Q1 2021 Fuelcell Energy Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to fuel cell energy Q1, 2020 one earnings call.

At this time, all participants on a listen only mode. After the speaker's presentation there'll be a question and answer session.

I ask a question during this session and I need to press star one on your telephone.

Or any further assistance please press star zero.

I'd now like to hand, the conference over to your Speaker today, Tom Gelston Senior Vice President of Investor Relations. Thank you. Please go ahead Sir.

Thank you Julien good morning, and thank you for joining us on today's call. As a reminder, this call is being recorded.

This morning fuel cell energy released our financial results for the first quarter of fiscal year, 2020, one and the earnings press release is available on the Investor Relations section of our website at fuel cell energy Dotcom and.

Consistent with our practice and addition to this call and our press release and we have posted a slide presentation on our website.

This webcast is being recorded and will be available for replay on the company's web site approximately two hours. After we conclude the call.

Before we begin our prepared comments please direct your attention to the disclosure statement on slide two of the presentation and the disclaimers included in the press release related to forward looking statements.

And the discussion today will contain forward looking statements, including without limitation statements with respect to the company's anticipated financial results and statements regarding the company's plans and expectations regarding the continuing development commercialization and financing of its fuel cell technology and its business plans.

Forward looking statements are intended to qualify for safe Harbor from liability established by the private Securities Litigation Reform Act of 1995 also.

All statements made on this call today other than statements of historical facts are forward looking statements and you are.

And include statements regarding our anticipated financial and operational performance.

Forward looking statements made on this call represent management's current expectations and are based on information available at the time such statements are made forward.

Forward looking statements involve numerous known and unknown risks uncertainties and other factors that may cause our actual results to differ materially from any results predicted assumed or implied by the forward looking statements.

We strongly encourage you to review the information and the reports we file with the SEC regarding these risks and uncertainties and particularly those that are described in the risk factors statements of our annual report on form 10-K, and cautionary statements concerning forward looking statements disclosed on our quarterly reports on form 10-Q, you should also review the section entitled cautionary statements concerning forward looking.

And this morning's earnings press release.

During this call, we'll use non-GAAP financial measures when talking about the company's performance and financial condition and accordance with S. E. C. Regulations, you can find a reconciliation of these non-GAAP measures to the comparable GAAP measures and this morning's earnings press release and the reconciliation document posted on the Investor relations portion of our website.

On our call today, I'm joined by adjacency and fuel cell energy, President and Chief Executive Officer, and Mike Bishop Executive Vice President and Chief Financial Officer and Treasurer.

Following our prepared remarks will be available to take your questions and be joined by other members of our leadership team with that I'll now hand, the call over to Jason for opening remarks, Jason.

Thank you Tom and good morning, everyone. Thanks for joining us on our call today.

Each quarter. We include a brief overview of the company as shown on slide three for our new investors.

Taking a look at the full year fiscal 2020, which ended on October 31, our total revenue grew by double digits to approximately $71 million.

Our three largest categories servicing licenses advanced technologies and generation represent diversified sources of recurring revenue under multiyear contracts with investment grade customers consistent with our strategy and future quarters. We expect the work we have done to rebuild our business development and go.

Mark capabilities recruit and onboard strategic talent, and reenter and build client relationships and targeted global markets to yield growth, including product sales.

And system with our prior experience and certain markets such as Korea, the largest fuel cell market and the world select countries across Europe and other international markets. We expect some customers to choose to purchase our platform bundled with long term service contracts that run coterminous with the platform's life should our market.

And efforts to be successful we are optimistic about the momentum behind the global energy transition that we expect to be enabled by distributed generation distributed hydrogen long duration hydrogen energy storage and carbon capture.

At the top of the slide we highlight many of our customers currently utilizing our multi feature appeal. So platforms. Many of these systems integrate combined heat and power capabilities, creating very high energy efficiency levels, while others installation and form the backbone of micro grids, enhancing resiliency and reliability.

<unk> and are utilized biofuel, resulting and carbon neutral to carbon negative power on.

Our platforms also have the ability to leverage multiple fuel types a feature many customers are interested in.

In addition, our carbonate fuel cell platform has the ability to deliver hydrogen through our triage and platform and we are developing a new capability of running our carbonate fuel cell and reverse are and electrolysis mode through a process known as reforming electrolysis and purification or RVP.

Sure.

We believe that the distributed nature of our hydrogen platform can enable the hydrogen economy and advance of midstream infrastructure availability.

Fuel cell energy offers diversification across fuel cell technologies that enable solutions across multiple applications, where jobs that need to be done.

Additionally, as I will cover later in my remarks, we continue to advance the commercialization of our solid oxide fuel cell platform to produce hydrogen through highly efficient electrolysis long duration hydrogen based energy storage and zero carbon hydrogen power generation, we believe that these technologies.

And provide the firm capacity required to support intermittent renewable technologies, such as wind and solar by converting the off peak energy. So occasionally generated by renewables or excess energy produced in excess of demand into hydrogen and that is stored and later sent back to the same fuel cell and.

<unk> fuel cell stack to produce zero carbon power.

Recently, the Worldwatch, the disruption and loss of life and Texas.

