FUELCELL ENERGY INC [FCELB] Filings

10-Q 1 fcel-20230131x10q.htm 10-Q

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, 2023

☐	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

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: (203) 825-6000

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 3, 2023: 405,732,053

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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, 2023 and October 31, 2022.	3

	Consolidated Statements of Operations and Comprehensive Loss for the three months ended January 31, 2023 and 2022.	4

	Consolidated Statements of Changes in Equity for the three months ended January 31, 2023 and 2022.	5

	Consolidated Statements of Cash Flows for the three months ended January 31, 2023 and 2022.	6

	Notes to Consolidated Financial Statements.	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	22

Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	42

Item 4.	Controls and Procedures.	43

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.	45

Item 1A.	Risk Factors.	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	45

Item 3.	Defaults Upon Senior Securities.	45

Item 4.	Mine Safety Disclosures.	45

Item 5.	Other Information.	46

Item 6.	Exhibits.	47

Signatures		49

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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	$	315,168	$	458,055
Restricted cash and cash equivalents - short-term		4,456		4,423
Investments - short-term		75,652		-
Accounts receivable, net		3,213		4,885
Unbilled receivables		13,711		11,019
Inventories		101,176		90,909
Other current assets		11,545		10,989
Total current assets		524,921		580,280
Restricted cash and cash equivalents - long-term		20,155		18,566
Inventories - long-term		7,549		7,549
Project assets, net		229,914		232,886
Property, plant and equipment, net		63,338		58,137
Operating lease right-of-use assets, net		8,997		7,189
Goodwill		4,075		4,075
Intangible assets, net		17,049		17,373
Other assets		16,385		13,662
Total assets⁽¹⁾	$	892,383	$	939,717
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	13,249	$	13,198
Current portion of operating lease liabilities		557		650
Accounts payable		24,590		28,196
Accrued liabilities		20,313		27,415
Deferred revenue		7,366		16,341
Total current liabilities		66,075		85,800
Long-term deferred revenue and customer deposits		-		9,095
Long-term operating lease liabilities		9,503		7,575
Long-term debt and other liabilities		81,575		82,863
Total liabilities⁽¹⁾		157,153		185,333
Redeemable Series B preferred stock (liquidation preference of $64,020 as of January 31, 2023 and October 31, 2022)		59,857		59,857
Redeemable noncontrolling interest		-		3,030
Total equity:
Stockholders’ equity:
Common stock ($0.0001 par value); 500,000,000 shares authorized as of January 31, 2023 and October 31, 2022; 405,732,053 and 405,562,988 shares issued and outstanding as of January 31, 2023 and October 31, 2022, respectively		41		41
Additional paid-in capital		2,095,667		2,094,076
Accumulated deficit		(1,426,595)		(1,407,973)
Accumulated other comprehensive loss		(1,305)		(1,752)
Treasury stock, Common, at cost (163,943 and 142,837 shares as of January 31, 2023 and October 31, 2022, respectively)		(923)		(855)
Deferred compensation		923		855
Total stockholder's equity		667,808		684,392
Noncontrolling interests		7,565		7,105
Total equity		675,373		691,497
Total liabilities, redeemable Series B preferred stock, redeemable noncontrolling interest and total equity	$	892,383	$	939,717

(1)

As of January 31, 2023 and October 31, 2022, the consolidated assets of the variable interest entity (“VIE”) were $122,304 and $119,223, respectively, that can only be used to settle obligations of the VIE. These assets include cash of $2,350, accounts receivable of $113, unbilled accounts receivable of $1,492, operating lease right of use assets of $1,182, other current assets of $17,623 and project assets of $99,544 as of January 31, 2023, and cash of $2,149, unbilled accounts receivable of $1,070, other current assets of $14,373, operating lease right of use assets of $1,184 and project assets of $100,448 as of October 31, 2022. The consolidated liabilities of the VIE as of January 31, 2023 include short-term operating lease liabilities of $157, accounts payable of $81,445 and long-term operating lease liability of $1,478 and, as of October 31, 2022, include short-term operating lease liabilities of $157, accounts payable of $76,050, accrued liabilities of $824 and long-term operating lease liability of $1,478.

