10-Q 1 fcel-20240131x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to

Commission file number: 1-14204

Graphic

FUELCELL ENERGY, INC.

(Exact name of registrant as specified in its charter)

Delaware

06-0853042

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

3 Great Pasture Road

Danbury, Connecticut

06810

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (203825-6000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.0001 per share

FCEL

The Nasdaq Stock Market LLC

(Nasdaq Global Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No  

Number of shares of common stock, par value $0.0001 per share, outstanding as of March 1, 2024:  451,862,054

FUELCELL ENERGY, INC.

FORM 10-Q

Table of Contents

    

    

Page

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

3

Consolidated Balance Sheets as of January 31, 2024 and October 31, 2023.

3

Consolidated Statements of Operations and Comprehensive Loss for the three months ended January 31, 2024 and 2023.

4

Consolidated Statements of Changes in Equity for the three months ended January 31, 2024 and 2023.

5

Consolidated Statements of Cash Flows for the three months ended January 31, 2024 and 2023.

6

Notes to Consolidated Financial Statements.

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

19

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

42

Item 4.

Controls and Procedures.

43

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

44

Item 1A.

Risk Factors.

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

44

Item 3.

Defaults Upon Senior Securities.

44

Item 4.

Mine Safety Disclosures.

44

Item 5.

Other Information.

45

Item 6.

Exhibits.

46

Signatures

48

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FUELCELL ENERGY, INC.

Consolidated Balance Sheets

(Unaudited)

(Amounts in thousands, except share and per share amounts)

January 31,

October 31,

    

2024

    

2023

ASSETS

Current assets:

Cash and cash equivalents, unrestricted

$

297,466

$

249,952

Restricted cash and cash equivalents - short-term

5,957

5,159

Investments - short-term

-

103,760

Accounts receivable, net

3,346

3,809

Unbilled receivables

22,451

16,296

Inventories

102,859

84,456

Other current assets

13,152

12,881

Total current assets

445,231

476,313

Restricted cash and cash equivalents - long-term

45,376

44,465

Inventories - long-term

2,743

7,329

Project assets, net

260,790

258,066

Property, plant and equipment, net

97,941

89,668

Operating lease right-of-use assets, net

8,197

8,352

Goodwill

4,075

4,075

Intangible assets, net

15,752

16,076

Other assets

43,075

51,176

Total assets (1)

$

923,180

$

955,520

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt

$

10,198

$

10,067

Current portion of operating lease liabilities

694

599

Accounts payable

17,055

26,518

Accrued liabilities

22,323

26,313

Deferred revenue

3,616

2,406

Total current liabilities

53,886

65,903

Long-term deferred revenue and customer deposits

686

732

Long-term operating lease liabilities

8,912

8,992

Long-term debt and other liabilities

117,670

119,588

Total liabilities (1)

181,154

195,215

Redeemable Series B preferred stock (liquidation preference of $64,020 as of
January 31, 2024 and October 31, 2023)

59,857

59,857

Total equity:

Stockholders’ equity:

Common stock ($0.0001 par value); 1,000,000,000 shares authorized as of January 31, 2024 and October 31, 2023; 451,862,054 and 450,626,862 shares issued and outstanding as of January 31, 2024 and October 31, 2023, respectively

45

45

Additional paid-in capital

2,200,862

2,199,661

Accumulated deficit

(1,535,334)

(1,515,541)

Accumulated other comprehensive loss

(1,639)

(1,672)

Treasury stock, Common, at cost (290,866 and 246,468 shares as of January 31, 2024
and October 31, 2023, respectively)

(1,129)

(1,078)

