UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Number of shares of common stock, par value $0.0001 per share, outstanding as of March 3, 2023:
FUELCELL ENERGY, INC.
FORM 10-Q
Table of Contents
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, | |||||
| 2023 |
| 2022 | |||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents, unrestricted | $ | | $ | | ||
Restricted cash and cash equivalents - short-term | | | ||||
Investments - short-term | | - | ||||
Accounts receivable, net | | | ||||
Unbilled receivables | | | ||||
Inventories | | | ||||
Other current assets | | | ||||
Total current assets | | | ||||
Restricted cash and cash equivalents - long-term | | | ||||
Inventories - long-term | | | ||||
Project assets, net | | | ||||
Property, plant and equipment, net | | | ||||
Operating lease right-of-use assets, net | | | ||||
Goodwill | | | ||||
Intangible assets, net | | | ||||
Other assets | | | ||||
Total assets (1) | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
Current liabilities: | ||||||
Current portion of long-term debt | $ | | $ | | ||
Current portion of operating lease liabilities | | | ||||
Accounts payable | | | ||||
Accrued liabilities | | | ||||
Deferred revenue | | | ||||
Total current liabilities | | | ||||
Long-term deferred revenue and customer deposits | - | | ||||
Long-term operating lease liabilities | | | ||||
Long-term debt and other liabilities | | | ||||
Total liabilities (1) | | | ||||
Redeemable Series B preferred stock (liquidation preference of $ | | | ||||
Redeemable noncontrolling interest | - | | ||||
Total equity: | ||||||
Stockholders’ equity: | ||||||
Common stock ($ | | | ||||
Additional paid-in capital | | | ||||
Accumulated deficit | ( | ( | ||||
Accumulated other comprehensive loss | ( | ( | ||||
Treasury stock, Common, at cost ( | ( | ( | ||||
Deferred compensation | | | ||||
Total stockholder's equity | | | ||||
Noncontrolling interests | | | ||||
Total equity | | | ||||
Total liabilities, redeemable Series B preferred stock, redeemable noncontrolling interest and total equity | $ | | $ | |
(1) | As of January 31, 2023 and October 31, 2022, the consolidated assets of the variable interest entity (“VIE”) were $ |
See accompanying notes to consolidated financial statements.
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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, | |||||||
| 2023 |
| 2022 |
| |||
Revenues: | |||||||
Product | $ | | $ | | |||
Service | | | |||||
Generation | | | |||||
Advanced Technologies | | | |||||
Total revenues | | | |||||
Costs of revenues: | |||||||
Product | | | |||||
Service | | | |||||
Generation | | | |||||
Advanced Technologies | | | |||||
Total costs of revenues | | | |||||
Gross profit (loss) | | ( | |||||
Operating expenses: | |||||||
Administrative and selling expenses | | | |||||
Research and development expenses | | | |||||
Total costs and expenses | | | |||||
Loss from operations | ( | ( | |||||
Interest expense | ( | ( | |||||
Interest income | | | |||||
Other income, net | | | |||||
Loss before provision for income taxes | ( | ( | |||||
Provision for income taxes | ( | - | |||||
Net loss | ( | ( | |||||
Net loss attributable to noncontrolling interests | ( | ( | |||||
Net loss attributable to FuelCell Energy, Inc. | ( | ( | |||||
Series B preferred stock dividends | ( | ( | |||||
Net loss attributable to common stockholders | $ | ( | $ | ( | |||
Loss per share basic and diluted: | |||||||
Net loss per share attributable to common stockholders | $ | ( | $ | ( | |||
Basic and diluted weighted average shares outstanding | | |
Three Months Ended January 31, | |||||||
| 2023 |
| 2022 |
| |||
Net loss | $ | ( | $ | ( | |||
Other comprehensive loss: | |||||||
Foreign currency translation adjustments | | ( | |||||
Total comprehensive loss | $ | ( | $ | ( | |||
Comprehensive loss attributable to noncontrolling interests | ( | ( | |||||
Comprehensive loss attributable to FuelCell Energy, Inc. | $ | ( | $ | ( |
See accompanying notes to consolidated financial statements.