Net caused by an availability of power <unk> energy is committed to delivering baseload power installation across our carbonate and solid oxide platforms that can and have demonstrated their ability to reduce the likelihood of similar events in the future we stand ready to support customers around the world.

Next moving to slide four I want to highlight our commitment to our purpose of enabling and the world to live a life empowered by clean energy, we believe that all people around the world will increasingly need reliable always on power.

The electric grid continues to evolve, but grid reliability remains a critical issue.

We believe that fuel cell energy is uniquely positioned to meet the reliability challenges with our broad product portfolio that can also assist with deep carbonization goals.

We don't subscribe to the notion that de carbonization has to mean D industrialization or.

And the developing countries around the world can't participate and industrialized society.

This purpose drives our strategic focus and the work we do.

Turning now to the quarter I have three overarching messages.

<unk> is that we are continuing to make progress against our $1 $2 7 billion dollar backlog.

As we execute our powerhouse business strategy by working to complete and thus add another 47 megawatts to our generation portfolio.

Subsequent to quarter and with the addition of our new two eight megawatt PPA for our second project and Derby, Connecticut, Our backlog has increased to 43 five megawatts.

We have completed the majority of our scope of work on the seven four megawatt project at the U S Navy base and Groton, Connecticut.

The company is currently awaiting the interconnection and other safety related work to be completed prior to the commissioning and commercial operations.

The interconnection agreement for this project is a four party agreement and has taken longer than originally estimated to complete.

Fuel cell energy and looks forward to fortify and the power infrastructure supporting base resiliency and the U S. Federal government's defense critical electrical infrastructure objectives. Additionally, construction activity has been substantially complete for a one four megawatt project at the San Bernardino, California.

Wastewater treatment facility that will utilize onsite biofuel to produce carbon neutral power.

We are working with the local utility on the interconnection process prior to commissioning and commencing commercial operations.

I want to provide more color on interconnection for those less familiar with the process.

<unk> prior to being able to operate in parallel with the utility grid network.

Series of studies, such as a feasibility system impact and distribution studies are required to be performed by the appropriate local utility for distribution level interconnects.

Or in some cases by the regional transmission organization for larger or grid connected projects.

<unk> distributed electrical generation of equipment is approved for connection to our operation in parallel with the grid, which is a requirement for commercial operation. The studies assessed. The addition of the power generation platform and its impact on the existing utility power system.

As well as identify any interconnection facilities, our network upgrades needed for interconnecting the platform to the utility grid.

The lead time for this process can vary depending on a variety of factors, including the utility's ability to prioritize the studies the technical complexity of the project site and infrastructure work required by the utility prior to interconnection, we proactively manage every aspect of the interconnection process within our scope.

And responsibility to obtain interconnection as quickly as possible, while ensuring compliance with all safety and reliability requirements.

As noted in the case of run.

This work is being managed by a third party.

We have also commenced construction on 24 five megawatts of projects, including the two three megawatt tried to and hydrogen platform and travelers and deliver carbon neutral electricity.

Green hydrogen and produced water to Toyota at the Port of long Beach, We believe our tried and hydrogen platform is the only platform and the world that produces hydrogen and usable water and a single distributed platform. In addition, we are advancing our utility scale deployments and yacht tank Long Island, New York and Derby, Connecticut.

Okay.

We werent able to resume manufacturing with necessary safety enhancements at our Torrington, Connecticut manufacturing facility in June of 2020.

And we have established a phased and returned to work schedule for those employees that have been working from home through this month, we continue to evaluate our ability to operate in light of recent resurgence of COVID-19, and the advisability of continuing operations based on federal state and local jurisdiction requirements and.

Around the world.

Moving data concerning the pandemic the availability of vaccines and the best interest of our employees customers and shareholders.

The second key message I want to highlight is the progress we have made towards bolstering our financial Foundation.

<unk> and our liquidity and creating an opportunity to reduce our cost of capital as we have previously disclosed during the quarter, we completed and additional equity offering resulting in net proceeds to the company of approximately $156 million.

And third I want to reiterate our goal of strengthening our leadership and sustainability and environmental stewardship customers around the world are increasingly looking for are thinning on site and sustainable Decarbonize energy solutions to address climate challenges enhance grid reliability and enable them to continue to opt.

Great their businesses without intermittent disruptions.

To meet the growing global need for clean Decarbonize energy deal. So energy remains focused on developing and deploying our product portfolio of solutions for some of the largest global energy opportunities.

A recent technology milestone has been the commencement of operation and testing of our prototype.

And you see where solid oxide electrolysis platform and Danbury, Connecticut.

Day, the platform and successfully and efficiently converting electricity and water into hydrogen.

We also intend to continue to strengthen our leadership position and distributed generation distributed hydrogen and carbon capture.

And now I will turn the call over to Mike to discuss our financial results and more detail Mike.

Thank you, Jason let's begin by reviewing financial highlights for the quarter shown on slide seven and the first quarter of fiscal year 2021, we delivered $14 9 million and total revenue and 9% decline compared to the first quarter of fiscal year 2020. The primary driver of the decrease was that the first.

Order of fiscal year 2020 included $4 million of nonrecurring license revenues associated with our joint development agreement or <unk> with Exxonmobil research and engineering company or Emory related to carbon capture technology development.