Deferred compensation

1,129

1,078

Total stockholder's equity

663,934

682,493

Noncontrolling interests

18,235

17,955

Total equity

682,169

700,448

Total liabilities, redeemable Series B preferred stock and total equity

$

923,180

$

955,520

(1)As of January 31, 2024 and October 31, 2023, the combined assets of the variable interest entities (“VIEs”) were $313,629 and $235,290, respectively, that can only be used to settle obligations of the VIEs.  These assets include cash of $3,764, unbilled accounts receivable of 5,133, operating lease right of use assets of $1,676, other current assets of $127,511, restricted cash and cash equivalents of $624, project assets of $171,094 and other assets of $3,826 as of January 31, 2024, and cash of $4,797, unbilled accounts receivable of $1,876, other current assets of $50,713, operating lease right of use assets of $1,680,  project assets of $170,444, derivative asset of $4,127 and other assets of $1,125 as of October 31, 2023. The combined liabilities of the VIEs as of January 31, 2024 include short-term operating lease liabilities of $203, accounts payable of $177,279, accrued liabilities of $21, long-term operating lease liability of $2,155 and other non-current liabilities of $229 and, as of October 31, 2023, include short-term operating lease liabilities of $203, accounts payable of $165,824, long-term operating lease liability of $2,159 and other non-current liabilities of $187.

See accompanying notes to consolidated financial statements.

3

FUELCELL ENERGY, INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(Amounts in thousands, except share and per share amounts)

Three Months Ended January 31,

    

2024

    

2023

Revenues:

Product

$

-

$

9,095

Service

1,617

13,882

Generation

10,493

9,557

Advanced Technologies

4,581

4,539

Total revenues

16,691

37,073

Costs of revenues:

Product

2,391

1,029

Service

1,888

10,945

Generation

20,894

16,602

Advanced Technologies

3,243

3,260

Total costs of revenues

28,416

31,836

Gross (loss) profit

(11,725)

5,237

Operating expenses:

Administrative and selling expenses

16,400

15,009

Research and development expenses

14,353

12,683

Total costs and expenses

30,753

27,692

Loss from operations

(42,478)

(22,455)

Interest expense

(2,338)

(1,512)

Interest income

4,067

3,410

Other (expense) income, net

(3,650)

49

Loss before provision for income taxes

(44,399)

(20,508)

Provision for income taxes

-

(578)

Net loss

(44,399)

(21,086)

Net loss attributable to noncontrolling interests

(24,606)

(2,464)

Net loss attributable to FuelCell Energy, Inc.

(19,793)

(18,622)

Series B preferred stock dividends

(800)

(800)

Net loss attributable to common stockholders

$

(20,593)

$

(19,422)

Loss per share basic and diluted:

Net loss per share attributable to common stockholders

$

(0.05)

$

(0.05)

Basic and diluted weighted average shares outstanding

451,637,041

405,803,753

Three Months Ended January 31,

    

2024

    

2023

Net loss

$

(44,399)

$

(21,086)

Other comprehensive loss:

Foreign currency translation adjustments

33

447

Total comprehensive loss

$

(44,366)

$

(20,639)

Comprehensive loss attributable to noncontrolling interests

(24,606)

(2,464)

Comprehensive loss attributable to FuelCell Energy, Inc.

$

(19,760)

$

(18,175)

4

FUELCELL ENERGY, INC.

Consolidated Statements of Changes in Equity

(Unaudited)

(Amounts in thousands, except share amounts)

Common Stock

    

Shares

    

Amount

    

Additional
Paid-in
Capital

    

Accumulated
Deficit

    

Accumulated
Other
Comprehensive
Loss

    

Treasury
Stock

    

Deferred
Compensation

Total Stockholder's Equity

Noncontrolling Interests

    

Total
Equity

Balance, October 31, 2023

450,626,862

$

45

$

2,199,661

$

(1,515,541)

$

(1,672)

$

(1,078)

$

1,078

$

682,493

$

17,955

$

700,448

Common stock issued, non-employee compensation

44,398

51

51

51

Stock issued under benefit plans, net of taxes paid upon vesting of restricted stock awards

1,235,192

(926)

(926)

(926)

Share based compensation

2,876

2,876

2,876

Preferred dividends — Series B

(800)

(800)

(800)

Effect of foreign currency translation

33

33

33

Adjustment for deferred compensation

(44,398)

(51)

51

Contributions received from sale of noncontrolling interest

25,122

25,122

Distribution to noncontrolling interests

(236)

(236)

Net loss attributable to noncontrolling interests

24,606

24,606

(24,606)

Net Loss

(44,399)

(44,399)

(44,399)

Balance, January 31, 2024

451,862,054

$

45

$

2,200,862

$

(1,535,334)

$

(1,639)

