Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to FuelCell Energy Third Quarter 2023 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, 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 third quarter of 2023, and our earnings press release and our SEC filings 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. Again, it's www.fuelcellenergy.com under Investors. For our call today, I am joined by Jason Few, Fuelcell Energy's President and CEO; and Mike Bishop, Executive Vice President and, Chief Financial Officer, and Treasurer. Following our prepared remarks, we will be available to take your questions and be joined by other members of our leadership team. I would like to 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 operational execution. We will highlight our consistent progress on fee projects and strategic objectives, including the commissioning of our Tri-generation distributed hydrogen platform at the Port of Long Beach, California, the extension of our firm of our joint development agreement with ExxonMobil Technology and Engineering Company or EMTEC, as well as our success in reentering the Korean market. 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 operations and have generated more than 13 million megawatt hours today. 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 the key messages for this quarter shown on Slide 4. First, we were thrilled to announce that the Toyota project located at the Port of Long Beach in California is online producing power, hydrogen and water, including delivering hydrogen that meets the stringent security specification required for Toyota's mobility applications. At this time, we are only waiting on the receipt final fire department and related building permit required to fully…

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 third quarter of fiscal year 2023, we reported total revenues of $25.5 million compared to $43.1 million in the third quarter of fiscal year 2022, a decrease of 41%. Excluding the revenues generated by the sales modules in the prior year quarter, overall revenues in the third quarter were up slightly compared to the prior year quarter. Net loss was $23.6 million in the third quarter of fiscal year 2023 compared to a net loss of $29 million in the third quarter of fiscal year 2022. The resulting net loss per share attributable to common stockholders in the third quarter of fiscal year 2023 was negative $0.06 compared to negative $0.08 in the third quarter of fiscal year 2022. Adjusted EBITDA totaled negative $31.6 million in the third quarter of fiscal year 2023 compared to adjusted EBITDA of negative $20.8 million in the third 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 tax equivalent and short-term investments of over $410 million as of July 31, 2023. Next, please turn to Slide 7 for additional details on our financial performance and backlog. The chart at the left hand side of the slide graphically shows our revenue composition by line item. Looking at revenue drivers by category, service agreement revenues increased to $9.8 million from $9 million. The increase in service agreement revenues for the third quarter of fiscal year 2023 was primarily driven by two new module exchanges at the plant owned by Korea Southern Power Company in Korea…

Thanks Mike. I will now cover our business and operational updates in more detail beginning with Slide 10. 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. The first tenet is grow. We continue to focus on optimizing our business for achieving growth in markets where we see significant opportunities for our platform technologies, created geographic market segment and application specific playbooks that are focused on building a robust sales pipeline. Business development team is focused on moving the pipeline from prospects who executed agreements. Second is scale. Plant to scale our existing platforms by investing in extending and deepening our leadership and total human capital across the organization. From 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. 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 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 costs. Third is innovation. For our 50-year history, we have never stopped innovating. Shown on an earlier slide, we have hundreds of patents granted or pending in jurisdictions around the world. We believe our technology and our culture provide the opportunity for our participation in the growth of the hydrogen economy and carbon capture markets and will enable us to deliver on our purpose to enable the world powered by clean energy. They're working to develop diversify revenue streams by delivering a range of solutions and services that exploit…

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

Maybe just to start, first question, you mentioned in the press release that you're examining additional facilities for the build of your solid oxide platform. Could you just help illuminate a little bit of additional interest that you've seen and what gives you the confidence to continue to build out the capacity there?

George, good morning, and thank you for joining the call, and thank you for your question. Yes, we continue to use the interest that we're seeing from customers and the pipeline that we're building as how we think about the need to expand capacity for our solid oxide manufacturing. In addition to that, we continue to look for ways in which we increase our capacity and our existing footprint or making small additions to our existing footprint even in Calgary. So, we're -- today, we believe that we can get to 80 megawatts of capacity from originally where we thought we were at 40 just based on additional process optimizations and things that we're doing at that facility. So, our decisions will be driven by demand and the pipeline that our business development team is building, but we're seeing really strong support for solid oxide for power gen and for electrolysis.

And do you still expect a reversibility to come into the platform in 2027?

We do. We believe that that's going to be a significant opportunity for us in the longer term as energy storage continues to be a more important part of the energy transition as we continue to add more and more intermittent technologies to the grid. Our view is that hydrogen works as an excellent energy store, and that it's far more practical for long duration energy storage versus mineral-based solutions. And so, our ability to leverage reversibility of our platform, so the same stack that's going to make hydrogen is the same stack we can reverse and feed that hydrogen to produce power, we think is going to be a real opportunity for us.

Maybe just a last question. I'm wondering if you could share your thoughts on the upcoming decision by treasury to give us more detail around additionality, excuse me, deliverability and matching and your thoughts as to how that decision will turn out? Thank you.