At revenue drivers by category service and license revenues decreased 12% to $4 9 million from $5 6 million and the prior year period revenue recognized in the first quarter, primarily includes revenue recorded from macho replacements and routine maintenance activities, whereas revenue recognized from the first quarter of fiscal year 2012.

<unk> included nonrecurring license revenues of $4 million associated with our J D. A with Emory and $1 6 million associated with routine monitoring and maintenance activities for projects under service agreements Gen.

Generation revenues decreased 10% to $4 9 million due to a temporary shutdown of several of the individual plants at the Bridgeport fuel cell project for scheduled module exchanges in the quarter advanced technology contract revenues decreased 3% to $5 1 million from $5 2 million compared to the <unk>.

First quarter of fiscal year 2020 advanced technology contract revenues recognized under the J D. A with Emory where approximately $300000 higher during the first quarter of fiscal year 2021, reflecting continued advancement of our joint research with Emory on fuel cell carbon capture solutions during.

The quarter the increased revenues under the J D E were offset by $400000 of less revenue recognized under government contracts and the first quarter of fiscal year 2021, compared to the first fiscal quarter of fiscal year 2020.

Gross loss for the first quarter of fiscal year, 2021, and totaled $3 6 million compared to a gross profit of $3 3 million and the prior year quarter results for the quarter of fiscal year 'twenty, one reflected no license revenues under the J D day during the quarter as well as a temporary shutdown of several of the individual plants at the Bridgeport fuel.

Cell project for module exchanges during the quarter and higher manufacturing variances and service related costs compared to the prior year period.

Operating expenses for the first quarter of fiscal year 2021 increased to $10 8 million from $6 4 million and the first quarter of fiscal year, 2020, administrative and selling expenses and the first quarter of fiscal 'twenty. One included additional stock based compensation expense of $800000 tied to grants made in 2020.

And and increasing the value of a deferred director compensation liability due to the increase in the company's share price. The first quarter of fiscal year 2020 included a legal settlement of $2 2 million, which was recorded as an offset to administrative and selling expenses research and development expenses of one point.

$8 million during the quarter reflected increased spending on the companys hydrogen commercialization initiatives.

Loss from operations totaled $14 4 million compared to $3 1 million and the prior year period net loss for the quarter totaled $46 million compared to a net loss of $40 2 million and the first quarter of fiscal year 2020, net loss attributable to common stockholders for the quarter totaled $46 8 million or 15.

<unk> per basic and diluted share compared to a net loss attributable to common stockholders of $41 1 million from <unk> 20 per basic and diluted share and the comparable prior year period, the lower net loss per common share. Despite a higher net loss attributable to common stockholders is due to the higher weighted average shares outstanding.

And from share issuances since January 31, 2020, the net loss per share in the first quarter of fiscal year 'twenty. One includes the change in fair value liability associated with the warrants issued to lenders under our now extinguished credit agreement with Orion energy partners of $16 million accounting for approximately.

<unk>, a <unk> <unk> per share impact on our reported net loss per share compared to $34 2 million or <unk> 17 per share and the comparable prior year period. The net loss per share attributable to common shareholders. In the quarter ended January 31, 'twenty. One also included a loss on extinguishment.

And we shouldn't have debt and the loss on extinguishment of preferred stock obligation of subsidiary together totaling $12 1 million or a <unk> <unk> per share impact on our reported net loss per share.

Adjusted EBITDA totaled negative seven 4 million and the first quarter of fiscal year 'twenty, one compared to adjusted EBITDA of negative 200000, and the first quarter of fiscal year 2020. Please see the discussion of non-GAAP financial measures, including adjusted EBITDA in the appendix of our earnings release.

Prior to leaving this slide I would note debt the pictures on the right showcase the progress that we've made on our seven four megawatt platform at the Navy sub base and Groton, Connecticut.

Next please turn to slide eight for additional detail on financial performance and our backlog. The chart on the left hand side of the slide graphically displays the numbers I walked through for the first quarters of fiscal years, 2020 one.

Looking at the right side of the slide we finished the quarter with backlog of approximately $1 $2 7 billion a decrease of 7% subsequent to the end of the quarter. The company entered into a 20 year power purchase agreement or PPA with alignment United Illuminating for a two eight megawatt project.

And Derby, Connecticut awarded as part of the competitively bid state sponsored share clean energy facility program. This platform will supply two eight megawatts of clean base load power to the Connecticut electric grid, enhancing Brazilians and and is our second project located in Derby.

This contract is not included in the company's backlog as of January 31, 2021, but is it expected to add $59 4 million and future revenue to the Companys reported generation backlog going forward.

Turning to slide nine I would like to highlight the steps taken as part of our powerhouse business strategy to provide additional liquidity with a goal of enabling us to focus on the execution of our business plan, including building out our backlog of generation projects commercializing, our advanced hydrogen technologies and expanding our.

Go to market activities.

As of January 31, 2021, cash restricted cash and cash equivalents totaled $209 $6 million of which 31 million was restricted cash and cash equivalents represented by the green bars.