$

(1,129)

$

1,129

$

663,934

$

18,235

$

682,169

Common Stock

 

 

Shares

 

Amount

Additional
Paid-in
Capital

 

Accumulated
Deficit

 

Accumulated
Other
Comprehensive
Loss

 

Treasury
Stock

 

Deferred
Compensation

 

Total Stockholders' Equity

 

Noncontrolling Interests

 

Total Stockholders' Equity

Balance, October 31, 2022

405,562,988

$

41

$

2,094,076

$

(1,407,973)

$

(1,752)

$

(855)

$

855

$

684,392

$

7,105

$

691,497

Common stock issued, non-employee compensation

21,106

68

68

68

Stock issued under benefit plans, net of taxes paid upon vesting of restricted stock awards

169,065

(314)

(314)

(314)

Share based compensation

2,637

2,637

2,637

Preferred dividends — Series B

(800)

(800)

(800)

Effect of foreign currency translation

447

447

447

Adjustment for deferred compensation

(21,106)

(68)

68

Reclassification of redeemable non-controlling interest

3,030

3,030

Distribution to non-controlling interest

(106)

(106)

Net loss attributable to noncontrolling interests

2,464

2,464

(2,464)

Net Loss

(21,086)

(21,086)

(21,086)

Balance, January 31, 2023

405,732,053

$

41

$

2,095,667

$

(1,426,595)

$

(1,305)

$

(923)

$

923

$

667,808

$

7,565

$

675,373

See accompanying notes to consolidated financial statements.

5

FUELCELL ENERGY, INC.

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

Three Months Ended January 31,

    

2024

    

2023

Cash flows from operating activities:

Net loss

$

(44,399)

$

(21,086)

Adjustments to reconcile net loss to net cash used in operating activities:

Share-based compensation

2,876

2,637

Depreciation and amortization

8,599

5,405

Non-cash interest expense on finance obligations

546

1,052

Unrealized loss on derivative contracts

5,387

-

Operating lease costs

355

323

Operating lease payments

(244)

(301)

Unrealized foreign currency losses

59

5

Other, net

11

96

Decrease (increase) in operating assets:

Accounts receivable

463

1,672

Unbilled receivables

(3,048)

(4,965)

Inventories

(18,403)

(10,267)

Other assets

(1,616)

(1,681)

Decrease in operating liabilities:

Accounts payable

(6,027)

(1,072)

Accrued liabilities

(3,990)

(7,125)

Deferred revenue

1,164

(18,070)

Net cash used in operating activities

(58,267)

(53,377)

Cash flows from investing activities:

Capital expenditures

(10,565)

(7,765)

Project asset expenditures

(7,520)

(2,080)

Maturity of held-to-maturity debt securities

230,375

-

Purchases of held-to-maturity debt securities

(125,397)

(74,977)

Net cash provided by (used in) investing activities

86,893

(84,822)

Cash flows from financing activities:

Repayment of debt and finance obligations

(2,595)

(2,291)

Expenses related to common stock issued for stock plans

68

21

Contributions received from sale of noncontrolling interest

25,122

-

Distribution to noncontrolling interest

(236)

(106)

Payments for taxes related to net share settlement of equity awards

(995)

(337)

Payment of preferred dividends

(800)

(800)

Net cash provided by (used in) financing activities

20,564

(3,513)

Effects on cash from changes in foreign currency rates

33

447

Net increase (decrease) in cash, cash equivalents and restricted cash

49,223

(141,265)

Cash, cash equivalents and restricted cash-beginning of period

299,576

481,044

Cash, cash equivalents and restricted cash-end of period

$

348,799

$

339,779

Reconciliation of cash, cash equivalents and restricted cash

Cash and cash equivalents, unrestricted

$

297,466

$

315,168

Restricted cash and cash equivalents - short-term

5,957

4,456

Restricted cash and cash equivalents - long-term

45,376

20,155

Total cash, cash equivalents and restricted cash

$

348,799

$

339,779

Supplemental cash flow disclosures:

Cash interest paid

$

1,638

$

343

Noncash financing and investing activity:

Recognition of operating lease liabilities

-

2,005

Recognition of operating lease right-of-use assets

-

2,005

Noncash reclassifications from inventory to project assets

4,586

-

Accrued purchases of fixed assets, cash to be paid in subsequent period

1,162

3,055

Accrued purchases of project assets, cash to be paid in subsequent period

1,563

5,250

See accompanying notes to consolidated financial statements.