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FUELCELL ENERGY, INC.
Consolidated Statements of Changes in Equity
(Unaudited)
(Amounts in thousands, except share amounts)
Common Stock | |||||||||||||||||||||||||||||
| Shares |
| Amount |
| Additional |
| Accumulated |
| Accumulated |
| Treasury |
| Deferred | Total Stockholder's Equity | Noncontrolling Interests |
| Total | ||||||||||||
Balance, October 31, 2022 | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | | $ | | $ | | $ | | ||||||||||
Common stock issued, non-employee compensation | | — | | — | — | — | — | | — | | |||||||||||||||||||
Stock issued under benefit plans, net of taxes paid upon vesting of restricted stock awards | | — | ( | — | — | — | — | ( | — | ( | |||||||||||||||||||
Share based compensation | — | — | | — | — | — | — | | — | | |||||||||||||||||||
Preferred dividends — Series B | — | — | ( | — | — | — | — | ( | — | ( | |||||||||||||||||||
Effect of foreign currency translation | — | — | — | — | | — | — | | — | | |||||||||||||||||||
Adjustment for deferred compensation | ( | — | — | — | — | ( | | — | — | — | |||||||||||||||||||
Reclass of redeemable non-controlling interest | — | — | — | — | — | — | — | — | | | |||||||||||||||||||
Distribution to non-controlling interest | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||
Net loss attributable to noncontrolling interests | — | — | — | | — | — | — | | ( | — | |||||||||||||||||||
Net Loss | — | — | — | ( | — | — | — | ( | — | ( | |||||||||||||||||||
Balance, January 31, 2023 | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | | $ | | $ | | $ | |
Common Stock |
| ||||||||||||||||||||||||||||
| Shares |
| Amount | Additional |
| Accumulated |
| Accumulated |
| Treasury |
| Deferred |
| Total Stockholders' Equity |
| Noncontrolling Interests |
| Total Stockholders' Equity | |||||||||||
Balance, October 31, 2021 | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | | $ | | $ | — | $ | | ||||||||||
Common stock issued, non-employee compensation | | — | | — | — | — | — |
| | — |
|
| | ||||||||||||||||
Stock issued under benefit plan, net of taxes paid upon vesting of restricted stock awards | | ( | — | — | — | — |
| ( | — |
|
| ( | |||||||||||||||||
Share based compensation | — | — | | — | — | — | — |
| | — |
|
| | ||||||||||||||||
Preferred dividends — Series B | — | — | ( | — | — | — | — |
| ( | — |
|
| ( | ||||||||||||||||
Effect of foreign currency translation | — | — | — | — | ( | — | — |
| ( | — |
|
| ( | ||||||||||||||||
Adjustment for deferred compensation | ( | — | — | — | — | ( | |
| — | — |
|
| — | ||||||||||||||||
Net loss attributable to redeemable noncontrolling interest | — | — | — | | — | — | — | | ( | — | |||||||||||||||||||
Net loss attributable to FuelCell Energy, Inc. | — | — | ( | — | — | — |
| ( | — |
|
| ( | |||||||||||||||||
Balance, January 31, 2022 | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | | $ | | $ | ( |
| $ | |
See accompanying notes to consolidated financial statements.