During the quarter, we completed an equity offering resulting and the net proceeds to the company of approximately $156 $4 million. This offering allowed us to extinguish our senior secured credit facility with Orion energy partners and to pay off the series one preferred share obligation that one of our subsidiaries owed to Enbridge, Inc.

The net proceeds from the offering may also be used to accelerate the development and commercialization of our solid oxide platform and for project development project financing working capital support and general corporate purposes. In addition, our improved capital structure provides for lower interest expense the elimination of the series and <unk>.

On preferred dividends and increase flexibility of project financing.

On the right side of the slide we have included a chart illustrating our total project assets, which make up our company owned generation portfolio.

Investments to date include capital spent towards completed projects as well as in flight development projects as at the end of the first quarter of fiscal year 2021 and our gross project assets totaled $197 $5 million as itemized on slide 21 in the appendix of this presentation our generation.

Portfolio totaled $73 three megawatts of assets as of January 31, 2021 as.

As projects in development come on line such as the Groton seven four megawatt platform that I previously highlighted they are expected to contribute higher revenue and adjusted EBITDA higher revenue and positive adjusted EBITDA. Our two aspects of our goals described on slide 16 of this presentation.

And also as projects become operational we expect to execute long term financing and efficient and an efficient cost of capital thus recycling cash back to the company to redeploy into other projects or gross development activities.

In closing we are pleased with the progress that we've made under our powerhouse business strategy, we have a strengthened financial foundation, allowing us to focus on driving commercial availability of our advanced technology solutions, including distributed hydrogen electrolysis and hydrogen production and long duration.

And energy storage and.

And to focus on expanding our geographic markets. While also executing on our plans to deliver on our project backlog I will now turn the call back over to Jason.

Thanks, Mike.

As mentioned previously we are near completion of two new power platforms. One of the U S. Navy base in Groton, net Groton, Connecticut, and one zero carbon and biofuel platform at the wastewater treatment facility in San Bernardino, California.

Our <unk> 500, and <unk> 3000, and flower power platforms are the only fuel cell system certified to carbon emission standards under the distributed generation certification program for operations with onsite biogas. We also began early stage construction of $24 five megawatt.

Lots of projects, including the Toyota hydrogen project at the Port of long Beach, and utility scale projects and Yap Hank on long.

And island in New York and Derby, Connecticut.

We are also advancing the development of new technologies, including operating and testing a prototype solid oxide electrolysis hydrogen platform and Danbury, Connecticut and continued to advance our joint research with Emory on fuel cell carbon capture solutions.

Turning to slide 11.

I wanted to take a moment to highlight the strong resiliency characteristics of our <unk> platform as I mentioned earlier recent headlines and Texas surrounding extreme weather as well as continued challenges for grid reliability and markets, such as California, or the extreme freeze in Greece, and the UK and February continue.

To expose the inherent challenges of a long distance transmission base grid and cities across America governments and utilities alike are hopeful any infrastructure package contemplated by Congress and the New administration will include funding to upgrade to day grid with reliable distributed megawatt scale.

Power platforms, our platforms not only run 24, seven to $3 65, but have demonstrated their performance stability during some of nature's more extreme conditions.

Highlights on the chart to the left our numerous examples where our ensure source platforms operated seamlessly and prolonged instances of extreme temperatures, providing universities industry critical resources and the broader utility grid with reliable power.

On the right is an example of one of these installations a short sourced 3000 located on the campus of the University of California, San Diego as part of a Microgrid solution. It helps provide energy security to more than 40000 students on its approximate 1000 acre campus and beyond power.

The University uses to thermal attributes of our platform with a heat exchanger being used to drive absorption chiller to provide cold water to the campus.

This installation along with our micro grid installed at the gel and Santa Rita, California were highlighted by the magazine micro grid and knowledge as being two world class examples of micro grids that deliver on their promise of always on power, having continued to provide power during public safety power.

Shut offs and their respective areas on slide 12, I want to again remind everyone of the four major market opportunities that fuel cell energy is pursuing distributed generation distributed hydrogen and long duration storage and carbon capture.

We believe that each of these has a very large total addressable market opportunity for which we are working to position the company to benefit.

We continue to advance research and development of our carbonate fuel cell platforms efficiency, capturing carbon from an external source, while also producing power ARPA.

Our proprietary carbon capture solution is the only solution that we know of that captures carbon from an external source and produces power rather than consuming it and is also capable of producing hydrogen for distributed applications. We also can directly capture carbon from our own ensure source power.

Platform for carbon utilization and or sequestration.

I also want to take this opportunity to spend more time on our hydrogen focus including technology and the process of being tested and advanced for commercialization.

So turning to slide 13, you will see a visual illustration of how fuel cell energy will deliver hydrogen across three of our platforms. Our carbonate platform featured on the right side of this slide allows us to deliver hydrogen through our tri Gen hydrogen platform.

The first half of the word tried and it's important because the platform delivers three value streams to our customers first it delivers power.

And it produces hydrogen and third it actually produces water, while delivering hydrogen adding more value and areas where water for electrolysis is at a premium which as previously stated we believe makes it the only platform and the world that produces water and hydrogen.

The Tri Gen platform can deliver green blue and gray hydrogen.

We are and the process of building the first commercial installation of this platform for Toyota at the Port of long Beach today.