6

FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Tabular amounts in thousands, except share and per share amounts)

Note 1. Nature of Business and Basis of Presentation

Headquartered in Danbury, Connecticut, FuelCell Energy, Inc. (together with its subsidiaries, the “Company,” “FuelCell Energy,” “we,” “us,” or “our”) is a global leader in delivering environmentally responsible distributed baseload energy platform solutions through our proprietary fuel cell technology. Today, we offer commercial technology that produces clean electricity, heat, clean hydrogen, and water and is also capable of recovering and capturing carbon for utilization and/or sequestration, depending on product configuration and application. We also continue to invest in product development and commercializing technologies that are expected to add new capabilities to our platforms’ abilities to deliver hydrogen and long duration hydrogen-based energy storage through our solid oxide technologies, as well as further enhance our existing platforms’ carbon capture solutions.

FuelCell Energy is focused on advancing sustainable clean energy technologies that address some of the world’s most critical challenges around energy access, security, resilience, reliability, affordability, safety and environmental stewardship. As a leading global manufacturer of proprietary fuel cell technology platforms, FuelCell Energy is uniquely positioned to serve customers worldwide with sustainable products and solutions for industrial and commercial businesses, utilities, governments, municipalities, and communities.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial information. Accordingly, they do not contain all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all normal and recurring adjustments necessary to fairly present the Company’s financial position as of January 31, 2024 and October 31, 2023 and results of operations as of and for the three months ended January 31, 2024 and 2023 have been included. All intercompany accounts and transactions have been eliminated.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The balance sheet as of October 31, 2023 has been derived from the audited financial statements at that date, but it does not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the Company’s financial statements and notes thereto for the fiscal year ended October 31, 2023, which are contained in the Company’s Annual Report on Form 10-K previously filed with the SEC. The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.

Principles of Consolidation

The unaudited consolidated financial statements reflect our accounts and operations and those of our subsidiaries in which we have a controlling financial interest. We use a qualitative approach in assessing the consolidation requirement for each of our variable interest entities ("VIEs"), which are tax equity partnerships further described in Note 3. “Tax Equity Financings.” This approach focuses on determining whether we have the power to direct those activities of the tax equity partnerships that most significantly affect their economic performance and whether we have the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the tax equity partnerships. For all periods presented, we have determined that we are the primary beneficiary in all of our tax equity partnerships. We evaluate our tax equity partnerships on an ongoing basis to ensure that we continue to be the primary beneficiary.

Use of Estimates

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Estimates are used in accounting for, among other things, revenue recognition, lease right-of-use assets and liabilities, excess, slow-moving and obsolete inventories, product warranty accruals, loss accruals on service agreements, share-based compensation expense, allowance for doubtful accounts, depreciation and

7

amortization, impairment of goodwill and in-process research and development intangible assets, impairment of long-lived assets (including project assets), valuation of derivatives, and contingencies. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates.

Liquidity

Our principal sources of cash have been proceeds from the sale of our products and projects, electricity generation revenues, research and development and service agreements with third parties, sales of our common stock through public equity offerings, and proceeds from debt, project financing and tax monetization transactions. We have utilized this cash to accelerate the commercialization of our solid oxide platforms, develop new capabilities to separate and capture carbon, develop and construct project assets, invest in capital improvements and expansion of our operations, perform research and development, pay down existing outstanding indebtedness, and meet our other cash and liquidity needs.

As of January 31, 2024, unrestricted cash and cash equivalents totaled $297.5 million compared to $250.0 million as of October 31, 2023. During the year ended October 31, 2023 and the three months ended January 31, 2024, the Company invested in United States (U.S.) Treasury Securities, all of which had matured as of January 31, 2024. The amortized cost of the U.S. Treasury Securities outstanding totaled $0 as of January 31, 2024 compared to $103.8 as of October 31, 2023 and is classified as Investments - short-term on the Consolidated Balance Sheets.

