Q1 2023 Fuelcell Energy Inc Earnings Call

Speaker 1: And.

Speaker 2: Natural Results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number 1 on your telephone keypad. If you'd like to withdraw your question, press star 1 once again.

Speaker 2: To allow everyone an opportunity, we ask that you please limit yourselves to one question with one follow-up. Thank you, Tom Gelson, Senior Vice President of Finance and Investor Relations. You may begin your conference.

Speaker 3: 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, Fuel Cell Energy released our financial results for the first quarter of 2023 and our earnings press release and our annual report on Form 10-K are available in the investor section on our website.

Speaker 3: at www.fuelcellenergy.com.

Speaker 3: 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.

Speaker 3: 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 Exchange Act of 1934.

Speaker 3: SHUT 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 fuel cell technology, and our business plans and strategies. Our actual future results could differ materially from those described in

Speaker 3: report on Form 10-K and subsequently filed quarterly reports on Form 10-Q .

Speaker 3: During the course of this call, we will be discussing certain non-GAAP financial measures and we will 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.

Speaker 3: Our earnings press release and a copy of today's webcast presentation are available on our website at www.fuelcellenergy.com under investors.

Speaker 3: For our call today, I am joined by Jason Pugh, Fuel Cell Energy's President and Chief Executive Officer, and Mike Bishop, our Executive Vice President, Chief Financial Officer.

Speaker 3: Following our prepared remarks, we will be available to take your questions and be joined by other members of the leadership team.

Speaker 3: I would now like to hand the call over to Jason for opening remarks.

Speaker 4: Thank you, Tom, and good morning, everyone. Thank you for joining us on our call today.

Speaker 4: Since we met in December , we have achieved some exciting milestones in our journey to enable the world to be empowered by clean energy.

Speaker 4: Today, we announce strong quarterly results as we continue to execute on our powerhouse business strategy.

Speaker 4: Before getting into the business results, I always like to give an overview of fuel cell energy on slide 3 for anyone who might be new to the fuel cell energy story.

Speaker 4: In operation for over 50 years, Fuel Cell Energy is a leader in developing stationary Fuel Cell Energy platforms.

Speaker 4: Our purpose is to enable a world empowered by clean energy.

Speaker 4: We are currently in the early stages of a global energy transition to a low carbon future.

Speaker 4: We believe fuel cell energy is well positioned to be part of the global solution by assisting customers on a safe, secure, and practical path to net carbon zero.

Speaker 4: This important purpose drives our strategic focus and our passion for our work.

Speaker 4: Our goal is to leverage our proprietary fuel cell technology platforms to decarbonize power and produce hydrogen.

Speaker 4: Our platforms operate in North America, Asia, and Europe .

Speaker 4: And we are focused on entering more markets around the world.

Speaker 4: We have 95 platform installations in commercial operation, which we believe demonstrate the commercial feasibility of our energy platforms.

Speaker 4: We have 95 platform installations and commercial operation, which we believe demonstrate the commercial feasibility of our energy platforms.

Speaker 4: Let's turn to a few key highlights for this quarter shown on slide 4.

Speaker 4: First, we are continuing to make consistent operational progress on key projects.

Speaker 4: Our project with Toyota in Long Beach, California, our project in Derby, Connecticut, and our carbon capture joint development agreement with ExxonMobil Technology and Engineering Company are progressing well.

Speaker 4: I will provide more detailed updates on these three projects later in the presentation.

Speaker 4: Importantly, as I previously stated, as of January 1, 2023, we are no longer restricted from directly serving all customers in Korea, including legacy customers that were previously solely serviced by Korea Fuel Cell Company and our POSCO Energy Company.

Speaker 4: This represents approximately 116 megawatts of module upgrade opportunities.

Speaker 4: We are continuing to scale our commercial organization in Korea as we work to further develop our pipeline in Korea and other Asian markets.

Speaker 5: Second.

Speaker 4: Having just recently announced in December that we are now accepting orders for our solid oxide platform for both power generation and hydrogen electrolysis applications, we are focused on expanding our solid oxide manufacturing capacity. We have strong, experienced leadership.

Speaker 4: energizing our commercial and operational efforts and we expect to build and deliver four units during calendar year 2023, including two units that will run internally for advanced testing and two first particle production units for delivery externally.

Speaker 4: I will discuss our progress on solid oxide in more detail later in the presentation.

Speaker 4: In addition, after the quarter end, we were proud to announce our intent to collaborate with a subsidiary of Malaysian Marine and Heavy Engineering Holdings, BeHAD, or MMHE, a Petronas company on the development of a large-scale electrolyzer facility for the Asian, New Zealand, and Australian markets.

