Good day. My name is Chantelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the FuelCell Energy Third Quarter Earnings Call. As a reminder, today’s conference call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Tom Gelston, Senior Vice President, Finance and Investor Relations, you may begin your conference.

Thank you. Good morning everyone, and thank you for joining us on the call today. As a reminder, this call is being recorded. This morning FuelCell Energy released our financial results for the third quarter of fiscal year 2022, and our earnings press release and our quarterly report on Form 10-Q are available in the Investors section on our website at www.fuelcellenergy.com. Consistent with our practice, in addition to this call and our earnings press release, we have posted a slide presentation on our website. This webcast is being recorded and will be available for replay on our website approximately 2 hours after we conclude the call. Before we begin, please note that some of the information that you will hear or will be provided with today will consist of forward-looking statements with the meaning of the Securities Exchange Act of 1934. Such statements express our expectations, beliefs and intentions regarding the future and include without limitation: statements with respect to our anticipated financial results, our plans and expectations regarding the continuing development, commercialization, and financing of our fuel cell technology and our business plans and strategies. Our actual future results could differ materially from those described in or implied by such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the Safe Harbor statement, in the slide presentation and in our filings with the Securities and Exchange Commission, particularly the Risk Factors section of our most recently filed annual report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures. And we refer you to our website and to our earnings press release and the appendix to the slide presentation for the reconciliation of those measures to GAAP financial measures. Our earnings press release and a copy of today’s webcast presentation are available on our website at www.fuelcellenergy.com under the Investors hub. For our call today, I’m joined by Jason Few, FuelCell Energy’s President and Chief Executive Officer; and Mike Bishop, our Executive Vice President and Chief Financial Officer. Following our prepared remarks, we will be available to take your questions and be joined by other members of the leadership team. I would now like to hand the call over to Jason for opening remarks. Jason?

Thank you, Tom, and good morning, everyone. Thanks for joining us on our call today. In the third quarter, we achieved our strongest quarterly revenue in five years, reflecting product sales and continued progress executing on the themes we presented during our Investor Day held earlier this year. Before getting into the business results, for anyone who might be new to the story, let’s look at an overview of FuelCell Energy on slide 3. We are a leader in manufacturing stationary fuel cell energy platforms, and our focus is leveraging our proprietary technologies to decarbonize power and produce hydrogen. We operate across three continents, and we are focused on entering more markets around the world. Our manufacturing locations are currently located in the U.S., Canada and Germany, which we believe enables us to meet local content requirements, create an efficient distribution network and leverage our centers of expertise. We have 95 platform installations in commercial operation which we believe demonstrates the commercial feasibility of our energy platforms. In fiscal year 2021, our revenue of nearly $70 million came from these three revenue categories: service and license, advanced technologies and generation. All of which represent diversified sources or recurring revenue under multiyear contracts. In fiscal year 2021 and 2020, we had no revenue from product sales. However, product sales returned to our revenue mix with orders for 20 modules from Korea Fuel Cell in fiscal year 2022. We have delivered via Ex Works 12 of those replacement models to service Korea Fuel Cell’s existing installations in South Korea. We have made it a priority to focus on generating new product sales in South Korea, in addition to other Asian markets, select countries in Europe, the Middle East, Africa and North America. On slide 4, you will see our purpose statement. Across…

Thank you, Jason, and good morning to everyone on the call today. You’ve heard from Jason about the key developments during our third fiscal quarter of 2022. And now, I will provide some details regarding our financial results. For the third quarter of fiscal year 2022, we reported total revenues of $43.1 million compared to $26.8 million in the third quarter of fiscal year 2021, which is an increase of 61%. Looking at revenue drivers by category. Product revenues were $18 million compared to no product revenues in the comparable prior year period. The increase in product revenues was a result of module sales to Korea Fuel Cell Company, or KFC, for which the company recognized $18 million on the Ex Works delivery of 6 fuel cell modules from our facility in Torrington, Connecticut, in June of 2022. Service agreement revenues decreased 37% to $9 million from $14.3 million. The decrease is primarily due to fewer module exchanges and fewer non-routine maintenance activities during the third quarter of fiscal year 2022 than during the third quarter of fiscal year 2021. Generation revenues increased 75% to $10.9 million from $6.2 million, primarily due to the completion of the Long Island Power Authority, or LIPA Yaphank project, during the three months ended January 31, 2022 and the higher operating output of the generation fleet portfolio as a result of module exchanges during the last nine months of fiscal year 2021. Generation revenues for the third quarter of fiscal year 2022 also include revenues from sales of renewable energy credits, which resulted in an increase of generation revenues by approximately $1.7 million. Advanced technology contract revenues decreased 17% to $5.2 million from $6.2 million. Compared to the third quarter of fiscal year 2021, advanced technology contract revenues recognized under our joint development agreement…