Yes, so just, I think it was on the seventh, the Deputy Secretary of Treasury said that they plan to clarify more of the rules by the end of this calendar year. So one, I would say we're excited that there's, we're going to get to real clarity around the rules. As a company, we've continued to be in a position to leverage the ITC and we've demonstrated our ability to attract tax equity as part of the way in which we recycle cash in our business. We think that the treasury department and overall the administration is really trying to listen to the voice of the market in terms of how it's making these decisions. And so, when you think about things like, additionality or match ability, they're really trying to get this right, we believe, and we think that the ultimately get to the right decision and put together more of a transition path than kind of a clear hard determination one way or another in terms of how they're going to account for whether it's additionality or matching.

Your next question comes from the line of Manav Gupta from UBS. Your line is open.

Good morning guys. I actually quickly wanted to focus on this SRIA study from California that came out on Friday that's calling for like 90% emission reductions for 2045. It lists a number of fuels including hydrogen, so it's pretty bullish on hydrogen. And I'm basically trying to understand now that California, it seems to be very supportive of alternate fuels. Does that change your plans? And also in the report, it's basically saying a book and claim would apply to even green hydrogen, which is they're encouraging the sale of green hydrogen within the state of California. That's when you can get the credit. So, if you could talk around your plans of California based on what we are seeing with SRI, which basically would support alternate fuels in a big way in the state of California?

Good morning and thank you for your question. And, also, you wrote a pretty nice report on this yourself that just came out. So appreciate that. Look, we are strong supporters of using biofuels, not only for power production, which we have done on a number of different installations in California. We support the methodology in terms of how you think about using alternate fuels to produce green hydrogen, which is exactly what we are doing with our Tri-generation platform at the Port of Long Beach. So, we're really supportive of this move that they are making. And as you know, as a company from a carb standpoint who is driving this movement in California, we have been carb certified for a long time. We are the first fuel cell provider to get there. And so, as we think as air quality issues and the real focus around things like SOx and NOx and other particulates coming back into focus, we think strong support of alternate fuels, our platform that doesn't combust those fuels, so we don't produce SOx and NOx and other particular just, shows stronger support for what California is trying to do. So, we are really excited about it, and we think it's a real positive. And, we think that opens the door for us from a distributed power generation. It opens the door for more opportunities around Tri-generation to actually produce carbon neutral power, green hydrogen, and water like we are doing in California. So we think it's a very positive thing.

Well, thank you for a very detailed response and congrats on getting the Tri-gen platform up and running. We hope it's first of many because those things really help to decarbonize at a faster pace. So I will turn it over. Thanks again.

Your next question comes from the line of Ryan Pfingst from B. Riley Securities. Your line is open.

Hey. Good morning, guys. On product sales, can you provide any color around demand? And any progress you might be making with new customers potentially outside of Korea?

Ryan, good morning, and thank you for the question. Yes, as we have indicated, as a company, we have begun to really focus on creating a better balance between our power purchase agreement opportunities that we drive, and product sales. So we are building a pipeline that enables us to do both of those things because we think continuing to offer multiple ways for our customers to purchase from us is a benefit to us as a company. But we see strong pipeline builds not only in our traditional markets, but as we expand into new markets outside of kind of our core. We are seeing strong product demand and those continue -- those generally tend to be more product sale focused markets as opposed to PPAs. And so, we think that over the coming quarters, you will see more from us on product sales as an overall opportunity.

That's helpful. And then turning to the generation segment, can you talk a little bit about the economics of the Derby projects or maybe at a higher level how they might help the profitability of the generation segment as a whole?

Sure. I think maybe Mike could give you a sense of how we think about margin on our generation business and what we've seen happen over the last several quarters and certainly this quarter. But Mike can walk you through that.

Sure. Good morning Ryan, and thanks for joining the call. So yes, as we think about the two Derby projects that that will add meaningful generation revenue, right now, today we're producing about 44 million on an annualized rate. We did about 11 million of generation revenue this quarter. So, 44 million today, but adding obviously the large Derby project, another 14 megawatts will make a meaningful increase there. When we think about profitability of the generation portfolio, we target EBITDA margins in our generation portfolio of between 40% to 50%, when you back -- if you look at just last quarter's results, when you back out the Toyota one-time charges as well as depreciation, we're in the 46% range right now. So, we would expect that to continue as we add additional operating assets in the portfolio.

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

So maybe I'll just stick with generation, curious, so now with Derby coming on, I think you'll be at what 63 -- you'll be around 60 megawatts. And I know and this goes back a while, so not, this isn't necessarily a target you've given, but at one-time you had kind of a 50 to 60 megawatt area where you thought you'd breakeven. Obviously, you've got a lot of irons in the fire, so you've taken on more expenses. Do you kind of have high level megawatts in generation portfolio breakeven number?