Speaker 4: Through this collaboration, we expect to increase the efficiency of green hydrogen production while also reducing the costs, with the goal of making large-scale clean hydrogen production an easily accessible and viable energy option.

Speaker 4: Third, we are opportunistically evaluating potential options to benefit from global policy tailwinds.

Speaker 4: We believe the enacted policies are stable and the proposed global policies appear to have strong support and that we are well positioned to capitalize on the evolving energy landscape. Recent global support for clean energy includes the U.S. Inflation Reduction Act and the Infrastructure Investment and Jobs Act totaling approximately $479 billion.

Speaker 4: Canada's proposed hydrogen tax credit, the European Union's proposed approximately 270 billion dollar program that would offer tax breaks for businesses investing in net zero technology, and the Korean hydrogen economy roadmap.

Speaker 4: We believe that these types of policies will support and drive increase in demand for clean energy technologies.

Speaker 4: We believe that fuel cell energy and our future customers of fuel cell technology will be able to benefit from these types of policies by taking advantage of investment tax credits, production tax credits for clean power, and hydrogen.

Speaker 4: and carbon capture utilization and sequestration credits. Lastly, I would note that we were proud to host Senator Richard Blumenthal on his recent visit to our manufacturing facility in Torrington, Connecticut, where we discussed the importance of our planned electrolysis project in Ukraine.

Speaker 4: Senator Blumenthal has made multiple trips to Ukraine and is supportive of our work with the U.S. State Department.

Speaker 4: We thank Senator Blumenthal for his long-standing support of fuel cell energy and his support of investments in clean energy.

Speaker 4: And now I will turn the call over to Mike to discuss the financial results for the first quarter in more detail.

Speaker 6: Mike?

Speaker 4: Thank you Jason and good morning to everyone on the call today. Now that you've heard from Jason I will provide some additional details regarding our financial results. Please turn to slide 6.

Speaker 7: For the first quarter of fiscal year 2023, we reported total revenues of $37.1 million compared to $31.8 million in the first quarter of fiscal year 2022, an increase of 17%.

Speaker 7: Net loss was $21.1 million in the first quarter of fiscal year 2023, compared to net loss of $46.1 million in the first quarter of fiscal year 2022. The first quarter of fiscal year 2022 was impacted by the $24 million of non-recurring legal expense.

Speaker 7: associated with the settlement of the company's disputes with POSCO Energy and Korea Fuel Cell Company, or KFC. The resulting net loss per share attributable to common stockholders in the first quarter of fiscal year 2023 was negative 5 cents compared to negative 11 cents in the first quarter of fiscal year 2022.

Speaker 7: The lower net loss per common share is primarily due to the lower net loss attributable to common stockholders and the higher number of weighted average shares outstanding due to share issuances since January 31, 2022.

Speaker 7: Adjusted EBITDA totaled negative $14.4 million in the first quarter of fiscal year 2023 compared to adjusted EBITDA of negative $13.6 million in the first quarter of fiscal year 2022. Please see the discussion of non-GAAP financial measures, including adjusted EBITDA, in the appendix at the end of our earnings release.

Speaker 7: Finally, the company has a strong total cash and short-term investment position at over $415 million as of January 31, 2023.

Speaker 7: Next, please turn to slide 7 for additional details on our financial performance and backlog.

Speaker 7: The chart on the left-hand side graphically shows revenue drivers by category. Product revenues for Q1 2023 were 9.1 million compared to 18 million for the three months ended January 31st, 2022. The Q1 2023 revenues were driven by the company's December 2021 settlement agreement.

Speaker 7: with POSCO Energy and its subsidiary, KFC, that included an option to purchase an additional 14 modules.

Speaker 7: This option included a material right related to an extended warranty obligation for the modules.

Speaker 7: The option was not exercised by KFC as of the expiration date on December 31st, 2022, and as a result, the company recognized $9.1 million of product revenues, which represents consideration allocated to the material right if the option had been exercised.

Speaker 7: Product revenues for the three months ended January 31, 2022, were a result of the module sales to KFC under the settlement agreement, for which the company recognized $18 million on the X-Works delivery of six modules from the company's facility in Torrington, Connecticut.

Speaker 7: Service agreement revenues increased to $13.9 million for the first quarter of fiscal year 2023 from $2.2 million in Q1 2022.

Speaker 7: Service agreement revenues during the first quarter of fiscal year 2023 were primarily driven by new module exchanges at the plant in Woodbridge, Connecticut, which originally achieved commercial operations in fiscal year 2017, and the plants owned by Korea Southern Power Company, or KOSPO in Korea.

Speaker 7: which achieved commercial operations in fiscal year 2018. Both the Woodbridge Connecticut and COSPO platforms contained our five-year stacked modules.