The Company, from time to time, has offered and sold shares under its Open Market Sale Agreement (as defined in Note 11. “Stockholders’ Equity”). During the quarter ended January 31, 2024, no sales were made under the Open Market Sale Agreement. See Note 11. “Stockholders’ Equity” for additional information regarding the Open Market Sale Agreement.

During the fourth quarter of fiscal year 2023, the Company closed on a tax equity financing transaction with Franklin Park 2023 FCE Tax Equity Fund, LLC (“Franklin Park”), a subsidiary of Franklin Park Infrastructure, LLC, for two fuel cell power plant installations -- the 14.0 MW Derby Fuel Cell Project and the 2.8 MW SCEF Fuel Cell Project, both located in Derby, Connecticut (collectively, the “Derby Projects”). Franklin Park’s tax equity commitment with respect to the Derby Projects totals $30.2 million. Of this amount, approximately $9.1 million was received on October 31, 2023 and the remaining approximately $21.1 million was received during the three months ended January 31, 2024. In connection with the initial closing of this tax equity financing transaction in fiscal year 2023, the Company paid closing costs of approximately $1.8 million, which included appraisal fees, title insurance expenses and legal and consulting fees.

During the three months ended January 31, 2024, the Company completed the Technical Improvement Plan to bring the Groton Project (defined elsewhere herein) to its rated capacity and the Groton Project reached its design rated output of 7.4 MW. The Company achieved all conditions precedent required for the first annual funding from East West Bank and, as a result, the Company received a $4.0 million contribution during the three months ended January 31, 2024 which is recorded as noncontrolling interest on the Consolidated Balance Sheets.

We believe that our unrestricted cash and cash equivalents, expected receipts from our contracted backlog and release of short-term restricted cash less expected disbursements over the next twelve months will be sufficient to allow the Company to meet its obligations for at least one year from the date of issuance of these financial statements.

To date, we have not achieved profitable operations or sustained positive cash flow from operations. The Company’s future liquidity, for fiscal year 2024 and in the long-term, will depend on its ability to (i) timely complete current projects in process within budget, (ii) increase cash flows from its generation operating portfolio, including by meeting conditions required to timely commence operation of new projects, operating its generation operating portfolio in compliance with minimum performance guarantees and operating its generation operating portfolio in accordance with revenue expectations, (iii) obtain financing for project construction and manufacturing expansion, (iv) obtain permanent financing for its projects once constructed, (v) increase order and contract volumes, which would lead to additional product sales, service agreements and generation revenues, (vi) obtain funding for and receive payment for research and development under current and future Advanced Technologies contracts, (vii) successfully commercialize its solid oxide, hydrogen and carbon capture platforms, (viii) implement capacity expansion for solid oxide product manufacturing, (ix) implement the product cost reductions necessary to achieve profitable operations, (x) manage working capital and the Company’s unrestricted cash balance and (xi) access the capital markets to raise funds through the sale of debt and equity securities, convertible notes, and other equity-linked instruments.

8

We are continually assessing different means by which to accelerate the Company’s growth, enter new markets, commercialize new products, and enable capacity expansion. Therefore, from time to time, the Company may consider and enter into agreements for one or more of the following: negotiated financial transactions, minority investments, collaborative ventures, technology sharing, transfer or other technology license arrangements, joint ventures, partnerships, acquisitions or other business transactions for the purpose(s) of geographic or manufacturing expansion and/or new product or technology development and commercialization, including hydrogen production through our carbonate and solid oxide platforms and storage and carbon capture, sequestration and utilization technologies.