Thanks, Mike. On slide 14 is a summary of our Powerhouse Business Strategy, which serves as our guiding strategy toward achieving long-term growth. The first tenet is grow. We want to pursue growth in markets and customer segments where we see significant opportunities for our technology. The second is scale. We plan to scale our existing platform by investing in, extending and deepening our leadership and total human capital across the organization. And third, innovate. Over a 50-year history we have never stopped innovating. We believe this will enable our participation in the growth of the hydrogen economy and carbon capture and drive us to deliver on our purpose. The Powerhouse Business Strategy has evolved over the past couple of years to now focus on growth. With the current energy transition happening at an accelerated pace, we believe our technologies have an important role to play in helping society achieve our global sustainability goals. We are moving forward with investments in capacity, capability and global talent, which we believe will enhance our ability to capture more of the market opportunity over the coming years and deliver enhanced shareholder returns over the long run. Earlier this year, we published our first sustainability report, which was an important milestone for FuelCell Energy. I want to reaffirm and reiterate that our dedication to achieving net zero remains in the forefront of priorities. We are committed to achieving net zero and Scope 1 and Scope 2 emissions by 2030, and Scope 3 emissions by 2050. We are aligned with the leading standards organizations and the UN Climate Action goals that we believe we can impact. Beyond our environmental commitments, we are equally focused on our employees, the people in the communities in which we work and live and being a diverse, equitable and inclusive…

[Operator Instructions] Our first question comes from Colin Rusch with Oppenheimer.

Thanks so much, guys. Can you talk a little bit about the incremental production capacity that you’re talking about? How much of that’s been driven by improved efficiency at the stack level, and how much of that is just really just more units coming to the factory?

Hey Colin, good morning, thank you for the question. I’ll turn it over to Mike Lisowski and let him give you an update on what we’re doing to actually get to the increased capacity out of our factory.

Good morning, Colin. Thank you for the question. Yes. So, we’re taking a series of strategic actions to fully integrate our carbonate manufacturing capabilities, both from a capacity and current technology and future technology generation standpoint. There’s a number of actions that we’re taking to optimize our operations, including the integration of our additional conditioning facilities, which will give us that 100 megawatts of onsite capacity. We also have plans and capabilities to double that onsite capacity in the future to support future growth demand. We’re also making improvements across our platform in a number of ways in the cell technology development, of course, to support longer life and extended output power levels.

That’s super helpful. And then, just thinking about the balance of plant outside the stacks and all the labor around that. Can you talk about the efforts that you’re making around supply chain optimization and efficiency around labor? Certainly, those are big concerns for a lot of investors.

Yes. Colin, thanks for the follow-up question. So, we have a longstanding foundational relationship with our supply chain. Like every company, we’ve experienced challenges across cost pressures as well as extended lead times. And we’ve taken a number of actions some time ago, to strengthen our supply chain. We’ve leveraged existing project execution work to qualify additional sources of supply to increase our capacity, specifically around balance of plant suppliers and other key engineered component suppliers. So, we’re actively working that and expanding our manufacturing footprint to be able to support our global growth demand. So there’s a number of initiatives that we have underway both domestically and abroad to increase that capacity to stay ahead of our demand curve to ensure that we can fulfill any customer requirements.

This is Jason. I would just add one additional thing to that, Colin, that’s important, I think, for us, from a supply chain perspective, that we’ve eliminated a lot of those supply chain issues as a result of more than 80% of our materials and our platforms are sourced within the United States. So, that significantly helps when you look at shipping lanes and other things that are causing significant challenges in supply chain, which we get to avoid a lot of those.