Speaker 7: The increase in revenues for the first quarter of fiscal year 2023 is primarily due to the fact that new module exchanges occurred during the quarter, while there were no new module exchanges during the comparable prior year quarter.

Speaker 7: Generation revenues increased to $9.6 million from $7.5 million, primarily due to the fact that we recorded a full quarter of generation revenues associated with the Long Island Power Authority project in Yapank, New York, which achieved commercial operations in December 2021.

Speaker 7: the fact that the project at the US Navy submarine base in Groton, Connecticut or the Groton project achieved commercial operations and began generating revenues in the first quarter of fiscal year 2023.

Speaker 7: Advanced technology contract revenues increased to $4.5 million from $4.1 million. Compared to the first quarter of fiscal year 2022, advanced technology contract revenues recognized under the Joint Development Agreement with Exxon Mobile Technology and Engineering Company were approximately $0.1 million.

Speaker 7: higher during the first quarter of fiscal year 2023, and revenue recognized under government and other contracts were approximately 0.3 million higher than the prior year quarter. Looking at the top right-hand side of the slide, I will walk through the changes in gross profit and operating expenses.

Speaker 7: Gross profit for the first quarter of fiscal year 2023 totaled 5.2 million compared to a gross loss of 2.9 million in the comparable prior year quarter. The gross profit is a direct result of favorable product margins as the revenue recognized in the first quarter of fiscal year 2023 had no corresponding costs along with lower manufacturing variances compared to Q1 2022.

Speaker 7: Operating expenses for the first quarter of fiscal year 2023 decreased to 27.7 million from 41.9 million in the first quarter of fiscal year 2022. Administrative and selling expenses in the first quarter of fiscal year 2022 included non-recurring legal expenses of 24 million.

Speaker 7: associated with the settlement of the company's disputes with POSCO Energy and KFC. Excluding the $24 million in legal fees, administrative and selling expenses were higher during the first quarter of fiscal 2023, primarily due to an increase in compensation expense resulting from increased headcount.

Speaker 7: Research and development expenses of $12.7 million during the first quarter of fiscal year 2023 reflect an increase in spending on the company's ongoing commercial development efforts related to our solid oxide platform and carbon capture solutions.

Speaker 7: compared to the comparable prior year period. On the bottom right of the slide, you will see that we finished the quarter with a backlog of approximately $1.1 billion, a decrease of 19% compared to January 31, 2022. The primary driver was a reduction in generation backlog due to the previously announced decision in the fourth quarter of fiscal year 2022.

Speaker 7: As of January 31, 2023, we have total cash, restricted cash, cash equivalents, and short-term investments of approximately $415.4 million.

Speaker 7: This total includes approximately 315.2 million of unrestricted cash and cash equivalents represented by the darker blue bar on the chart in the center of the slide, 24.6 million of restricted cash and cash equivalents represented by the lighter blue bar, and 75.7 million of short-term investments represented by the purple bar.

Speaker 7: The short-term investments are US Treasury securities purchased by the company during the first quarter of fiscal year 2023 as part of the company's cash management optimization effort.

Speaker 7: Looking at the right-hand side of the slide, there is a chart illustrating our total project assets, which make up our company-owned generation portfolio.

Speaker 7: We intend to continue to develop, construct, and grow our portfolio of assets with a clear focus on only those projects that will drive long-term value to fuel cell energy and our shareholders.

Speaker 7: Investments to date reflect capital spent on completed operating projects as well as capital spent on projects currently in development and under construction.

Speaker 7: As of January 31, 2023, our gross project assets total approximately $263.3 million, which excludes accumulated depreciation. As detailed on slide 18 in the appendix of this presentation, our generation portfolio totaled 63.1 megawatts of assets as of January 31, 2023.

Speaker 7: in process, reach mechanical completion, or achieve commercial operation, we expect to seek additional tax equity financing as well as long-term back-leveraged debt transactions to further reinvest capital back into the business.

Speaker 7: In summary, I am pleased with the progress made this quarter in executing on our operating and commercialization plans. I will now turn the call back to Jason.

Speaker 4: Thanks, Mike. Turning to slide 10, I would like to re-emphasize again the tenets of our powerhouse business strategy which serves as our guiding strategy toward achieving long-term growth. The first tenet is growth. We are working to optimize our business for achieving growth in markets where we see significant opportunities...

Speaker 4: and deepening our leadership and total human capital across the organization.

Speaker 4: Across our operations, we are making progress in expanding manufacturing capacity for our molten carbonate platform with the goal of achieving 100 MW of annualized, integrated, on-site manufacturing and conditioning capacity. We are currently in the process of expanding our Calgary manufacturing facility.

Speaker 4: And, we also have developed plans to add an incremental 400 megawatts of solid oxide manufacturing capacity in the United States.