Our business model requires substantial outside financing arrangements and satisfaction of the conditions of such arrangements to construct and deploy our projects to facilitate the growth of our business. The Company has invested capital raised from sales of its common stock to build out its project portfolio. The Company has also utilized and expects to continue to utilize a combination of long-term debt and tax equity financing (e.g., sale-leaseback transactions, partnership flip transactions and the monetization and/or transfer of eligible investment and production tax credits) to finance its project asset portfolio as these projects commence commercial operations, particularly in light of the passage of the Inflation Reduction Act in August 2022. The Company may also seek to undertake private placements of debt securities to finance its project asset portfolio. The proceeds of any such financing, if obtained, may allow the Company to reinvest capital back into the business and to fund other projects. We may also seek to obtain additional financing in both the debt and equity markets in the future. If financing is not available to us on acceptable terms if and when needed, or on terms acceptable to us or our lenders, if we do not satisfy the conditions of our financing arrangements, if we spend more than the financing approved for projects, if project costs exceed an amount that the Company can finance, or if we do not generate sufficient revenues or obtain capital sufficient for our corporate needs, we may be required to reduce or slow planned spending, reduce staffing, sell assets, seek alternative financing and take other measures, any of which could have a material adverse effect on our financial condition and operations.

Note 2. Recent Accounting Pronouncements

Recently Adopted Accounting Guidance

There is no recently adopted accounting guidance.

Recent Accounting Guidance Not Yet Effective

In November 2023, the Financial Accounting Standards Board (“FASB”) issued guidance to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the guidance enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment and contains other disclosure requirements. The purpose of the guidance is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.

In December 2023, the FASB issued guidance to enhance income tax disclosures by providing information to better assess how an entity’s operations, related tax risks, tax planning and operational opportunities affect its tax rate and prospects for future cash flows. Additional disclosures will be required to the annual effective tax rate reconciliation including specific categories and further disaggregated reconciling items that meet the quantitative threshold. Additionally, disclosures will be required relating to income tax expense and payments made to federal, state, local and foreign jurisdictions. This guidance is effective for fiscal years and interim periods beginning after December 15, 2024. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.

Note 3. Tax Equity Financings

Derby Tax Equity Financing Transaction

Since the Derby Projects became operational during the three months ended January 31, 2024, we have begun to allocate profits and losses to noncontrolling interests under the hypothetical liquidation at book value ("HLBV") method. For the three months ended January 31, 2024, the net loss attributable to noncontrolling interests totaled $20.7 million. There were no amounts allocated to noncontrolling interest for the three months ended January 31, 2023 for Derby Fuel Cell Holdco, LLC (the partnership that acquired the equity interests in the project company that owns the Derby Projects) because the

9

Derby Projects were not yet operational at that time. As such, the Company had not yet allocated profits or losses to the noncontrolling interest under the HLBV method. During the three months ended January 31, 2024, the Company made priority return distributions to Franklin Park of $0.1 million.

Groton Tax Equity Financing Transaction

The Company closed on a tax equity financing transaction in August 2021 with East West Bancorp, Inc. (“East West Bank”) for the 7.4 MW fuel cell project (the “Groton Project”) located on the U.S. Navy Submarine Base in Groton, CT. East West Bank’s tax equity commitment totals $15 million. 

For the three months ended January 31, 2024 and 2023, the net loss attributable to noncontrolling interests for Groton Station FuelCell Holdco, LLC (the partnership that acquired the equity interests in the project company that owns the Groton Project) totaled $3.6 million and $2.9 million, respectively.

Yaphank Tax Equity Financing Transaction

The Company closed on a tax equity financing transaction in November 2021 with Renewable Energy Investors, LLC (“REI”), a subsidiary of Franklin Park Infrastructure, LLC, for the 7.4 MW fuel cell project (the “LIPA Yaphank Project”) located in Yaphank Long Island. REI’s tax equity commitment totaled $12.4 million. 

This transaction was structured as a partnership flip. Under this partnership flip structure, a partnership, in this case YTBFC Holdco, LLC (the “Yaphank Partnership”), was organized to acquire from FuelCell Energy Finance II, LLC, a wholly-owned subsidiary of the Company, all outstanding equity interests in Yaphank Fuel Cell Park, LLC, which in turn owns the LIPA Yaphank Project and is the party to the power purchase agreement and all project agreements. REI holds Class A Units in the Yaphank Partnership and a subsidiary of the Company holds the Class B Units.

During each of the three month periods ended January 31, 2024 and 2023, the Company made priority return distributions to REI of $0.1 million. For the three months ended January 31, 2024 and 2023, net (loss) income attributable to noncontrolling interest for the Yaphank Partnership totaled ($0.3) million and $0.4 million, respectively.