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	$	9,095	$	18,000
Service		13,882		2,167
Generation		9,557		7,496
Advanced Technologies		4,539		4,132
Total revenues		37,073		31,795
Costs of revenues:
Product		1,029		18,207
Service		10,945		2,372
Generation		16,602		10,722
Advanced Technologies		3,260		3,389
Total costs of revenues		31,836		34,690
Gross profit (loss)		5,237		(2,895)
Operating expenses:
Administrative and selling expenses		15,009		36,965
Research and development expenses		12,683		4,984
Total costs and expenses		27,692		41,949
Loss from operations		(22,455)		(44,844)
Interest expense		(1,512)		(1,428)
Interest income		3,410		10
Other income, net		49		142
Loss before provision for income taxes		(20,508)		(46,120)
Provision for income taxes		(578)		-
Net loss		(21,086)		(46,120)
Net loss attributable to noncontrolling interests		(2,464)		(5,496)
Net loss attributable to FuelCell Energy, Inc.		(18,622)		(40,624)
Series B preferred stock dividends		(800)		(800)
Net loss attributable to common stockholders	$	(19,422)	$	(41,424)
Loss per share basic and diluted:
Net loss per share attributable to common stockholders	$	(0.05)	$	(0.11)
Basic and diluted weighted average shares outstanding		405,803,753		366,734,739


	Three Months Ended January 31,
	2023		2022
Net loss	$	(21,086)	$	(46,120)
Other comprehensive loss:
Foreign currency translation adjustments		447		(91)
Total comprehensive loss	$	(20,639)	$	(46,211)
Comprehensive loss attributable to noncontrolling interests		(2,464)		(5,496)
Comprehensive loss attributable to FuelCell Energy, Inc.	$	(18,175)	$	(40,715)

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 Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Treasury Stock		Deferred Compensation			Total Stockholder's Equity		Noncontrolling Interests	Total 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		—		—		—
Reclass 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


	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, 2021	366,618,693	$	37	$	1,908,471	$	(1,265,251)	$	(819)	$	(586)	$	586	$	642,438	$	—	$	642,438
Common stock issued, non-employee compensation	20,673		—		100		—		—		—		—		100		—		100
Stock issued under benefit plan, net of taxes paid upon vesting of restricted stock awards	60,052				(260)		—		—		—		—		(260)		—		(260)
Share based compensation	—		—		1,470		—		—		—		—		1,470		—		1,470
Preferred dividends — Series B	—		—		(800)		—		—		—		—		(800)		—		(800)
Effect of foreign currency translation	—		—		—		—		(91)		—		—		(91)		—		(91)
Adjustment for deferred compensation	(13,232)		—		—		—		—		(64)		64		—		—		—
Net loss attributable to redeemable noncontrolling interest	—		—		—		5,496		—		—		—		5,496		(5,496)		—
Net loss attributable to FuelCell Energy, Inc.	—		—				(46,120)		—		—		—		(46,120)		—		(46,120)
Balance, January 31, 2022	366,686,186	$	37	$	1,908,981	$	(1,305,875)	$	(910)	$	(650)	$	650	$	602,233	$	(5,496)	$	596,737

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	$	(21,086)	$	(46,120)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation		2,637		1,470
Depreciation and amortization		5,405		5,771
Non-cash interest expense on finance obligations		1,052		1,066
Non-cash interest income on investments		(675)		-
Operating lease costs		323		395
Operating lease payments		(301)		(372)
Impairment of property, plant and equipment and project assets		-		976
Unrealized foreign currency losses (gains)		5		(82)
Other, net		96		(316)
Decrease (increase) in operating assets:
Accounts receivable		1,672		(15,972)
Unbilled receivables		(4,965)		(4,369)
Inventories		(10,267)		(2,529)
Other assets		(1,006)		(1,994)
(Decrease) increase in operating liabilities:
Accounts payable		(1,072)		2,560
Accrued liabilities		(7,125)		10,027
Deferred revenue		(18,070)		1,735
Net cash used in operating activities		(53,377)		(47,754)
Cash flows from investing activities:
Capital expenditures		(7,765)		(5,331)
Project asset expenditures		(2,080)		(10,435)
Purchases of held-to-maturity debt securities		(74,977)		-
Net cash used in investing activities		(84,822)		(15,766)
Cash flows from financing activities:
Repayment of debt		(2,291)		(2,530)
Expenses related to common stock issued for stock plans		21		26
Contributions received from sale of noncontrolling interest		-		12,419
Distribution to noncontrolling interest		(106)		-
Payments for taxes related to net share settlement of equity awards		(337)		(285)
Payment of preferred dividends		(800)		(800)
Net cash (used in) provided by financing activities		(3,513)		8,830
Effects on cash from changes in foreign currency rates		447		(91)
Net decrease in cash, cash equivalents and restricted cash		(141,265)		(54,781)
Cash, cash equivalents and restricted cash-beginning of period		481,044		460,212
Cash, cash equivalents and restricted cash-end of period	$	339,779	$	405,431