Speaker 4: We believe that our DVD-sized solid oxide cells lends itself to a modular build-out of manufacturing capacity and advanced robotics manufacturing for rapid scaling as more large-scale hydrogen projects achieve FID and long-term off-take agreements.

Speaker 4: And third, innovate. Over our 50-year history, we have never stopped innovating. We believe our platform technologies and our culture will provide the opportunity for us to add to our significant global patent portfolio.

Speaker 4: and increase our participation in the growth of the hydrogen economy and carbon capture markets and will enable us to deliver on our purpose.

Speaker 4: We plan to develop diversified revenue streams by delivering a range of solutions and services anchored by our multi-feature platforms that support decarbonization applications and the global energy transition.

Speaker 4: As we are growing, I would like to highlight the progress we are making on three important decarbonization, energy resiliency, and energy reliability platform projects on slide 11.

Speaker 8: First.

Speaker 4: Artiota Project in Long Beach, California.

Speaker 4: This is a tri-generation platform which will reform directed renewable natural gas into three value streams delivering carbon neutral hydrogen, carbon neutral electricity, and ultra-clean produced water.

Speaker 4: We expect that it will be the first commercial distributed hydrogen generation project in the United States dedicated to light and heavy duty fuel cell electric vehicle transportation. We have completed the construction work on this tri-generation project and the fuel cell platform has advanced to the commissioning phase of project development.

Speaker 4: We anticipate that the remaining commissioning activity will be completed in the third fiscal quarter of 2023.

Speaker 4: We were also pleased to host representatives of the U.S. Department of Energy and Commerce on a recent visit to the site.

Speaker 4: We very much appreciate the continued support of those departments and other government agencies that are helping to further the development and growth of clean energy in the United States, which we believe will aid in our goal of selling our technology around the world in support of global decarbonization goals.

Speaker 4: appreciate the continued support of those departments and other government agencies that are helping to further the development and growth of clean energy in the United States, which we believe will aid in our goal of selling our technology around the world in support of global decarbonization goals. At our Derby project in Connecticut, awards mutual love to the serve you.

Speaker 4: On-site civil construction continues to advance. We have largely completed the foundational construction with the majority of the balance of plant components delivered and installed on-site.

Speaker 4: We continue to work with the utility customer United Illuminating, an oven grid E-Badrola company, on the interconnection process.

Speaker 4: the timing of which will drive the continued development of the site, including the delivery of the 10 fuel cell modules required to complete the project.

Speaker 4: This large 14 megawatt installation will be the second largest installed fuel cell platform in the United States.

Speaker 4: only surpassed by our 15 megawatt platform in Bridgeport, Connecticut. And when completed, we'll provide enhanced grid resiliency, reliability, and low carbon power to the Connecticut power grid while generating renewable energy credits. We expect commercial operations to begin in the fourth calendar quarter of 2023.

Speaker 4: Thirdly, we are continuing to progress toward commercialization of our advanced technologies for carbon capture.

Speaker 4: Under our joint development agreement with ExxonMobil Technology and Engineering Company, we recently completed a joint marketing study which confirmed technical fit.

Speaker 4: Evaluated Economical Assessment, SOT Current, and Prospective Customer Feedback

Speaker 4: Review the Manufacturing Skelet Plan and validate it market signposts.

Speaker 4: Together, we are working to identify partners for commercial trials or demonstration projects as we pursue carbon capture across a broad landscape of industrial applications.

Speaker 4: In addition to a potentially diverse industrial market ranging from refining, chemicals, iron and steel, pulp and paper, food, beverage, and more, we believe that the unique ability of our platform to naturally destroy NOx contained in the external carbon fuel stream will be highly desirable.

Speaker 4: As previously announced in December , we extended the terms of our Joint Development Agreement through August 31, 2023 and we increased the research budget by 20% from $50 million to $60 million.

Speaker 4: This important long-term relationship supports our efforts to commercialize large-scale fuel cell carbon capture and storage technology.

Speaker 4: And we believe that this is the only existing technology capable of capturing carbon

Speaker 4: And we believe that this is the only existing technology capable of capturing carbon, producing power.

Speaker 4: destroying NOx, and in the same application generate hydrogen all at the same time from a single platform.

Speaker 4: As we work to expand our solid oxide manufacturing capabilities, I would like to start by highlighting that we also introduce key leaders in this area.

Speaker 4: John Torrance is our Senior Vice President, Chief Commercialization and Solid Oxide Manufacturing Officer.

Speaker 4: John joined fuel cell energy in June of last year with a focus on manufacturing and his role was expanded in December to include platform commercialization responsibilities.