Note 4. Revenue Recognition

Contract Balances

Contract assets as of January 31, 2024 and October 31, 2023 were $45.1 million ($22.7 million long-term) and $42.1 million ($25.8 million long-term), respectively. The contract assets relate to the Company’s rights to consideration for work completed but not yet billed. These amounts are included on a separate line item as Unbilled receivables, and balances expected to be billed later than one year from the balance sheet date are included within Other assets on the accompanying Consolidated Balance Sheets. We bill customers for power platform and power platform component sales based on certain contractual milestones being reached. We bill service agreements based on the contract price and billing terms of the contracts. Generally, our Advanced Technologies contracts are billed based on actual revenues recorded, typically in the subsequent month. Some Advanced Technologies contracts are billed based on contractual milestones or costs incurred.

Contract liabilities as of January 31, 2024 and October 31, 2023 were $4.3 million and $3.1 million, respectively. The contract liabilities relate to the advance billings to customers for services that will be recognized over time and in some instances for deferred revenue relating to variable consideration for previously sold products. The net change in contract liabilities represents customer billings offset by revenue recognized.

Consideration Payable to a Customer

As of October 31, 2023, the Company had recorded $6.3 million ($6.0 million long-term) as consideration payable to Toyota Motor North America (“Toyota”), which is included within Accrued liabilities and Long-term debt and other liabilities on the accompanying Consolidated Balance Sheets. The Company received payment for the sale of an investment tax credit with respect to the Toyota project at the Port of Long Beach during the year ended October 31, 2023 and the net amount of $6.3 million will be recorded as a reduction to revenue during the period of measurement, which is the 20-year term of the hydrogen production and power purchase agreement between Toyota and the Company (“Toyota HPPA”).

10

Advanced Technologies Revenue – EMTEC Joint Development Agreement and Rotterdam Pilot Project Purchase Order

In May 2023, the Company entered into a second letter agreement with ExxonMobil Technology and Engineering Company (formerly known as ExxonMobil Research and Engineering Company) (“EMTEC”), pursuant to which the parties agreed that the conditions to the Company’s agreement to invest in the future demonstration of the technology for capturing carbon at an ExxonMobil refinery located in Rotterdam, Netherlands (such demonstration, the “Rotterdam Project”) were met in April 2023 and, as a result, the Company will recognize $2.5 million of the $5.0 million milestone payment received in fiscal year 2022 under the Company’s Joint Development Agreement with EMTEC as revenue across future deliverables to EMTEC. Of this $2.5 million, the Company recognized revenue of $0.5 million through January 31, 2024. The other $2.5 million of the $5.0 million milestone payment received in fiscal year 2022 under the Company’s Joint Development Agreement with EMTEC was applied during fiscal year 2023 to discount EMTEC’s purchase of the Company’s fuel cell module and detailed engineering design for the Rotterdam Project.

On January 31, 2024, the Company received a purchase order valued at $11.6 million from Esso Nederland B.V. (“Esso”), an affiliate of Exxon Mobil Corporation and EMTEC, for fuel cell modules as well as engineering, procurement, fabrication, testing and delivery services required for the construction and implementation of the modular point source carbon capture pilot plant at the Esso Rotterdam Manufacturing Complex.

Remaining Performance Obligations

Remaining performance obligations are the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. As of January 31, 2024, the Company’s total remaining performance obligations were: $140.4 million for service agreements (expected to be recognized as revenue over approximately three to fifteen years which is based on the remaining term of the service agreements), $346.0 million for generation power purchase agreements (“PPAs”) (expected to be recognized as revenue over approximately nineteen to twenty years based on the PPA terms remaining), $18.3 million for Advanced Technologies contracts (expected to be recognized within approximately two years) and $0 for product purchase agreements.

Note 5. Investments – Short-Term

The Company began to invest in U.S. Treasury Securities during fiscal year 2023. The U.S. Treasury Securities were classified as held-to-maturity and were recorded at amortized cost. There are no U.S. Treasury Securities outstanding as of January 31, 2024. The amortized cost basis and fair value (based on quoted market prices) as of October 31, 2023 were $103.8 million.  The contractual maturities of investments as of October 31, 2023 were within one year and the weighted average yield to maturity was 5.45%.

