, we think it's a big market opportunity, and we look forward to pursuing it.

Perfect. My quick follow-up is if you could also help us get some more details around the commercialization of your solid oxide fuel cells and electrolyzers and a decade down the line do you actually think that solid oxide could be a more prevailing technology and you would be bigger in solid oxide than other technologies, so how does it shake out, would you be like a 50:50 company in terms of solid oxide or would that become the dominating technology even for FuelCell?

That's a really good question. I think if I go a decade out and I tried to use a crystal ball of what I see, I think that we will see strong growth in our solid oxide platform for kind of two primary reasons. One, we see time to power as a really significant issue, when you look across not only the U.S., but around the world and just interconnection and other issues and transmission and things that are creating significant delays to implementing power infrastructure. And we see that our ability to now have a sub megawatt platform will give us a chance to participate in more opportunities than we've traditionally participated in as a company, so we see growth there. We also see really strong growth around one of the second things that we consider really important to the decarbonization effort and that is hydrogen. And so electrolysis and with the growth of hydrogen, both as a replacement fuel or an additive fuel to traditional hydrocarbons, as well as transportation, we see strong growth there. We think our differentiation on solid oxide electrolysis, both from an efficiency standpoint, reversibility, the ability to use the same stack for hydrogen production and power generation, we think will give us some advantages in the market. So I think, looking 10 years out, we certainly see strong growth on solid oxide, we think it will be a significant part of our portfolio. Where we see growth in carbon, though, as you think about the platform today, but ask you to maybe think about it slightly differently, 10 years from now, because our carbon platform is the driver for carbon capture. And we think that is a big market, like I talked about, that's $1 trillion TAM in the way we see it between now and 2030. So I think what you'll see is strong growth in solid oxide, and perhaps some power generation, pure power generation applications. Maybe solid oxide becomes a bigger part of our portfolio. I think when you think about hydrogen generation, we certainly see that solid oxide and electrolysis takes on a bigger piece of the opportunity for us. But we still see opportunity for carbonate like for our Tri-Gen platform, like we're building in California, because there are going to be markets where water is going to be a constraint. There's going to be markets where there's strong power markets where a platform like Tri-Gen actually is the better solution for that particular application. So we see strong opportunity for carbonate there as well over time. So I think you're going to see an application makes difference. But you'll definitely see strong growth in solid oxide for sub-megawatt and electrolysis.

Thank you so much for detailed response.

Your next question comes from the line of Eric Stine from Craig-Hallum. Your line is open.

Hi everyone.

Hey, Eric. Good morning.

Hey, good morning. So maybe just on the product side, I know with the POSCO settlement you are kind of freed up in Asia and you've been made -- you've been making a number of investments in this area and over the last couple of quarters more optimism of traction there. So just maybe if you can give an update, I don't know if it's by geography but just looking for any details on a potential pickup on the product side?

Yeah, so I assume you are maybe referring to like product sales, is that what you mean by pickup on the product side?

I mean, product side. Yeah, product sales adding a backlog and obviously traction there, something you've been targeting?

Sure. So I think when we look at our pipeline today, we see pretty good diversification geographically. So far we'll look at Asia and North America, probably representing the biggest aspect of our pipeline, Oceania, and Europe kind of making up the balance, or the larger portion of the balance, and then other markets around the world. So we see good geographic diversification in terms of the opportunities that we're pursuing. As we speak -- as we look at the pipeline, and we look at it from an application standpoint between hydrogen and electric power generation or traditional combined heat and power, we see strong opportunity or a pipeline across both of those. I mean, hydrogen is obviously growing as an opportunity in our pipeline. A lot of those projects are kind of longer dated projects, but certainly a lot of activity in hydrogen. And then we're seeing strong growth around Co2 utilization actually, as there continues to be regional constraints on Co2 and just vast differences in pricing across Co2 in various markets. And then, between our technologies, between solid oxide -- solid oxide electrolysis and our carbonate platform, kind of based on -- kind of falling on the last question, we're seeing really strong uptake around electrolysis, and our solid oxide FuelCell, and kind of steady mix around carbonate. A lot of that carbonate growth in the short run, we see as opportunities because of the Korea market being a strong opportunity for us. As we indicated, we had been out of that market for almost six years. We've been back in the market for a little over a year now, and starting in January of this year, the restrictions around actually offering long-term service agreements to the existing customer base that was sold to by POSCO has expired as well. And so we see that as a really strong opportunity for the company as we are the only alternative, if you will, to do a module replacement against that set of opportunity. So we think there will be strong pickup in Korea is our expectation. There are some things that still need to be worked out, they are relative to those customers, because those customers had over the last call it five years or so, had been working under a LPSA with POSCO. So there were some things that we're working with those customers to work through, but we feel optimistic about the opportunity there. And then when you look at programs like the clean hydrogen portfolio standard in Korea, that's all Greenfield opportunity. That's 200 megawatts of opportunities a year that Korea intends to deploy. So we will compete very aggressively for those opportunities.