Our next question comes from Chris Souther with B Riley.

On the challenges that we’re seeing with the Groton project related to the MEOs. Can you provide a bit more color on why this is a unique project specific challenge, just so we can get a better sense of why this is not something we should be concerned about with some of the other pipeline projects? And can you give more of a sense of how there’s confidence that this is like a one year fix to get up to the full 7.4 megawatts?

We tried to provide a real detailed update in the 10-Q. Our plan is to run the plant at 6 megawatts. The thing that makes this different from our other projects is that the MEO in this configuration is unique to this particular plant, and the same configuration is not present on our other installed plants around, rather to the U.S. or internationally. And so, the issues are unique to this plant, our engineering team feels very confident over the next year that we’ll be able to work through the issue to have they’re well understood. And they know how we’re going to drive those improvements. But that same issue is not present on our other platforms.

And then, maybe on the product sales for new customers. Any update on the progress there. I’m curious what we’re seeing outside of some of the existing customer base in Korea for replacements. Curious if you’re seeing any impact in the energy crisis in Europe, on sales efforts with challenges in natural gas supplies, and maybe just talk about the scope of some of the MOUs out there in Korean and North Africa would be helpful for folks?

Sure. We’re seeing a lot of momentum in growing the pipeline that we have. As we announced a little while ago, we brought in a new Chief Commercial Officer for the Company, and we’re seeing a lot of strong momentum there. We are seeing a significant push, whether you’re looking at Korea, as you mentioned, or other Asian markets, or in Europe, to have momentum toward hydrogen and trying to get faster to a hydrogen economy. We’re seeing that as a pretty significant driver, as one way to maybe deal with the pressure that’s being seen with the rising natural gas prices and particularly in the EU. With respect to markets, overall, we are seeing strong demand for grid resiliency and reliability. In addition to some of the things that we’re doing with our platform, around carbon separation, we’re seeing strong interest in carbon capture. And we think that’s going to increase and particularly here in the U.S. with the passage of the IRA, given the improved economics around 45Q. And so across the board, we feel good about the pipeline that we’re building, and the commercial opportunities that we have, whether it be in the U.S. or EU, as well as the Middle East and Africa. With respect to the MOUs, those are all around the hydrogen economy and taking advantage of if you look at Tunisia in Northern Africa, you’ve got really strong coverage with the sun. It makes it a great market to produce green hydrogen using solar and its proximity to Europe, with some of the pipeline infrastructure that already exists there and the ability to move hydrogen via pipe into Europe as a very strong source of supply. So, we feel really good about those opportunities to participate in that and given the high efficiency that we anticipate having with our solid oxide platform, we think our platform is very well positioned to be a meaningful contributor to hydrogen production in that part of the world.

[Operator Instructions] Our next question comes from Eric Stine with Craig-Hallum.

Hey. So, I just want to stick on the product side. I noticed in the presentation, you mentioned an MOU with KEPCO and I know that you’ve done a project with one of their operating subsidiaries many years ago, but to me, that seems new, unless I missed that announcement. So, maybe just talk about the opportunity there. Obviously, on the utility side, especially South Korea is a great market. KEPCO has got a number of operating subsidiaries and so just maybe dig down a little deeper into South Korea in that specific MOU?

Yes. So, as you mentioned, we have an existing platform in Korea that is a FuelCell Energy platform with KOSPO, that’s a 20 megawatt platform that’s grid connected, and then also providing thermal energy for district heating. That MOU then with KEPCO is about the opportunity to develop additional large scale utility projects in South Korea that take advantage of the unique capabilities of our platform to deliver thermal energy all the way up to steam. And as you may know, in South Korea, district heating is a big part of the energy infrastructure in South Korea. So, we think we are well positioned to provide those services and have a competitive advantage, we believe over other Fuel Cell offerings in the market.

I mean, is that something that we should view movement, there’s an indication that maybe with some clarity around the litigation that’s not been cleared up with POSCO that that is part of the reason why that MOU was signed, and that potentially there is some activity there?