Speaker 4: John brings over 25 years of experience in this role and with his extensive knowledge of manufacturing and operations management, including plant startups, and his long history in the fuel cell and hydrogen industry, we believe that we have the right leadership in place to drive and execute our ambitious growth plans. In support of expected future production requirements, we would like to thank you for your time and your time.

Speaker 4: We are expanding our facility in Calgary, Canada with additional dedicated manufacturing space as part of the first phase of our plan to increase solid oxide manufacturing capacity.

Speaker 4: This Phase 1 expansion is expected to increase our production capacity from the current 4 tastes per year.

Speaker 4: to 40 megawatts per year of solid oxide electrolyzers.

Speaker 4: We also have planned to add an additional 400 megawatts of solid oxide manufacturing capacity in the United States.

Speaker 4: While the location of the facility has not yet been determined, early facility design and engineering requirements have been developed. We anticipate announcing more details regarding our plans for solid oxide production expansion in the United States later this fiscal year.

Speaker 4: Lastly, I would like to highlight the specific advantages of fuel cell energy, solid oxide fuel cell, and solid oxide electrolyzer cell technologies.

Speaker 4: Our technologies offer fuel flexibility, efficiency, reliability, and a small footprint for easy colocation.

Speaker 4: Our smallest sub-megawatt solid oxide fuel cell platform will generate 250 kilowatts of reliable, efficient, and ultra-clean power with virtually no nitrogen oxide,

Speaker 4: sulfur oxides, and particular matter emissions regardless of feedstock.

Speaker 4: The fuel flexible system is capable of running on natural gas, renewable biogas, or 100% hydrogen.

Speaker 4: and is expected to operate at higher efficiency than combustion-based power generation alternatives.

Speaker 4: The clean emissions profile, small footprint.

Speaker 4: and quiet operation makes this platform easy to site in urban areas.

Speaker 4: On the hydrogen production side, we believe solid oxide presents one of the best opportunities to minimize overall costs while maximizing efficiency and that our platform will give more organizations the option to implement a flexible energy strategy. Because most of the costs of hydrogen produced by electrolysis...

Speaker 4: is related to the cost of input power. Efficiency is one of the most effective ways to lower hydrogen costs. And we believe fuel cell energy's solid oxide platform is among the most efficient electrolysis technologies available.

Speaker 4: Among competing technologies, we believe our solid oxide platform offers one of the best chances of achieving the Earthshot target of one US dollar per kilogram levelized cost of energy targeted by the US Department of Energy by 2050.

Speaker 4: Our platform also has the ability to ramp up quickly, transitioning from standby to full load in just 10 minutes. Working in tandem with renewable technologies such as wind and solar, our solid oxide electrolysis platform offers the possibility of efficiently storing electricity as hydrogen.

Speaker 4: for later use. In addition, we believe our high temperature solid oxide electrolysis technology is particularly well positioned to capitalize on opportunities to leverage nuclear generated electricity for the production of zero carbon hydrogen.

Speaker 4: Leveraging baseload nuclear electricity, large amounts of hydrogen can be efficiently generated

Speaker 4: stored, transported, and are utilized for fuel switching are for a number of other applications.

Speaker 4: I want to take a few seconds to outline why solid oxide high temperature electrolysis is one of the most efficient electrolysis technology options.

Speaker 4: The core difference is driven by steam and liquid water thermodynamics.

Speaker 4: The electrolysis of liquid water used by lower temperature electrolysis such as POM and alkaline requires more energy than electrolysis of steam in our solid oxide high temperature platform.

Speaker 4: Our high temperature solid oxide electrolyzer operates at a significantly higher efficiency.

Speaker 4: Our high temperature solid oxide electrolyzer operates at a significantly higher efficiency than lower temperature systems.

Speaker 4: even accounting for the energy needed to make steam from water. Our system operates at about 90% higher heating value electrical efficiency, and if a source of waste heat is available to support steam generation, is capable of 100% electrical efficiency. We believe that this gives solid oxide a significant advantage over lower temperature PEM and alkaline technology.

Speaker 4: following four enablers of that anticipated ramp up.

Speaker 4: One, we have a strong balance sheet and we have demonstrated discipline in the allocation of capital toward growth, which we believe positions us to continue to fund projects in development as well as platform commercialization activities to execute on our growth strategy.

Speaker 4: supported by a large global total available market. Two, we're working to expand our solid oxide manufacturing capacity to support expected future market opportunities, including growth in distributed power generation and the hydrogen economy.

Speaker 4: We believe that these investments will support our ability to capture market opportunities for sub-megawatt power generation and high efficiency electrolysis products.

Speaker 4: Three, we are making consistent operational progress, executing on our large projects for our customers and providing the capabilities of our technologies. And four, globally, policies to support the energy transition have been enacted.