Good morning, Eric. This is Mike. So, historically, if you go back four plus years ago, we were really centering the business around the generation portfolio with a meaningful backlog of projects that we had. So to your point, we've been working really hard at getting those projects up online. We'll be north of 60 megawatts after Derby comes online. And back at that time we were focusing the business on getting to EBITDA positive around the generation portfolio. Fast forward a couple of years with the energy transition now being here in a big way with global support around what we're doing. We've accelerated investments around our different technologies and Jason talked about both solid oxide, but also carbon capture that has increased both our operating expenses and CapEx, which has pushed out our profitability into the future. But we made that trade off in order to get these technologies to market. When we look at the external targets we've put out there. We're targeting getting over 300 million of, of revenue in 2025 and over a billion by 2030. We're still confident in those targets and with the increased revenue we would expect profitability to come as well.

And I mean, is it something where we should think about, I mean is there a time in the future, say when carbon capture, when maybe that has progressed, you've gotten through the pilot project program where that spending maybe tails off a little bit? I mean, I know this is all dependent on what your spend looks like. So maybe how do you think about those things? Or do you think that you're going to have kind of this elevated spend for the well foreseeable future or longer term than that?

So, when we look at the R&D spend, we ramped that up here over the last couple years. We have not put out, guidance of when that would come back down. But clearly, as we've talked about, we're investing in, in first article products, that we're building here in our Connecticut facilities. And as those become commercial, that will shift up to cost to sales, which would likely drive down research and development expenses in the future. But we haven't put out specific guidance around that. And then just going back to the question around megawatt guidance, as we look at the revenue potential for different products that we have out there now, it's different math than just dollars, dollars per megawatt. We can potentially see, higher revenues, particularly around a project like Tri-gen that has multiple attributes coming out, not just power generation, but the hydrogen and water. And then obviously with government incentives out there around like the PTC credit that was not there, a couple of years ago, potentially higher revenue opportunities for those projects than just a dollar per megawatt.

And our final question today comes from the line of Noel Parks from Tuohy Brothers. Your line is open.

Just had a couple. Talking about the generation business and more recent investments in new technologies. Can you just talk about sort of the state of your business momentum with generation, new customers, anything has that shifted in terms of how you characterize the source of customers that are being more aggressive, whether they're moving any faster or as with so many things waiting for sort of more of the IRA and infrastructure guidance?

Noel, thank you for your question. So as we think about what we're seeing with customers, and you think about what we've just done with Toyota, well, many of the things that we're doing are new applications in the way in which we're using our platform. What's important to note about that is that it's our same existing platform. We're just extending the capabilities of that platform to deliver additional value. So, the same carbonated platform that we commercialized in 2003 is the same platform we deployed at the Port of Long Beach in support of the Toyota opportunity. Yet, we're delivering hydrogen and water from that platform in addition to power. We see that as a great example of where customers will now be able to see a real commercial implementation of that platform. And we think that will help us drive additional opportunities around the Tri-gen platform as an example. We are seeing, customer interest and way in which we're building our pipeline growing even without the clarity around IRA and especially when you think about globally, because, we're not just focused in the U.S. but you've got programs in the EU, you've got programs in Korea, all of which drive strong tailwinds that, that really support the business that we're in. And when you think about what's really happened, net zero in countries around the world have been legislated in. And so companies are going to find ways to get there, and we think that you will see even more states in the U.S., take more progressive attitudes like what you are seeing in California, like what we just talked about, and the expansion of, and support for renewable fuels, we think that all serves us really well to help to drive our business, especially some of…

Great. Thanks. And, I just wanted to turn to the ExxonMobil JV. And I was just curious about a couple things, I guess, just sort of the working relationship. They are a huge company and sort of their internal process. And maybe how it affects progress in the JV, you have had a number of extensions of the agreement. And I guess just even more on a practical level, do you have any thoughts about the process that's left before -- in the pipeline before? There'll be more info about, for example, the timing of plans at Rotterdam for a capture installation there.

No. Thank you. I don't want to speak on behalf of Exxon, but I think it's clear from their public pronouncements that, they are committed to their low carbon business. Our technology is directly supportive of what Darren has talked about and Dan Ammann have talked about in terms of their low carbon business. And so, we feel really good about that. They have been clear that they expect to get to FID decision later this year on a demonstration project. So, we think that will happen. So, I think you are seeing Exxon operate very differently with their low carbon business. And they have -- and we think that, that will be benefit for us as well. And so, they have got a strong commitment there and we are excited about it.

And this ends our question-and-answer session. I will now turn the call back over to Mr. Jason Few for some final closing remarks.

Rob thank you. We want to take a moment to acknowledge and honor the victims' families and communities impacted by September 11th. As a Connecticut based company today, our thoughts are with those impacted in our community. As a company, 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 and have a great day.

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