When the co production of power is not required or carbonate platform is being developed to produce green and blue or green hydrogen through a reformer electrolyzed water purifier process part of our EP are solid oxide technology picture here on the left side of this slide which we are advancing to commercialization.

<unk> is designed to produce green and blue and gray hydrogen through highly efficient high temperature electrolysis and addition to our solid oxide fuel cell being designed to be highly efficient operating at a high temperature and having the ability to leverage we seek to achieve even higher efficiency. It is.

Designed to operate and reverse mode.

Same platform stack used to convert electricity and water and to hydrogen is reversible solid oxide mode will produce zero carbon power using the stored hydrogen.

So one might ask why three platforms the answer is simple.

Customers want to accomplish different objectives and need to get different jobs done.

Each location will have a unique pricing environment for fuel and electricity and.

Markets with higher power prices are tried and platform might be the best solution. If you can sell the electricity into the grid at higher prices, which reduces the cost of the produce hydrogen or perhaps local water and scarce supply or is at a premium.

We expect our developing RFP platform towards well across various fuel and electric price environments and in environments, where selling power to the grid is not an option.

And it should be uniquely situated to carbon capture applications to produce blue hydrogen.

With our solid oxide platform high efficiency design and expectation to leverage waste heat. It is expected to be well suited for low energy price environment and environments with high penetration of intermittent renewable energy resources.

The breadth and depth of our developing technology portfolio positions feels so energy to deliver distributed hydrogen across several environments around the world.

The flexibility, we expect to provide around distributed platform source and price of hydrogen and will enable us to add value and almost all energy segments globally.

And the versatility of our developing platform configurations allow fuel so energy to serve transportation industrial and natural gas de carbonization, and substitution repowering and existing power infrastructure and serving as a stationary power generation source and other processes not suited for electrification.

Slide 14 provides a more detailed overview of our solid oxide platform.

The prototype unit pictured here is a system currently operating and our game very Connecticut headquarters for testing of various platform design elements. This year, we will build a larger version of this solid oxide electrolysis and fuel so for delivery to the Idaho National Labs under a cooperative funding agreement with the U S Department of energy.

The <unk> project will incorporate a multi stack electrolysis system utilizing our solid oxide technology.

This system will also be equipped with an option to receive thermal energy.

And expected to increase the electrolysis electrical efficiency from about 90% to approximately 100%.

Following the design manufacture and testing of the system and fuel cell energy facilities day electrolysis system will be delivered to Idaho National laboratories, where it will undergo rigorous testing to confirm the electrical efficiency as well as the ability to utilize nuclear power plant waste heat to obtain higher efficiencies of up.

100%.

This project represents a key step and fuel so energy path to commercialize our high temperature high efficiency solid oxide electrolysis technology.

A multi stack module that forms the core of the system is a modular building blocks easily scalable from larger systems, we believe up to Gigawatts scale.

On Slide 15 next I want to briefly review our powerhouse business strategy, which is based on the three core pillars of transform strengthening growth. When we introduced our powerhouse business strategy, we provided our plan to reposition and fuel so energy to capitalize on the energy transition.

Powerhouse business strategy serves as the guidepost for the turnaround we are architected net fuel cell energy.

Like with most turnarounds. It takes time, we are approximately 15 months and our journey and we are pleased with our progress to date.

The first phase of our plan was to transform the company to build a durable financial foundation and enhance financial results. We have taken a number of important steps to strengthen the balance sheet, allowing us to finance completion of new projects and lower our cost of capital.

Currently we are focused on strengthening stage of our strategy by driving operational excellence throughout the business and making capital investment decisions that further enhance our performance and advanced product commercialization.

And our third pillar to fully deliver on our powerhouse business strategy. We outlined is achieving growth over the long term by seeking to penetrate markets and customer segments, where our technology platforms can be the preferred solution.

Our production operations are well positioned for further capacity expansion and will generate operating leverage as we ramp our production rate and support future business growth.

And support of our growth goal to achieve geographic and market expansion, including Europe.

<unk> energy has announced it has joined hydrogen Europe, the leading European Association, representing the interest of the hydrogen and fuel cell industry and its stakeholders reinforcing our commitment to the European market and providing a platform for European customers to better understand the value of our broad platform portfolio.

We are proud to join and community of companies working to significantly advance and accelerate the hydrogen economy.

While we are headquartered in the U S. We operate and manufacturing and service center in Germany that services the broader European market.

Turning to slide 16.

We will continue to work toward our long term targets and goals that we established with the launch of our powerhouse business strategy looking ahead to fiscal year 2022.

Reaching these targets will require successfully executing against our approximately 41 megawatt project backlog and advancing commercial operations for each of those projects, which are expected to deliver recurring revenue through power generation and long term service agreements.

As I've explained and today's presentation, we are pursuing and commercialization of our advanced technologies around RVP and solid oxide hydrogen and extending our carbonate carbon capture platform for solutions for capturing carbon from external sources and internally from the fuel cell.

Each of which offers potential growth opportunities for our company.

I will conclude my remarks today by reviewing key investment highlights for fuel so energy on slide 17.

We have executed several strategic actions that strengthen our balance sheet by repaying debt enhancing liquidity and reducing our cost of borrowing which we believe positions the company to execute on our growth strategy.