Yes. I think that’s a fair way to think about it. I mean, getting the settlement with POSCO was really helpful with respect to just making it clear that we are back in the market that we have the exclusivity that POSCO had no longer exist, and that we are the manufacturer and distributor of our technology in the Korea market. And that clarity has been quite helpful to driving interest end market activity for us in Korea -- in South Korea.

And maybe lastly, just on the product side and sticking there. You mentioned the interest in carbon capture around 45Q. But with regulatory certainty, I know that for a number of quarters, and obviously it’s been a focus for a long time, increased product sales in the U.S. and you’ve been more optimistic that you’re making traction there but they’re long sales cycles. Maybe where you stand now? And do you expect to start to see some product momentum in the U.S.?

We do. We do expect to see product momentum in the U.S. And again, we continue to focus on, areas where we have advantages and the right to win with our technology, really leveraging the platform. So, we think with our ability to do carbon separation, with our own platform deliver carbon as a product. I mean, if you think about, I think it was a week ago, in the Wall Street Journal, there was a pretty robust article about CO2 shortages and what’s happening with food producers in the U.S. and around the world, and the need for carbon. We believe our platform gives the opportunity for those customers to take advantage of not only our clean power generation, but the ability to create certainty, not only around supply of CO2, but something they can’t really get today in today’s markets around CO2, and that’s the price certainty around CO2 over the long-term, which in our platforms or 20-year life platforms, being able to create, effectively a 20-year hedge on CO2 pricing is quite attractive to customers. So, we’re seeing them into there. And then, of course, when you start to think about large-scale carbon capture and sequestration, which 45Q plays into, the economics there increased the incentive for industrial customers particularly, to want to move forward with those kind of projects to take advantage of that and to capture those economics not only from an economic standpoint, but from what their customers are demanding that they do, following along with their own commitments around sustainability around their own reductions in emissions. And so we think the advantage of 45Q whether it is sequestration and/or utilization creates quite an attractive opportunity for us. And then as we have communicated previously, we believe with respect to carbon capture that we are the only platform that has the ability to capture carbon, produce power, and hydrogen from a single platform. And we think over the long run, that would give us an advantage on the cost of capture versus competing technologies.

Our next question comes from Noel Parks with Tuohy Brothers.

Good morning. Just a couple of things. One, I thought I heard you mention regarding the Exxon JDA that you were exploring other partnership opportunities. Was that with Exxon within the JDA or similar ones with other priorities?

Yes. So within the Exxon JDA and the extension that we did through the balance of this calendar year, one of the things that we did in that extension was to agree to collaboratively work on a joint marketing plan. And that joint marketing plan is specific to going out and positioning our technology as a carbon capture solution for other prospective customers, and that is the work that’s being done there. So yes, that would mean that the technology will be deployed at other customers outside of Exxon through that joint marketing plan work.

Great. And then just one other one. You were talking a little bit about the Inflation Reduction Act. I was wondering, could you maybe characterize, are there any particular types of clients that, I am thinking maybe on the generation side especially, that might have, in particular, been waiting to get clarity on whether we were going to get new legislation? So do you have any sense of who might be, say, first out of the gate for a commitment now that we know what the incentive structure is like?

Yes, that’s a great question. We think that it actually helps kind of across the board in general, just because of the way that the new incentive structure is laid out. But particularly, with the ability to take advantage of the investment tax credit as more of a direct payment, we think municipalities are great examples, or non-taxpayers are great opportunities for taking advantage of the new structure. But we think it opens the door with respect to not just core power generation we think it opens the door for distributed hydrogen as another attractive opportunity in that. And for us, that cuts across both what we can do with our trigen platform like what we’re doing in California and then ultimately with the commercialization of our SOEC platform to produce hydrogen. We think those become attractive opportunities. And then again, just going back to carbon and carbon separation and carbon capture, we think those are great opportunities.

We have reached the end of the question-and-answer session. I will now turn the call back over to Jason for closing remarks.

Chantelle, thank you very much for that. And I want to thank everyone for joining our call today. And again, we look forward to the opportunity to really leverage our technology and to help our customers reduce their carbon footprint and contribute to their sustainability goals. And we are excited to work and deliver against our purpose of enabling the world to live a life with power by clean energy. Thank you very much for joining our call today. And we look forward to speaking to you again soon. Thank you.

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