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FUELCELL ENERGY, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)
Three Months Ended January 31, | |||||||
| 2023 |
| 2022 | ||||
Cash flows from operating activities: | |||||||
Net loss | $ | ( | $ | ( | |||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Share-based compensation | | | |||||
Depreciation and amortization | | | |||||
Non-cash interest expense on finance obligations | | | |||||
Non-cash interest income on investments | ( | - | |||||
Operating lease costs | | | |||||
Operating lease payments | ( | ( | |||||
Impairment of property, plant and equipment and project assets | - | | |||||
Unrealized foreign currency losses (gains) | | ( | |||||
Other, net | | ( | |||||
Decrease (increase) in operating assets: | |||||||
Accounts receivable | | ( | |||||
Unbilled receivables | ( | ( | |||||
Inventories | ( | ( | |||||
Other assets | ( | ( | |||||
(Decrease) increase in operating liabilities: | |||||||
Accounts payable | ( | | |||||
Accrued liabilities | ( | | |||||
Deferred revenue | ( | | |||||
Net cash used in operating activities | ( | ( | |||||
Cash flows from investing activities: | |||||||
Capital expenditures | ( | ( | |||||
Project asset expenditures | ( | ( | |||||
Purchases of held-to-maturity debt securities | ( | - | |||||
Net cash used in investing activities | ( | ( | |||||
Cash flows from financing activities: | |||||||
Repayment of debt | ( | ( | |||||
Expenses related to common stock issued for stock plans | | | |||||
Contributions received from sale of noncontrolling interest | - | | |||||
Distribution to noncontrolling interest | ( | - | |||||
Payments for taxes related to net share settlement of equity awards | ( | ( | |||||
Payment of preferred dividends | ( | ( | |||||
Net cash (used in) provided by financing activities | ( | | |||||
Effects on cash from changes in foreign currency rates | | ( | |||||
Net decrease in cash, cash equivalents and restricted cash | ( | ( | |||||
Cash, cash equivalents and restricted cash-beginning of period | | | |||||
Cash, cash equivalents and restricted cash-end of period | $ | | $ | | |||
Supplemental cash flow disclosures: | |||||||
Cash interest paid | $ | | $ | | |||
Noncash financing and investing activity: | |||||||
Operating lease liabilities | | - | |||||
Operating lease right-of-use assets | | - | |||||
Noncash reclassifications from inventory to project assets | - | | |||||
Accrued purchase of fixed assets, cash to be paid in subsequent period | | | |||||
Accrued purchase of project assets, cash to be paid in subsequent period | | |
See accompanying notes to consolidated financial statements.
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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”) has leveraged five decades of research and development to become a global leader in delivering environmentally responsible distributed baseload power platform solutions through our proprietary fuel cell technology. Our current commercial technology produces electricity, heat, hydrogen, and water while separating carbon for utilization and/or sequestration. We continue to invest in developing and commercializing future technologies 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 a global leader in sustainable clean energy technologies that address some of the world’s most critical challenges around energy access, security, 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, and municipalities.
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 and results of operations as of and for the three months ended January 31, 2023 and 2022 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, 2022 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, 2022, 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.
Certain reclassifications have been made to the prior year amounts to conform to the presentation for the three months ended January 31, 2023. Interest income for the three months ended January 31, 2022, which was previously included within Other income, net has been reclassified to Interest income in the Consolidated Statement of Operations and Comprehensive Loss.
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
7
of contingent assets and liabilities. Estimates are used in accounting for, among other things, revenue recognition, lease right-of-use assets and liabilities, contract loss accruals, excess, slow-moving and obsolete inventories, product warranty accruals, loss accruals on service agreements, share-based compensation expense, allowance for doubtful accounts, depreciation and amortization, impairment of goodwill and in-process research and development intangible assets, impairment of long-lived assets (including project assets), 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 on Advanced Technologies, pay down existing outstanding indebtedness, and meet our other cash and liquidity needs.
As of January 31, 2023, unrestricted cash and cash equivalents totaled $
On July 12, 2022, the Company entered into an Open Market Sale Agreement with Jefferies LLC, B. Riley Securities, Inc., Barclays Capital Inc., BMO Capital Markets Corp., BofA Securities, Inc., Canaccord Genuity LLC, Citigroup Global Markets Inc., J.P. Morgan Securities LLC and Loop Capital Markets LLC (the “Open Market Sale Agreement”) with respect to an at the market offering program under which the Company may, from time to time, offer and sell up to
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 2023 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 Advanced Technologies platforms, including 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,
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(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.
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 of a portfolio of assets 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
There is no recent accounting guidance that is not yet effective.