We have a strong multi disciplined team across our company that is focused on taking care of our customers achieving financial milestones and executing on our backlog and winning new business globally advancing commercialization of our differentiated platform solutions driving down the total cost of customer ownership and continue.

Building upon our operational excellence, while adhering to our core purpose.

We possess a portfolio of innovative technologies that contribute to the global goals and Decarbonising and grid developing the hydrogen economy and supporting existing energy and industrial infrastructure investment with a set of differentiated carbon capture solutions.

We are working to implement our powerhouse strategy to strengthen our business maximize operational efficiencies and position us for long term growth.

We appreciate many of you who track our progress and look for Biomarkers that illuminate the progress we are making towards the achievement of our powerhouse business strategy. As I. Previously stated we are just 15 months into our powerhouse strategy and we believe we are on track.

The breadth of our portfolio and the ability to apply our technology against a wider set of applications provides fuel cell energy with greater optionality to shift focus towards 81 of our four energy transition focus areas based on the pace of market adoption, thus increasing diversification.

Finally, we intend to be a leader in sustainability and environmental stewardship.

By delivering on sustainability through our technology and the full circular life of our platforms. We look forward to the year ahead.

I will now turn it over to Julian to begin Q&A.

Given the number of people and the queue. We ask you limit your questions to one and rejoin the queue. If you have any follow ups. Thank you Julian.

Thank you as a reminder to ask a question. Please press star followed by the number one.

First question will come from Jeff Osborne from Cowen and company. Please go ahead. Your line is open.

Hey, Good morning, guys. I was wondering if you could flesh out a little bit more detail on the solid oxide electrolysis opportunity that you are testing and Danbury I wasn't sure. What the next steps are and then how we think about the timeline to commercialization and.

And when you can start.

<unk> and Rfps for that are fully recognized.

And incremental steps that need to be taken from here, but I was just wondering if we could sort of book and that and how long and it will take.

And Jeff Great good.

Have you on the call today and thanks for joining and Great question, maybe I'll start and then I'll ask Tony Leo Our Chief Technology Officer to also chime in.

So with this test will lead to the next phase of actually executing the test with <unk> will be the next phase of our process.

To get to commercialization, but as we think about the opportunity to your price and to participate in Rfps and given where we are and where some of these rfps or at least projects that people are talking about are kind of longer dated projects.

We will participate and some of those opportunities if those timelines that our internal projections about when our product will be commercial with Tony because if you have anything else to add I'll just add to the phases. The tests. We're doing now is with a single stack skill system and its moving.

Galloping from basic operational approaches.

Moving into the logic.

Multi stack says and that we're building for INO later this year.

Net wise process, and we're happy with where we are right now.

Jeff I'll, just say, we're really excited about the.

And the tests, we're running here and the results that we're seeing and.

We feel good about our progress.

It's great to hear thanks, so much.

Hugh.

Your next question comes from Laurence Alexander from Jefferies. Please go ahead. Your line is open.

Good morning can you characterize the amount that you are bidding activity has changed over the last three or six months and.

On what Youre kind of bandwidth for <unk>.

New projects is like what would be kind of view the point at which you'd say you're stretching your limits.

Florida Award and how are you.

Thank you for joining the call this morning.

It's being activity.

And if you mean by that the amount of activity, we're participating in and in terms of proposals are submitting proposals are responding rfps I would say over the last.

Six months and has increased fairly significantly for us I mean, the sales cycle generally given our megawatt class platforms generally take between 12 to 18 months is a sales cycle, but.

But we've seen.

A lot of increased activity not only here domestically, but and the international markets that we're focused on.

And so as I think about it and look at the pipeline and as we go through our phases and the pipeline from engaging a customer ultimately to submitting.

On proposal.

I think we're making a lot of progress there and I feel good about the pipeline and I feel good about it because we have and the and the proposal phase.

With respect to <unk>.

And number of projects that we could pursue.

Yeah.

We if you think about what we do in terms of our carbonate platform as we talked about and maybe I'll have Mike <unk> speak to a little bit in terms of how we're ramping our manufacturing capacity to meet the demand that we see.

But.

The things that we're doing and.

And regards to some of our European operations.

<unk>, we have our facility in Germany, which also gives us some capacity and then the work that we're doing on solid oxide that work is done between our facility in Calgary and on facility here in Danbury. So those projects arent really competing against our capabilities to produce our carbonate platform and meet the opportunities.

And we've.

Responded to and from an RFP or proposal standpoint, Mike do you want on covenants.

And where we are towards the production Jason. Thank you and large. Thank you for your question so relative to support of backlog and future business growth, we are really well positioned holistically across the business both from a.

A supply chain perspective, and continuity and supply of materials from a from a labor and talent position as well as production capacity and we've been working very hard across our teams and thoughtfully, adding strategic capacity and locations across our factory, where theyre needed working to establish.

Enhanced yields and continued expanded throughput. So we're feeling we're feeling very confident about where we're positioned today and where we're headed for for future business growth.

And I would just add mark.

And our and our factory, we have expandable capacity and our factory. We also have the ability to add additional shifts. So we feel really good about our ability to meet demand.