Speaker 4: and more policies in more locations around the world are gaining momentum as evidenced by the passage of the Inflation Reduction Act in the United States as well as efforts we're seeing internationally in Europe , Canada, and Korea and we believe we are well positioned to benefit from these tailwinds.

Speaker 4: We believe our technologies have a critical role to play in transitioning to a low carbon future. We are delivering for our customers.

Speaker 4: We are increasing our capacity and we are preparing for the commercialization of our new technologies and extending the value streams delivered from our existing technology platforms.

Speaker 4: We believe fuel cell energy is well positioned to capture market opportunities over the coming years. I also want to take a moment to honor the many talented and diverse women that work at fuel cell energy and the four women who serve on our board of directors.

Speaker 4: At Fuel Cell Energy, we are proud of the contributions made by women all across our company, including in areas such as engineering, finance, sales, and manufacturing. I also want to thank the many contributions made by women around the world who, like we do at Fuel Cell Energy.

Speaker 4: Live their lives with purpose. Thank you. And I will now turn it over to the operator to begin Q&A.

Speaker 2: Thank you. At this time I'd like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Speaker 2: We'll take our first question from Manav Gupta with UBS. Your line is now open.

Speaker 2: We'll take our first question from Manav Gupta with UBS. Your line is now open. I'm very happy for you guys.

Speaker 9: My question here is specifically related to the Toyota Port of Long Beach project. If we can get a little more details and the reason I'm asking this question is, your press release says that for any reason the operations are not commercial by 8th of July .

Speaker 9: there is some possibility that Toyota could walk away from this. I'm just trying to understand can you mitigate that risk? Can you just talk through that, how you can avoid that situation?

Speaker 2: Thank you, Manabh. This is Michael Lesowski, Chief Operating Officer with Fuel Cell Energy, and thank you for your question. We're quite proud of the advancements in progress that we have been making on the Toyota project, and as previously reported, we have completed the mechanical construction aspects of the plant and are

Speaker 2: and the progress of in advancements of construction they're quite pleased with with the work that we have been doing and we're working very very collaboratively with Toyota as we work to execute the remaining aspects of project execution towards commercialization. We have we have great confidence in our ability to achieve commercial operations and that we'll be doing that in the time frame that we've stated by our fourth excuse me our third calendar quarter this year.

Speaker 9: fiscal coordination. Perfect. A second follow-up is can I go back to the February 16th release of your collaboration with MHP. Can you talk a little bit more about this collaboration, help us quantify some of the benefits of this deal probably two or three or four years down the line and why this deal is important.

Speaker 4: carbonization is large-scale hydrogen.

Speaker 4: When you think about MMHE and not only MMHE but also the parent company of MMHE being Petronas and the ability to establish a partnership in Asia that gives us the ability to implement large scale hydrogen projects with a partner.

Speaker 4: who has proven capabilities in delivering large projects, it's a really important collaboration for us. And we think.

Speaker 4: that around the world partnerships are going to play an important role in really delivering projects that require infrastructure and that will deliver large-scale benefits to customers in that part of the world. And so for us,

Speaker 4: having a partnership with someone like MMHE delivers significant value. Thank you for answering those and congrats on a good quarter. Thank you.

Speaker 10: Okay, next we'll go to George Giannounakis with CataCore Genuity. Please go ahead. Hey, good morning, everyone. Thanks for taking my questions. So just a couple. First, I'd like to focus on the Inflation Reduction Act and potential other measures across the country.

Speaker 10: the world really. What kind of conversations are you having? What have these government initiatives done to the conversations and the backlog? And I'm just curious if you can help us quantify how you expect the momentum to kind of build this year and into next year.

Speaker 4: George, good morning and thank you for that question. We as a company, we're very optimistic about.

Speaker 4: what's happening with the IRA and with other programs around the world as more governments look to find ways to basically what I would call replay what happened with wind and solar. How do you create incentives?

Speaker 4: that help companies like ours scale and rapidly bring down costs to meet the market demand for the energy transition. So when you think about IRA in the US and then you add to that also the infrastructure package, I mean you're over $400 billion of capital that's going to be allocated to really advance projects.

Speaker 4: around hydrogen and carbon capture, grid resiliency and reliability. And so for us, those programs represent a great opportunity for us to enhance.

Speaker 4: the value proposition that we offer our customers given those incentives. It also creates an opportunity for us to make investment as well as to leverage those programs to aid our investment in things like scaling manufacturing. And so we're seeing, you know, a lot of positive reaction from customers. We, like everyone else, anxiously awaiting.