Note 6. Inventories

Inventories (current and long-term) as of January 31, 2024 and October 31, 2023 consisted of the following (in thousands):

January 31,

October 31,

    

2024

    

2023

Raw materials

$

38,276

$

36,200

Work-in-process (1)

67,326

55,585

Inventories

105,602

91,785

Inventories – current

(102,859)

(84,456)

Inventories – long-term (2)

$

2,743

$

7,329

(1)Work-in-process includes the standard components of inventory used to build the typical modules or module components that are intended to be used in future project asset construction or power plant orders or for use under the Company’s service agreements.
(2)Long-term inventory includes modules that are contractually required to be segregated for use as exchange modules for specific project assets.

Raw materials consist mainly of various nickel powders and steels, various other components used in producing cell stacks and purchased components for balance of plant. Work-in-process inventory is comprised of material, labor, and overhead costs incurred to build fuel cell stacks and modules, which are subcomponents of a power platform.

11

Note 7. Project Assets

Project assets as of January 31, 2024 and October 31, 2023 consisted of the following (in thousands):

January 31,

October 31,

Estimated

    

2024

    

2023

    

Useful Life

Project Assets – Operating

$

308,188

$

213,753

4-20 years

Accumulated depreciation

(48,121)

(46,263)

Project Assets – Operating, net

260,067

167,490

Project Assets – Construction in progress

723

90,576

Project Assets, net

$

260,790

$

258,066

The estimated useful lives of these project assets are 20 years for balance of plant and site construction, and four to seven years for modules. Project assets as of January 31, 2024 and October 31, 2023 included twelve and nine, respectively, completed, commissioned installations generating power with respect to which the Company has a PPA with the end-user of power and site host with a net aggregate value of $260.1 million and $167.5 million as of January 31, 2024 and October 31, 2023, respectively. Certain of these assets are the subject of sale-leaseback arrangements with Crestmark Equipment Finance (“Crestmark”). The increase in operating project assets at January 31, 2024, compared to October 31, 2023, is a result of the inclusion of the Toyota Project and the Derby Projects, all of which became operational during the three months ended January 31, 2024.

Project assets as of January 31, 2024 and October 31, 2023 also include installations with carrying values of $0.7 million and $90.6 million, respectively, which are being developed and constructed by the Company in connection with projects for which we have entered into PPAs.

Project construction costs incurred for long-term project assets are reported as investing activities in the Consolidated Statements of Cash Flows.

Note 8. Goodwill and Intangible Assets

As of January 31, 2024 and October 31, 2023, the Company had goodwill of $4.1 million and intangible assets of $15.8 million and $16.1 million, respectively, that were recorded in connection with the Company’s 2012 acquisition of Versa Power Systems, Inc. (“Versa”) and the 2019 Bridgeport Fuel Cell Project acquisition.

The Versa acquisition intangible asset represents an indefinite-lived in-process research and development intangible asset for cumulative research and development efforts associated with the development of solid oxide fuel cell stationary power generation. Amortization expense for the Bridgeport Fuel Cell Project-related intangible asset for each of the three month periods ended January 31, 2024 and 2023 was $0.3 million.

The following tables summarize the carrying value of the Company’s intangible assets as of January 31, 2024 and October 31, 2023 (in thousands):

As of January 31, 2024

    

Gross Amount

    

Accumulated
Amortization

    

Net Amount

In-Process Research and Development

$

9,592

$

-

$

9,592

Bridgeport PPA

12,320

(6,160)

6,160

Total

$

21,912

$

(6,160)

$

15,752

As of October 31, 2023

    

Gross Amount

    

Accumulated
Amortization

    

Net Amount

In-Process Research and Development

$

9,592

$

-

$

9,592

Bridgeport PPA

12,320

(5,836)

6,484

Total

$

21,912

$

(5,836)

$

16,076

12

Note 9. Accrued Liabilities

Accrued liabilities as of January 31, 2024 and October 31, 2023 consisted of the following (in thousands):

January 31,

October 31,

    

2024

    

2023

Accrued payroll and employee benefits (1)

$

4,093

$

7,752

Consideration payable to a customer (2)

3,958

3,958

Accrued service agreement and PPA costs (3)