Thank you.

Thank you.

Your next question comes from Colin Rusch from Oppenheimer. Please go ahead. Your line is open.

Thanks, so much guys and well done and get and the balance sheet restructured.

And it sounds like you've got a number of important technology programs underway and.

And with the partnerships it looks like you may need to spend a bit more on R&D. So I'm wondering if you could talk a little bit about how that spend is expected to trend and the skills that you might need debt and the team.

Carl and good morning, Thank you.

And Mike Bishop to comment on that.

With respect to the.

The.

Increased capital that we're putting toward R&D.

And to support commercialization of these technologies and from a I'll just maybe speak to the skill set and maybe Tony could add too as well.

We feel really good about the technical resources, we have on our team across engineering to support our R&D efforts and Thats inclusive of the work that we're doing with respect to carbon capture with with Emory from Exxon and the Exxon research effort that we have going on.

But Mike do you want to talk a little bit about how we're allocating additional capital.

Yes, good morning, Colin and thanks for joining the call. So what what we put out there when we put our 10-K out was we do expect to see higher on the Opex side, we do expect to see higher.

R&D spending around distributed hydrogen and long duration hydrogen storage last year, we reported about $4 $8 million of R&D expense, we're forecasting between $18 million to $20 million of R&D expense from a capex perspective, this year and adding on.

Manufacturing equipment, and and lab equipment were forecasted to be and the range of $5 million to $10 million of Capex.

Alright, that's super helpful. And then just as a follow up and he built up the project pipeline.

Theres been a tight labor market, we've seen increased commodity prices could you just talk a little bit about any potential extension on non timelines to complete and construction and any sort of capex adjustments that you might need to make and then some of those labor and commodity prices.

And Collyn.

We're not seeing any impact from a labor standpoint relative to the construction side of our in flight projects and we're not really forecasting and impact there and something we continue to monitor might lose our ski is on top of that manages that.

Very tightly.

We also arent seeing any impacts in terms of material supply to the company and our ability to manufacture.

Product in order to meet the demand that we have for in flight projects and work.

We're not having that experience today as a company.

That's super helpful. Thanks, guys. Thank you.

Your next question comes from Jed <unk> from Canaccord Genuity. Please go ahead. Your line is open.

Yeah.

Question on follow up so I guess on my question.

I look at the maybe this is Tony or adjacent question. So if I look at the Tri Gen and.

Adding that.

And capture.

How should we think about this in terms of reduction of.

Efficiency.

By adding that additional.

Capture methodology.

And in that to go from Great Blue.

So if you think about Tri Gen.

And if you count the energy guidance on how can we produce our efficiency actually goes up it's quite high and if you add.

And of course for our long Beach project, we're using directed biogas. So that's that.

Zero carbon to begin with.

We're using natural gas and.

Net carbon capture.

Probably.

Honestly and Youll have to power that carbon capture equipment and some extent.

Our two eight megawatt system and Tri Gen motives to three megawatts.

We go down to something like $2 one.

And with carbon capture.

And that's really helpful and.

And just Tony just to clarify that I think the.

What your power and there is.

It really like compression to liquefy the cotwo, it's not it's not our carbon capture equipment. Its the external equipment you need to liquefy the carbon.

Great and.

And just as a follow up operationally I guess.

I'm, assuming that there is a point in terms of showing the progress and highlighting the Groton sub base, which seems like it's progressing nicely. So congrats on that.

I guess I just wanted to understand.

The conversion from.

<unk> backlog into.

And the recognition of those revenues and and kind of that switch into the portfolio. So maybe if you could just.

And maybe I missed it but if you could articulate.

Time expectations in terms of what needs to occur for.

Completion and Rev. Rec on that project that would be helpful. Thanks.

So maybe I'll start and then Mike was asking Mike Bishop can can chime in just in terms of.

Where we are and the process like I indicated in my remarks, we are.

Sure.

Yes.

Materially complete with our portion of the work with the exception of getting the interconnection Don and some other safety work that has to happen. So we haven't we haven't given an exact date simply because you know the interconnection agreement like I indicated is being managed by a third party but.

And maybe I'll ask Mike was asking you to speak to that a little bit, but then from the point of getting the interconnect and Thats going C. O D is when we would start to generate revenue from that asset for the company, but Mike do you want to talk about.

Thank you for your question just to provide a little bit more color around the project, yes. Despite some challenges I'm really really proud of the team and all the progress that's been realized and reaching our current advanced and project execution at the graph on the site.

As Jason has mentioned all of the site and civil construction has been completed all of the required equipment and materials and fabricated and built and delivered to the site all the mechanical Assembly and construction is complete at this point with the majority of the electrical installation completed as well right now we are and the process of discrete equipment checkout and safety related work.

As part of the commissioning process and once we complete that plant commissioning process will be well positioned to export power. Once the interconnect is executed and finalized and as Jason mentioned, that's the point at which you would convert into revenue generating asset.

And Chad this is Mike Bishop I'll I'll add one more point on on the revenue side.

And as I tried to highlight and my comments our generation portfolio is the biggest portion of our revenue backlog, it's about $1 $1 billion. Today, we have operating about 30 megawatts of operating assets and as and as we said on our remarks were and the process of building out another 40 plus Meg.