Speaker 4: you know, the Treasury Department to finalize all the rules so we can really begin to fully take advantage of the IRA, but we see lots of interest and excitement around it. It may be as a follow up just

Speaker 4: all the roles so we can really begin to fully take advantage of the RA, but we see lots of interest and excitement around it. It may be as a follow up just on the product revenue.

Speaker 10: to make sure that we understand it. You recognized $9.1 million this quarter as, and this is your press release, as if the option had been exercised. So it appears that there was no cost associated with that revenue. Has this, do you expect to have recognized the cost of any potential module sales in the future is the first question. Second, has this changed the overall opportunity you see with PASCO over the next few years, or is this just kind of part of that?

Speaker 7: Overall, you know, several hundred million opportunity for the next, I think it's a twenty twenty five or twenty twenty six. Thank you. Good morning George. This is Mike. Yes, I'll take those questions. So, on the first question regarding the revenue recognized in the quarter that was revenue that the company had to had deferred. It was tied to an option agreement that.

Speaker 7: POSCO could potentially exercise, and it was essentially a material right related to a long-term warranty. That option agreement expired at the end of December , so as a result, recognized the revenue in this quarter. There was no cost tied to that revenue, and there will be no cost tied to that revenue in the future related to the future.

Speaker 7: future module replacements. As far as the opportunity in Korea, as Jason said in his opening remarks, significant opportunity in Korea just with the installed base. There's greater than 110 megawatts of opportunities to essentially replace modules for the existing fleet in Korea. And as we said in our remarks in the last quarter and this quarter as well.

Speaker 7: We're actively targeting that opportunity now in Korea. Our sales folks are in Korea. We, and under our settlement agreement with POSCO, we can now work directly with those end customers. So very excited about that opportunity that's right in front of us.

Speaker 7: that opportunity now in Korea. Our sales folks are in Korea. We, and under our settlement agreement with Posco, we can now work directly with those end customers. So very excited about that opportunity that's right in front of us. Thank you.

Speaker 11: Next we'll go to Jeff Osborne with TD Kellen. Your line is now open. Hey, good morning. I just wanted to follow up also on Korea, the 116 megawatts, how many of those were sold more than five years ago? Do you have a sense of sort of the vintages of those and what should be coming up for replacement here? I guess I was a bit surprised given you've had the Salesforce out there I think for 18 months or so.

Speaker 2: that the product backlog now has been worked down to zero. And there was nothing, no movement there. Jeff, good morning and thank you for the question. This is Mike Lesowski. So of the installed base that we're referring to, all of the technology and pedigree and generation of platform there is the five-year technology.

Speaker 2: So, we do expect strong line of sight to the replacement of that equipment and those assets to restore power generation at each of those critical customer infrastructure sites. Maybe just another way of asking the question is what percentage of the 160 megawatts is older than five years? Jeff, this is Mike Bishop. So we haven't put out that level of granularity, but if you look at kind of the units that have been installed in the past, it has been over the last 10 to seven to...

Speaker 7: you know, three-year period. So, you know, you would expect to see module replacements coming up here soon, you know, but the exact timing around that, we have not put that out there. Just to be clear, Mike, that would flow through the product backlog as those orders come in? Yes, so the so and just to back up a little bit, the 60 million dollars that we recognized last year,

Speaker 7: those orders would come through product backlog more than likely and then get recognized as product revenue. There is potentially an opportunity to do service as well, but the way that we're initially thinking about this is product backlog. Thanks, and just one last line of questioning on the 400 megawatt facility. I know it's early.

Speaker 2: for that question. This is John Torrance. We are investing approximately $45 million to expand for that first 40 megawatts. We do anticipate some of that involves some infrastructure related to testing and our product development, which we would not replicate as part of a manufacturing only facility.

Speaker 2: We also expect as we continue to progress on our manufacturing readiness that we will optimize our processes and decrease our capital costs per megawatt of manufacturing capacity. Somewhere, you know, without getting too far ahead, we would expect somewhere in the 25 to 30 percent reduction as we go up in orders of magnitude, but that has yet to be fully verified.

So, horseshoes and hand grenades number maybe like 250 to 300 million for 400 megawatts? We've got about a 250 numbers, a walking around number at this point based on preliminary designs on the envelope that we're looking at.

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

That's all I have. Thank you. Thank you. David, do we have...

The next question.

And sorry about that. We will take the next question from Eric Stein with Craig Hallam.

Good morning everyone. Good morning Eric, how are you? Hey, doing well thanks. So maybe just on ExxonMobil obviously extended and expanded the amount allocated to the JDA.

maybe how do we think about potential next steps for the you know the long discussed pilot project in in Rotterdam is is that something where those two are kind of separate things or is it fair to assume that you would need to see the you know the the

the joint development, that process play out, come to completion before they might think about moving forward with a pilot project. Thank you for that. You can think about it as a continuum, right? Part of what

we've been doing in the initial work with Exxon is really optimizing the technology around two core

aspects. One is what we refer to as carbonate transfer and the other one is just in terms of power density. Proving that out through the work that we're doing through the R&D effort has always been a part of demonstrating the capability and then getting alignment with Exxon on the demonstration project.