Supplemental cash flow disclosures:
Cash interest paid	$	343	$	329
Noncash financing and investing activity:
Operating lease liabilities		2,005		-
Operating lease right-of-use assets		2,005		-
Noncash reclassifications from inventory to project assets		-		4,217
Accrued purchase of fixed assets, cash to be paid in subsequent period		3,055		1,077
Accrued purchase of project assets, cash to be paid in subsequent period		5,250		7,640

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

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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 $315.2 million compared to $458.1 million as of October 31, 2022. During the three months ended January 31, 2023, the Company invested $75.0 million in United States (U.S.) Treasury Securities which have maturity dates ranging from February 9, 2023 to May 15, 2023. The amortized cost of these U.S. Treasury Securities totaled $75.7 million as of January 31, 2023 compared to $0 as of October 31, 2022 and are classified as Investments - short-term on the Consolidated Balance Sheets.

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 95.0 million shares of the Company’s common stock. From the date of the Open Market Sale Agreement through January 31, 2023, the Company sold approximately 18.5 million shares under the Open Market Sale Agreement at an average sale price of $3.63 per share, resulting in gross proceeds of approximately $67.2 million before deducting sales commissions and fees. During the quarter ended January 31, 2023, no sales were made under the Open Market Sale Agreement. As of January 31, 2023, approximately 76.5 million shares were available for issuance under the Open Market Sale Agreement. The Company currently intends to use the net proceeds from this offering to accelerate the development and commercialization of its product platforms (including, but not limited to, its solid oxide and carbon capture platforms), for project development, market development, and internal research and development, to invest in capacity expansion for solid oxide and carbonate fuel cell manufacturing, and for project financing, working capital support, and general corporate purposes. The Company may also use the net proceeds from this offering to invest in joint ventures, acquisitions, and strategic growth investments and to acquire, license or invest in products, technologies or businesses that complement its business. See Note 11. “Stockholders’ Equity” for additional information regarding the Open Market Sale Agreement.

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 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.

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 $3.0 million, of which approximately $0.8 million was used to pay closing costs including appraisal fees, title insurance expenses and legal and consulting fees.

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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 $12 million, once the Groton Project achieves commercial operation. In addition, under the original terms of the Company’s agreement with East West Bank, the Groton Project had a required commercial operations deadline of October 18, 2021. The significance of the commercial operations deadline is that, if commercial operations were not achieved by such deadline, East West Bank would have the option to require an amount equal to 101% of its investment to be returned. East West Bank granted several extensions of the commercial operations deadline, which collectively extended the deadline to May 15, 2022, in exchange for the Company’s agreement to pay fees of $0.4 million in the aggregate.

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 $12.0 million were modified such that East West Bank will contribute $4.0 million on each of the first, second and third anniversaries of the Groton Project achieving commercial operations, rather than contributing the full $12.0 million when the Groton Project achieves commercial operations. Such contributions are subject to certain customer conditions precedent, including a third-party certification by an independent engineer that the plant is operating in conformance with the amended and restated power purchase agreement. When such contributions are made by East West Bank, the funds will be distributed upstream to the Company, as a reimbursement of prior construction costs incurred by the Company. In conjunction with this amendment, the Company agreed to pay aggregate fees of $0.5 million (which are inclusive of the fees from the previous extensions described above), which were payable by the Company upon commencement of commercial operations of the plant.