Okay, that's great color. I guess, maybe I should -- I could have asked another one as well. I mean, if you look out two to four quarters, do you think that there is some product backlog to go along with obviously the $1 billion plus in the rest of your business?

Yeah, we certainly don't give kind of outlooks that way. But what I would say is, yes, that's clearly an expectation that we will build product backlog. And we've invested money in our sales organization. We brought in a new sales leader about a year ago, Mark Feasel that we brought in from Schneider who is a very experienced sales leader. And the playbooks that we've developed from a sales opportunity standpoint we feel good about. We feel good about the pipeline, the quality of the pipeline, our move of deals into contract and negotiation phases. So we should expect that you'll start to see backlog product sales as well.

Okay, thanks.

And your next question comes from the line of Chris Souther from B. Riley, your line is open.

Hey guys, thanks for taking my questions here. Maybe just a little bit more on the timing of the solid oxide deployment in Idaho and any update as far as what customer engagement looks like for that segment specifically, as you're building up the pipeline, do you think potential customers are waiting to see that project up and running as it can have more clarity on kind of IRA, like what our customer’s kind of looking for and where are we in the education project?

Yeah, so maybe just to start with I&L [ph], if we expect to deliver I&L this year. As we've talked about, publicly, we expect to build and deliver four solid oxide platforms through our manufacturing capacity in Calgary. We think that the demonstration of the I&L project will certainly serve as a catalyst to show what we believe will be strong differentiation of our product versus other products available on the market or other products that are in development on the market. This application and I&L is going to be a strong example of the power of integrating our platform with nuclear. And that really does two things, it demonstrates not only just the efficiency of our product, but the added value of being a high temperature fuel cell and being able to use waste heat from nuclear to even drive greater efficiency to get the efficiency to 100% electrical efficiency. So we think that that'll serve as a catalyst. With respect to IRA and more clarification around that I mean, look, part of the IRA is clear ITC has been available for a while that's pretty clear. The PTC is getting clearer in terms of how that's going to work. So as those things get finalized, that will also serve as another key to opening the gate to some of these opportunities as customers get much more comfortable in terms of how they're going to be able to take advantage of the tax attributes.

Okay, and then maybe a separate one on that generation gross margin, you call that an impairment can you maybe talk about that a little bit? And then can you talk about how overall generation gross margins should evolve with Toyota, Derby, Trinity College coming online this year? Thanks.

Sure. Good morning, Chris. This is Mike. And I'll take those questions. So as we look at generation yes, we did have one impairment which came through generation related to an old development assets that the company chose not to move forward with. As we think about generation margins going forward, one thing that has been coming through the P&L which has been a drag on generation margins as we've been expensing capital costs related to the Toyota project, I believe there's about 4.5 million coming through this quarter. Certainly, as Toyota comes online those costs will mitigate. What we target for our generation portfolio is EBITDA in the 40% to 50% range. So when you do the math and you essentially back out the charges for Toyota impairments as well as depreciation, we're in that range this quarter and for the fiscal year. So that's how we think about the EBITDA margins in that portfolio going forward.

Yeah, okay. That's helpful.

[Operator Instructions]. Your next question comes from the line of Noel Parks from Touhy Brothers. Your line is open.

Hi, good morning.

Good morning.