Those two things are tied together. We are very comfortable in the progress that we've shown. As you know,

Last year we hit milestone payments that we achieved around the technology demonstration. So we would expect that Exxon through their process, which we don't control their process, is trending in the right direction relative to moving to...

that demonstration project. One of the things that you might also consider when you think about a facility like Rotterdam.

Timing of that is also tied to how they might think about their plans around turnover service or other things that they might be doing at the facility to allow time to implement the demonstration. So there's factors that are going to drive timeline.

that go beyond just our technology capabilities.

Understood. So don't, no one should read into timelines, specific things. I mean, there's a lot of factors that go into that. That's helpful.

Maybe a lot of questions have been answered, but maybe just on OPEX, I think last quarter you might have given some details that would have indicated a higher OPEX level. In this quarter it was not a meaningful sequential uptick. So how should we think about OPEX?

50 to 70 million range. And if you just kind of run out where R&D is in our first quarter, we should be in that range. We have not put out specific guidance around SG&A, but you have seen a tick up over the prior year anyways we've been adding.

folks on the sales side as we grow our global reach. So that's how I would answer that question, Eric. Okay, thank you. Yep. Thank you. Next we'll go to Ryan Fence with B Riley. Your line is now open.

Hey guys, maybe following up on the M-TECH contract, going up $10 million here, is that a reflection of higher costs on your end, or are you guys increasing the scope of what you're doing with those guys? Good morning. I'll take that question. This is Mike. So, no, that's really a function of additional time.

million dollars of non-recoverable cost. Can you just talk about what's included there and do you expect any similar types of costs before we potentially reach commercial operation this summer? This is Mike again I'll take that one as well. So what's in that number and you've seen this over the last several quarters as the company has been building out the project at Toyota.

know perfectly estimate the project economics in the future. You will see this trail off as as we said in our earlier remarks that we are in the commissioning period now so the the construction activity will trail off here over the next several quarters.

estimate the project economics in the future. You will see this trail off as we said in our earlier remarks that we are in the commissioning period now so the construction activity will trail off here over the next several quarters. That's all, thanks guys, I'll turn it back.

Next we'll go to Noel Parks with Tui Brothers. Your line is open. Hi, good morning. Good morning Noel. Just a couple things.

I was wondering if you could talk about with the capacity expansions, the cost today or those still forecasted, is there an inflation impact?

beyond sort of your original estimates for those. I didn't know if any of the aspects of those were sort of contracted pre-COVID or during the slump from shutdowns. So, I'm just curious kind of where things stand as far as cost you're expecting versus where you started. You know, I think you can take our view on cost right now to be current.

I guess these are negotiating for future projects. Just whether you are in a position that you would be able to sort of incorporate any inflation you have had to date. Do you expect you would have any trouble passing that along in terms of your pricing to customers?

Yes, so from an overall pricing rate, when you think about the way in which we go to market, if I just broadly talk about the two ways, one is under power purchase agreements, the other is when we are actually just selling the platform. In both of those cases, we …

we look at the real cost that we have when we deploy those assets and we incorporate that into our pricing decisions. I think some of the things that will help us deal with that and help customers deal with that is as we take advantage of things like the IRA, we take advantage of the existing ITC.

That allows for some offsetting costs, which helps us continue to remain competitive relative to other alternatives. The other thing that I would add to Jason's remarks is that while we continue to thoughtfully deploy capital and expand our capacity, we're squarely focused on continuous improvement and operational efficiencies. As we continue to grow.

I'm just curious, the $10 million increase, is that related just to the ongoing duration of the project or as one of those earmarked for anything in particular, personnel, accelerating timing, equipment? Are we able to move this similar trend but, is there any other reason why it's not a factor in that overall realityor interest or that I've already seen?

Hi Joel, this is Mike. So, the 10 million is related to the extension of time on the contract. That contract will run through the summer. So, that was essentially the reason for that change. Great, thanks a lot. Yep.

And that does conclude today's question and answer session. I'll now turn the call back over to Jason Few for any additional or closing remarks. David, thank you very much for that, and I want to thank everyone for joining us today. We will continue to execute on our powerhouse business strategy, working to deliver growth and optimize returns. The fuel cell energy team is excited about the momentum we are building as we deliver on our purpose of enabling a world empowered by clean energy.

and we look forward to updating you again next quarter. Thank you for joining and have a great day.

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