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 7.4 MW required the approval of East West Bank as part of East West Bank’s rights under the agreement between East West Bank and the Company. On December 16, 2022, the Company and CMEEC agreed that, for all purposes, the commercial operations date had occurred, and, accordingly, East West Bank no longer had a right to have its investment returned as a result of the Company’s failure to achieve commercial operations in a timely fashion, and this investment became a non-redeemable noncontrolling interest as of December 16, 2022. In addition, on December 16, 2022, the Company paid the aggregate fees of $0.5 million described above to East West Bank.

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 6 MW. As of December 16, 2022, the Groton Project is reported as a part of the Company’s generation operating portfolio. The Amended and Restated PPA allows the Company to operate the plants at a reduced output of approximately 6 MW while a Technical Improvement Plan (“TIP”) is implemented over the next year with the goal of bringing the platform to its rated capacity of 7.4 MW by December 31, 2023. In conjunction with entering into the Amended and Restated PPA, the Navy also provided its authorization to proceed with commercial operations at 6 MW. The Company paid CMEEC an amendment fee of $1.2 million and is incurring and will continue to incur performance guarantee fees under the Amended and Restated PPA as a result of operating at an output below 7.4 MW during implementation of the TIP. Although the Company believes it will successfully implement the TIP and bring the plants up to their nominal output of 7.4 MW by December 31, 2023, no assurance can be provided that such work will be successful. In the event that the plants do not reach an output of 7.4 MW by December 31, 2023, the Amended and Restated PPA will continue in effect, and the Company will be subject to ongoing performance guarantee fees as set forth in the Amended and Restated PPA.

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 95% of the cash and tax allocations. The

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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 $2.9 million. There were no amounts allocated to noncontrolling interest for the three months ended January 31, 2022 for the Groton Partnership.

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,” 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 $3.2 million, of which approximately $0.4 million was used to pay closing costs, including title insurance expenses and legal and consulting fees. The Company drew down the remaining amount of the commitment, approximately $9.2 million, in December 2021 and January 2022, after the LIPA Yaphank Project achieved commercial operation. These proceeds were partially offset by legal and advisory fees of approximately $0.4 million.

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 $0.5 million and as such the Company refunded this amount back to REI, reducing the REI tax equity commitment to $11.9 million. During the three months ended January 31, 2023, the Company made priority return distributions to REI of $0.1 million which were calculated at a 2.73% annual interest rate on invested tax equity capital. There were no priority return distributions to REI during the three months ended January 31, 2022.

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 95% of the cash and tax allocations. The Company may enter into a back leverage debt financing transaction and use the cash distributions from the Yaphank Partnership to service the debt.

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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 10.3% of REI’s capital contributions. This option payment is to be grossed up for federal taxes if it exceeds the tax basis of the Yaphank Partnership Class A Units.

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 $0.4 million and $(5.5) million, respectively.

Note 4. Revenue Recognition

Contract Balances

Contract assets as of January 31, 2023 and October 31, 2022 were $25.7 million ($12.0 million long-term) and $20.7 million ($9.7 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. The net change in contract assets represents amounts recognized as revenue offset by customer billings.

Contract liabilities as of January 31, 2023 and October 31, 2022 were $7.4 million and $25.4 million, respectively. The contract liabilities relate to the advance billings to customers for services that will be recognized over time.

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 14 modules (in addition to the 20 modules which were purchased by KFC during fiscal year 2022). The option was not exercised as of the expiration date of December 31, 2022 and as a result, the Company recognized $9.1 million of product revenue during the three months ended January 31, 2023 which represents the consideration allocated to the material right had the option been exercised.

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 $50.0 million to $60.0 million. Amendment No. 3 is intended to (i) allow for continuation of research that would enable the parties to finalize data collection in support of the project gate decision to use the developed technology in a Company fuel cell module demonstration for capturing carbon at ExxonMobil’s Rotterdam facility, (ii) allow for the continuation of the development, engineering and mechanical derisking of the Generation 2 Technology fuel cell module prototype, and (iii) allow for studying the manufacturing scale-up and cost reduction of a commercial Generation 2 Technology fuel cell carbon capture facility.