I was wondering, could you talk a bit about, I'm thinking in particular about the partnership with Chart. It seems that we are seeing more lately partnerships between standalone public companies, rather than what maybe what we've been seeing in the past sort of like public companies taking a smaller private under their wing with a potential for vertical integration and some functions. And so I just wonder if you see these sort of partnerships as sort of a one off for you, or something that's more inevitable or a harbinger heading towards consolidation across some related clean tech sectors?

Yeah, no, this is Jason, maybe I'll start here. I don't -- I won't make any comments relative to M&A or consolidation but I'll talk about partnerships more broadly. We think that a partnership with Chart is a great example of our commitment to be able to take fully integrated solutions to our customers. Customers really want to buy energy as a service. They're not looking to be the integrators of energy technologies. So when you think about our platforms, just as an example, and if you were to use an analogy of our platform to like an enterprise software platform, so our platform has a number of different capabilities, and you can plus those capabilities on or you can plus those capabilities off. So when you begin to plus those capabilities on let's take something like carbon utilization in food and beverage category, as an example. There are elements of that solution for a customer that we need, that we feel so energy, don't manufacture, and we don't intend to manufacture because there are other people that do that, and will leverage those technologies. So Chart, as an example is one of those companies that gives us the ability to go to a customer and say, we can deliver you on site generation, we can deliver to you thermal energy so you can either reduce boilers or replace boilers. And we can deliver to you beverage grade Co2 for use in your food or beverage process. And so doing that with someone like Chart, we can take a full solution that will include not only our platform, but other elements that you need, storage for the Co2, purification of the Co2 which we don't do. And so that partnership and having integrated solutions that you know you can take to customers and can replicate, also helps you close transactions faster, because you have an integrated solution to a partnership. So I think you're going to see more of that if you look at the work that we're doing at Toyota, right. Our platform is delivering power, hydrogen, and water. But, we don't make fueling stations and so there's another provider that's delivering the fueling station infrastructure that's also needed to fuel the [indiscernible], and the fuel the Class A heavy duty truck they've jointly developed with Packard [ph]. So we see these kinds of partnerships as really important to our overall strategy, just like the one we announced with MMAG where there we are working towards to do large scale solid oxide electrolysis opportunities. So those kinds of partnerships become really important to total solution delivery. And we'll continue to do those things where it makes sense.

Great, thanks a lot. It's really illuminating. And you talked a little bit about margins you are looking for with the generation portfolio. I just wondered if you could talk a little more broadly about sort of what's next for the portfolio, if we look ahead to the next few quarters, are you seeing more interest or urgency around utility projects or more like the municipal or industrial water project?

Yes, so we see a few things right. When you think about -- if I just take North America, the government's been pretty clear about we're focused on a B, right. They'd said, infrastructure is really important, the IRA is really important, and chips are really important. We participate in two of those things, right, infrastructure and the IRA and we have solutions that deliver on the grid side resiliency, reliability, redundancy, and affordability. We think that's important and we are seeing more and more time to power projects, more desire to do distributed power generation where there's actually demand for -- in those demand centers, because a lot of that is also being driven by just the amount of time it's taking to permit to interconnections or build new high voltage transmission, which is well chronicled and the challenges that exist around that. So we are seeing more opportunity there. We're seeing really solid opportunity around like I talked about Co2 utilization. We have a number of opportunities, our pipeline around carbon capture and that's consistent with the work that we're doing with Exxon as an example. So we are seeing that across our technology, there's real market interest for what we're doing. And we're seeing, interest in some megawatt around our solid oxide platform, and we talked earlier this year around a sale that we've closed there. And so we look forward to continuing to move forward with those -- with both our platforms and addressing specific applications where we think we have a right to win.

Great, thanks a lot.

Thank you.

And as there are no more questions, I'd like to turn the call back over to Jason Few for final closing remarks.

Rob, thank you. We will continue to execute on our powerhouse business strategy with the goal of delivering growth and optimizing returns. Thank you all for joining the call today and for your interest in FuelCell Energy. We look forward to updating you again next quarter. Hope everyone has a great day. Thank you very much.

This concludes today's conference call. Thank you for your participation. You may now disconnect.