Lots of assets. So if you think about that operating portfolio last year, we generated about $20 million of annualized revenue, while we're more than doubling the operating portfolio here over the next <unk>.

Period of time is these as these projects come on come on line. So they'll begin to make meaningful contributions to increasing our generation revenue as they come on line.

Great. That's helpful guys. Thank you thank.

Thank you.

Your next question comes from Paul Coster from Jpmorgan. Please go ahead. Your line is open.

Qualcomm Sir your line is open.

And then maybe he.

Dropped so we can maybe go to the next caller.

Your next question comes from Noel Parks from Tuohy Brothers. Please go ahead. Your line is open.

Hey, good morning.

Good morning.

Yes.

I was thinking back to the the Exxon.

JV and.

Excellent and their Investor day, a couple of weeks ago talk.

<unk> talked a good bit about tough until kind of and capture was to their various green initiatives and I was just wondering if you could talk a little bit more about.

In the event there are new technologies that aren't.

Aren't directly involved in.

And introducing to the JV and for instance on their call. They mentioned some progress with materials technology as far as.

Carbon capture from from a GAAP stream and I just wonder.

And those sorts of things do you have some access to those.

Or is there some.

Provision and your and your agreement, where you would be able to get access to.

Are there things that day.

They innovate and the course of the JV.

Yes. So good morning, let me try to start that and then I'll ask Tony maybe to chime in so.

As a company.

We are and as the joint development agreement to that we have in place with Exxon.

And is very focused on our carbonate fuel cell technology.

And what's compelling about the carbonate fuel cell technology.

Some of the things I mentioned and my comments that it's the only platform that we're aware of that has the ability to capture carbon from an external source produce more power at the same time.

And deliver hydrogen from that same platform.

That is the focus of our work with Exxon and we believe that those differentiating attribute and creates a very compelling proposition.

And for Exxon and for carbon capture overall.

And Exxon has a research.

Organization inside their company and they look at various technologies, but we're very focused on optimizing our carbon and technology to deliver against that and look we also support the notion that in order to achieve the global sustainability goals right carbon capture.

Has to be a part of that and that the goal of reducing.

Carbon or overall climate and sustainability goals should not be de industrialization and a day industrialization is not one of the goals, which I don't think it is then that means carbon capture has to be and important part of the solution and addition to doing things like fuel substitution and like hydrogen for.

Painful.

And so we think we're well positioned to participate and and all of those.

And then Tony I don't know if you have any additional comment relative to other technologies that Exxon is working on but that would not relate to us yes, I mean for.

For example, we're looking at direct Aercap, yet that is a carbon capture approach that is trying to solve a different problems and the problem on capturing share.

And the boilers from.

Power plants.

So.

<unk> got a comprehensive approach a lot of us up there and doing has no bearing on us whatsoever.

And as Jason said, we're very focused on our particular approach to carbon capture which Exxon obviously.

And I would just say if you look at other technologies. For example, just take direct air capture rate again, one of the significant differences we have vs direct air capture as direct air capture requires a lot of power to operate that technology, whereas were additive to the power as opposed to being a parasitic on on the power output. So.

Great. Thanks, a lot. Thank you.

Our last question will come from Eric Stine from Craig Hallum. Please go ahead. Your line is open.

Yes, good morning, its Aaron small on for Eric and thanks for taking the questions.

Sure.

Hello first on the on the generation segment, you know, Mike I think you talked about a little bit on on the module exchange exchanges can you just give us an update on kind of the margin outlook, there or is it still 50% plus as we start to move some of these projects and.

And to that bucket.

And then maybe just an update on <unk>.

And the name of stack life, there as well.

Sure. Good morning, Erin, Yes, so maybe I'll take the last one first so the company has has talked over the last several years about.

On a voting the module life.

From five years to seven years, so any module exchange that we now do and the fleet has a seven year life and obviously.

Extending stack life is a key tenant of our R&D activities.

Specific to the generation portfolio and what I mentioned on Bridgeport, Bridgeport is a 15 megawatt project multiple plants.

Average core so over the last couple of quarters, we have been doing module exchanges there with the with the goal of obviously extending license I just mentioned, but also increasing output you would expect as we go through these to see higher revenue coming from from that project specific to EBITDA, we have set <unk>.

Not only that we do target.

EBITDA margins from our overall generation.

Portfolio in the 50% range, we have been below that the last couple of quarters. The EBITDA percentage I believe last quarter was and the 31% range. This quarter. It is higher and the 44% range and obviously with higher with higher revenue and improved operating performance.

We would expect that to increase over time.

Great. Thanks for taking the questions Yep. Thank you.

We have no further questions I'd like to turn the call back over to Jason <unk> for closing remarks.

Julian and thank you very much and thank you again for joining US today, we will continue to work to execute on our powerhouse business strategy and deliver profitable growth and optimize returns.

And also energy team is excited about our work to deliver on our purpose to enable the world to live a life empowered by clean energy and we are committed to delivering long term shareholder value.

And as someone who has spent most of his adult life and Texas I want to offer my prayers and support to the families impacted by the recent winter storm.

Thank you for joining and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Okay.

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