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: $99.9 million for service agreements and $26.8 million for Advanced Technologies contracts in the aggregate. Service revenue in periods in which there are no module exchanges is expected to be relatively consistent from period to period, whereas module exchanges will result in an increase in revenue when exchanges occur.

Note 5. Investments – Short-Term

On November 14, 2022, the Company invested $75.0 million to purchase U.S. Treasury Securities. The U.S. Treasury Securities have maturity dates ranging from February 9, 2023 to May 15, 2023. We have classified the U.S. Treasury Securities as held-to-maturity and recorded them at amortized cost. The following table summarizes the amortized cost basis and fair value (based on quoted market prices) at January 31, 2023.


	Amortized			Gross unrealized		Gross unrealized
	cost			gains		losses	Fair value
U.S. Treasury Securities
As of January 31, 2023	$	75,652	$	—	$	(24)	$	75,628

The contractual maturities of investments are within one year and the weighted average yield to maturity is 4.36%.

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	$	39,395	$	30,624
Work-in-process ⁽¹⁾		69,330		67,834
Inventories		108,725		98,458
Inventories – current		(101,176)		(90,909)
Inventories – long-term ⁽²⁾	$	7,549	$	7,549

(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 $58.8 million and $54.0 million, respectively, of completed standard components and modules.

(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	$	211,384	$	154,736	4-20 years
Accumulated depreciation		(33,403)		(29,546)
Project Assets – Operating, net		177,981		125,190
Project Assets – Construction in progress		51,933		107,696	7-20 years
Project Assets, net	$	229,914	$	232,886

The estimated useful lives of these project assets are 20 years for balance of plant (“BOP”) and site construction, and four to seven years for modules. Project assets as of January 31, 2023 and October 31, 2022 included nine and eight, respectively, completed, commissioned installations generating power with respect to which the Company has a power purchase agreement (“PPA”) with the end-user of power and site host with a net aggregate value of $178.0 million and $125.2 million as of January 31, 2023 and October 31, 2022, respectively. Certain of these assets are the subject of sale-leaseback arrangements with PNC Energy Capital, LLC (“PNC”) and Crestmark Equipment Finance (“Crestmark”). The increase in operating project assets at January 31, 2023 is a result of the inclusion of the Groton Project which became operational during the three months ended January 31, 2023.

Project assets as of January 31, 2023 and October 31, 2022 also include installations with carrying values of $51.9 million and $107.7 million, respectively, which are being developed and constructed by the Company in connection with projects for which we have entered into PPAs or projects for which we expect to secure PPAs or otherwise recover the asset value and which have not yet been placed in service.

Included in “Construction in progress” is the 2.3 MW Toyota project. It was determined in the fourth quarter of fiscal year 2021 that a potential source of renewable natural gas (“RNG”) at favorable pricing was no longer sufficiently probable and that market pricing for RNG had significantly increased, resulting in the determination that the carrying value of the project asset was no longer recoverable. Refer to Note 17. “Commitments and Contingencies” for more information regarding fuel risk exposure. As this project is being constructed, only inventory components that can be redeployed for alternative use are being capitalized. The balance of costs incurred are being expensed as generation cost of revenues.

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 $4.1 million and intangible assets of $17.0 million and $17.4 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 (“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 $0.3 million.

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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 Amortization		Net Amount
In-Process Research and Development	$	9,592	$	—	$	9,592
Bridgeport PPA		12,320		(4,863)		7,457
Total	$	21,912	$	(4,863)	$	17,049

As of October 31, 2022	Gross Amount		Accumulated Amortization		Net Amount
In-Process Research and Development	$	9,592	$	—	$	9,592
Bridgeport PPA		12,320		(4,539)		7,781
Total	$	21,912	$	(4,539)	$	17,373

Note 9. Accrued Liabilities

Accrued liabilities as of January 31, 2023 and October 31, 2022 consisted of the following (in thousands):

FUELCELL ENERGY INC [FCELB] Filings

FUELCELL ENERGY INC [FCEL] Filings