Note 3. Tax Equity Financings
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
This transaction was structured as a “partnership flip”, which is a structure commonly used by tax equity investors in the financing of renewable energy projects. Under this partnership flip structure, a partnership, in this case Groton Station Fuel Cell Holdco, LLC (the “Groton Partnership”), was organized to acquire from FuelCell Energy Finance II, LLC, a wholly-owned subsidiary of the Company, all outstanding equity interests in Groton Station Fuel Cell, LLC (the “Groton Project Company”) which in turn owns the Groton Project and is the party to the power purchase agreement and all project agreements. At the closing of the transaction, the Groton Partnership is owned by East West Bank, holding Class A Units, and Fuel Cell Energy Finance Holdco, LLC, a subsidiary of FuelCell Energy Finance, LLC, holding Class B Units. The acquisition of the Groton Project Company by the Groton Partnership was funded in part by an initial draw from East West Bank and funds contributed downstream to the Groton Partnership by the Company. The initial closing occurred on August 4, 2021, upon the satisfaction of certain conditions precedent (including the receipt of an appraisal and confirmation that the Groton Project would be eligible for the investment tax credit under Section 48 of the Internal Revenue Code of 1986, as amended). In connection with the initial closing, the Company drew down $
9
Under the original terms of the Company’s agreement with East West Bank, the Company would have been eligible to draw the remaining amount of the commitment, approximately $
On July 7, 2022, the Company and East West Bank amended their tax equity financing agreement and extended the commercial operations deadline to September 30, 2022. In addition, in the July 7, 2022 amendment to the tax equity financing agreement, the terms of East West Bank’s remaining investment commitment of $
On October 4, 2022, the Company and East West Bank further amended their tax equity financing agreement to extend the deadline by which commercial operations were to be achieved at the Groton Project from September 30, 2022 to November 30, 2022. In addition, modifications to the Groton Project documents between Connecticut Municipal Electric Energy Cooperative (“CMEEC”) and the Company as a result of the agreement between those parties to commence operations at less than
On December 16, 2022, the Company declared and, per the terms of the Amended and Restated Power Purchase Agreement between the Company and CMEEC entered into on that date (the “Amended and Restated PPA”), CMEEC agreed that the Groton Project is commercially operational at
With the declaration of commercial operations, East West Bank’s investment in the project was reclassified, as of December 16, 2022, from a redeemable noncontrolling interest to non-redeemable noncontrolling interests within the Total equity section of the Consolidated Balance Sheet.
Under most partnership flip structures, tax equity investors agree to receive a minimum target rate of return, typically on an after-tax basis. Prior to receiving a contractual rate of return or a date specified in the contractual arrangements, East West Bank will receive substantially all of the non-cash value attributable to the Groton Project, which includes accelerated depreciation and Section 48(a) investment tax credits; however, the Company will receive a majority of the cash distributions (based on the operating income of the Groton Project), which are paid quarterly. After East West Bank receives its contractual rate of return, the Company will receive approximately
10
Company (through a separate wholly owned entity) may enter into a back leverage debt financing transaction and use the cash distributions from the Groton Partnership to service the debt.
We have determined we are the primary beneficiary in the Groton Partnership for accounting purposes as a Variable Interest Entity (“VIE”) under GAAP. We have considered the provisions within the financing-related agreements (including the limited liability company agreement for the Groton Partnership) which grant us power to manage and make decisions affecting the operations of the Groton Partnership. We consider the rights granted to East West Bank under the agreements to be more protective in nature than participatory. Therefore, we have determined under the power and benefits criterion of Accounting Standards Codification (“ASC”) 810, Consolidations that we are the primary beneficiary of the Groton Partnership. As the primary beneficiary, we consolidate the financial position, results of operations and cash flows of the Groton Partnership in our consolidated financial statements, and all intercompany balances and transactions between us and the Groton Partnership are eliminated. We recognized East West Bank’s share of the net assets of the Groton Partnership as redeemable noncontrolling interests in our Consolidated Balance Sheets. East West Bank’s share of the net assets is considered as a redeemable noncontrolling interest due to the conditional withdrawal right under which, if events outside the control of the Company occur, East West Bank has the ability to force the Company to redeem its interest in the Groton Partnership. The income or loss allocations reflected in our Consolidated Statements of Operations and Comprehensive Loss may create volatility in our reported results of operations, including potentially changing net loss attributable to stockholders to net income attributable to stockholders, or vice versa, from quarter to quarter. Since the Groton Project became operational during the three months ended January 31, 2023, we have begun to allocate profits and losses to noncontrolling interests under the hypothetical liquidation at book value ("HLBV") method. HLBV is a balance sheet-oriented approach for applying the equity method of accounting when there is a complex structure, such as the partnership flip structure. For the three months ended January 31, 2023, the net loss attributable to noncontrolling interests totaled $
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
This transaction was structured as a “partnership flip,” which is a structure commonly used by tax equity investors in the financing of renewable energy projects. 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. The initial funding occurred on December 13, 2021. In connection with the initial closing, the Company was able to draw down approximately $
The Company determined during the second quarter of fiscal year 2022 that there was an overpayment by REI of the Class A Member Capital Contribution of $
Under a partnership flip structure, tax equity investors agree to receive a minimum target rate of return, typically on an after-tax basis. Prior to receiving a contractual rate of return or a date specified in the contractual arrangements, REI will receive substantially all of the non-cash value attributable to the LIPA Yaphank Project, which includes accelerated depreciation and Section 48(a) investment tax credits; however, the Company will receive a majority of the cash distributions (based on the operating income of the LIPA Yaphank Project), which are paid quarterly. After REI receives its contractual rate of return, the Company will receive approximately
11
Under this partnership flip structure, after the fifth anniversary following achievement of commercial operations, we have an option to acquire all of the equity interests that REI holds in the Yaphank Partnership starting after REI receives its contractual rate of return (the anticipated “flip” date) after the LIPA Yaphank Project is operational. If we exercise this option, we will be required to pay the greater of the following: (i) the fair market value of REI's equity interest at the time the option is exercised or (ii) an amount equal to
We are the primary beneficiary in the Yaphank Partnership for accounting purposes as a VIE under GAAP. We have considered the provisions within the financing-related agreements (including the limited liability company agreement for the Yaphank Partnership) which grant us power to manage and make decisions affecting the operations of the Yaphank Partnership. We consider the rights granted to REI under the agreements to be more protective in nature rather than participatory. Therefore, we have determined under the power and benefits criterion of ASC 810, Consolidations that we are the primary beneficiary of the Yaphank Partnership. As the primary beneficiary, we consolidate the financial position, results of operations and cash flows of the Yaphank Partnership in our consolidated financial statements, and all intercompany balances and transactions between us and the Yaphank Partnership are eliminated. We recognized REI’s share of the net assets of the Yaphank Partnership as noncontrolling interests in our Consolidated Balance Sheets. The income or loss allocations reflected in our Consolidated Statements of Operations and Comprehensive Loss may create volatility in our reported results of operations, including potentially changing net loss attributable to stockholders to net income attributable to stockholders, or vice versa, from quarter to quarter. We allocate profits and losses to REI’s noncontrolling interest under the HLBV method. HLBV is a balance sheet-oriented approach for applying the equity method of accounting when there is a complex structure, such as the partnership flip structure. For the three months ended January 31, 2023 and 2022, net income (loss) attributable to noncontrolling interest for the Yaphank Partnership totaled $
Note 4. Revenue Recognition
Contract Balances
Contract assets as of January 31, 2023 and October 31, 2022 were $
Contract liabilities as of January 31, 2023 and October 31, 2022 were $
The net change in contract liabilities represents customer billings offset by revenue recognized.
Contract modification
As previously disclosed, the Company entered into a Settlement Agreement (the “Settlement Agreement”) with POSCO Energy Co., Ltd. (“POSCO Energy”) and its subsidiary, Korea Fuel Cell Co., Ltd. (“KFC”) in fiscal year 2022. The Settlement Agreement included an option to purchase an additional
Advanced Technologies Revenue - EMTEC Joint Development Agreement
On December 19, 2022, the Company and ExxonMobil Technology and Engineering Company (formerly known as ExxonMobil Research and Engineering Company) (“EMTEC”) entered into Amendment No. 3 to the Joint Development
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Agreement between the Company and EMTEC, effective as of December 1, 2022 (such amendment, “Amendment No. 3” and such agreement, as amended, the “EMTEC Joint Development Agreement”). In Amendment No. 3, the Company and EMTEC agreed to further extend the term of the EMTEC Joint Development Agreement such that it will end on August 31, 2023 (unless terminated earlier) and to further increase the maximum amount of contract consideration to be reimbursed by EMTEC from $
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, 2023, the Company’s total remaining performance obligations were: $
Note 5. Investments – Short-Term
On November 14, 2022, the Company invested $
Amortized | Gross unrealized | Gross unrealized | |||||||
| cost |
| gains | losses | Fair value | ||||
U.S. Treasury Securities | |||||||||
As of January 31, 2023 | $ | | $ | — | $ | ( | $ | |
The contractual maturities of investments are within one year and the weighted average yield to maturity is
Note 6. Inventories
Inventories (current and long-term) as of January 31, 2023 and October 31, 2022 consisted of the following (in thousands):
January 31, | October 31, | |||||
| 2023 |
| 2022 | |||
Raw materials | $ | | $ | | ||
Work-in-process (1) | | | ||||
Inventories | | | ||||
Inventories – current | ( | ( | ||||
Inventories – long-term (2) | $ | | $ | |
(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. Included in work-in-process as of January 31, 2023 and October 31, 2022 was $ |
(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.
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Note 7. Project Assets
Project assets as of January 31, 2023 and October 31, 2022 consisted of the following (in thousands):
January 31, | October 31, | Estimated | ||||||
| 2023 |
| 2022 |
| Useful Life | |||
Project Assets – Operating | $ | | $ | | ||||
Accumulated depreciation | ( | ( | ||||||
Project Assets – Operating, net | | | ||||||
Project Assets – Construction in progress | | | ||||||
Project Assets, net | $ | | $ | |
The estimated useful lives of these project assets are
Project assets as of January 31, 2023 and October 31, 2022 also include installations with carrying values of $
Included in “Construction in progress” is the
Project construction costs incurred for long-term project assets are reported as investing activities in the Consolidated Statements of Cash Flows. The proceeds received from the sale and subsequent leaseback of project assets are classified as “Cash flows from financing activities” within the Consolidated Statements of Cash Flows and are classified as a finance obligation within “Current portion of long-term debt” and “Long-term debt and other liabilities” on the Consolidated Balance Sheets (refer to Note 15. “Debt” for more information).
Note 8. Goodwill and Intangible Assets
As of January 31, 2023 and October 31, 2022, the Company had goodwill of $
The Versa acquisition intangible asset represents an indefinite-lived in-process research and development intangible asset (“IPR&D”) 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 months ended January 31, 2023 and 2022 was $
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The following tables summarize the carrying value of the Company’s intangible assets as of January 31, 2023 and October 31, 2022 (in thousands):
As of January 31, 2023 |
| Gross Amount |
| Accumulated |
| Net Amount | |||
In-Process Research and Development | $ | | $ | — | $ | | |||
Bridgeport PPA | | ( | | ||||||
Total | $ | | $ | ( | $ | | |||
As of October 31, 2022 |
| Gross Amount |
| Accumulated |
| Net Amount | |||
In-Process Research and Development | $ | | $ | — | $ | | |||
Bridgeport PPA | | ( | | ||||||
Total | $ | | $ | ( | $ | |
Note 9. Accrued Liabilities
Accrued liabilities as of January 31, 2023 and October 31, 2022 consisted of the following (in thousands):