Hello, and welcome to FuelCell Energy Incorporated Conference Call. Please note that this call is being recorded. I'd now like to hand over the call to Tom Gelston. Please go ahead.

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 fourth quarter and full fiscal year of 2023, and our earnings release and our SEC filings are available in the Investor section of 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 two 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 within 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 may 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 factor section of our most recently filed annual report on Form 10-K. 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 of 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 Investors. For our call today, I am joined by Jason Few, FuelCell Energy's President and Chief Executive Officer, and Mike Bishop, our Executive Vice President, Chief Financial Officer, and Treasurer. Following our prepared remarks, we will be available to take your questions and be joined by other members of the leadership team. I'd like to now hand the call over to Jason for opening remarks. Jason?

Thank you, Tom, and good morning, everyone. Thank you for joining us on our call today. We are proud of the continued progress we are making toward advancing our purpose of enabling the world empowered by clean energy. This morning, we were proud to announce our fourth quarter and full year results marked by our important progress on large projects, continued advancement of our solid oxide power generation and electrolysis hydrogen platforms, successful reentry into the Korean market, and announcing the next steps toward the commercialization of our direct flue source carbon capture platform as you will have seen from our joint announcement with ExxonMobil regarding our carbon capture demonstration project, but more on that later. As a reminder, for those who are not familiar with FuelCell Energy, we have included a company overview on Slide 3. We are proud to be a global leader in electrochemical technology. In simple terms, our proprietary fuel cell technology platforms do two things, decarbonize power and produce hydrogen. We operate in North America, Asia and Europe and we are focused on entering additional markets around the world. We have 188 modules in commercial operation and have generated more than 15 million megawatt hours to date. Our carbonate technology has met our customers' needs for over 20 years. And our newly commercialized solid oxide platform extend the value we offer customers, including electrolysis and power generation using zero emission hydrogen fuel as the only feedstock. We believe that our two differentiated fuel cell electrochemical platforms enable us to leverage our operating history and position us to meet the evolving needs of our current and future customers across distributed power generation, distributed hydrogen, electrolysis and hydrogen energy storage and direct flue source carbon capture. FuelCell Energy provides technological solutions for and collaborates with some of…

Thank you, Jason, and good morning to everyone on the call today. Let's begin by reviewing the financial highlights for the quarter shown on Slide 6. For the fourth quarter of fiscal year 2023, we reported total revenues of $22.5 million compared to $39.2 million in the fourth quarter of fiscal year 2022, a decrease of 43%. This was driven primarily by the lack of replacement module sales in the fourth quarter of fiscal year 2023. Net loss was $29.5 million in the fourth quarter of fiscal year 2023 compared to net loss of $42 million in the fourth quarter of fiscal year 2022. The resulting net loss per share attributable to common stockholders in the fourth quarter of fiscal year 2023 was negative $0.07 compared to negative $0.11 in the fourth quarter of fiscal year 2022. Adjusted EBITDA totaled negative $30.8 million in the fourth quarter of fiscal year 2023 compared to adjusted EBITDA of negative $36.1 million in the fourth quarter of fiscal year 2022. Please see the discussion of non-GAAP financial measures including adjusted EBITDA in the appendix at the end of our earnings release. Finally, the company held total unrestricted cash, restricted cash, cash equivalents, and short-term investments of $403.3 million as of October 31, 2023. Next, please turn to Slide 7 for additional details on our financial performance and backlog. The chart on the left-hand side graphically shows our fourth quarter revenue composition by line item other than the service revenues of negative $0.8 million. Looking at revenue drivers by category, product revenues for the prior year quarter included module sales to Korea Fuel Cell Company Limited or KFC under the company's settlement agreement with KFC and POSCO Energy Company Limited or POSCO Energy, for which the company recognized $24 million. This compares to $10.5…

Thanks, Mike. I will now cover our business and operational updates in more detail beginning with Slide 11. As we have stated in previous quarters, our powerhouse business strategy serves as our framework for achieving long-term growth. I will summarize our approach. The first tenet is growth. We're working to optimize our business to achieve growth in markets where we see significant opportunities for our platform technologies. We have geographic markets, segment, and application-specific playbooks that are focused on building a robust sales pipeline and converting that pipeline into revenue. To that end, our business development team is focused on moving the pipeline from prospects to executed agreements, and I will discuss our pipeline in more detail today. The second is scale. We are scaling our existing platforms by investing in, extending, and deepening our leadership and total human capital across the organization. Across our operations, our previously mentioned, we are focused on optimizing manufacturing capacity for our carbonate platform with the goal of achieving 100 megawatts of annualized integrated on-site manufacturing and conditioning capacity. We're also working with ExxonMobil on the development of a new business framework between the parties beyond the current joint development agreement structure. We are also evaluating additional US locations with the goal of producing up to an additional 400 megawatts per year of solid oxide electrolysis cells, which would be implemented in phases as the market develops. We believe that the legislation enacted and being contemplated around the world will, over time, serve as a catalyst to support the acceleration of adoption of products like ours and to ultimately drive down costs. And third, innovate. Over our 50 year history, we have never stopped innovating. As shown in our earlier slide, we have hundreds of patents granted or pending in jurisdictions around the world.…

Thank you. We are now opening the floor for Q&A. [Operator Instructions] We have our first question from George Gianarikas from Canaccord Genuity. Your line is now open.

Hi everyone, thank you for taking my question. Happy holidays and congrats for getting Trigen operational.

George, how are you this morning? Thank you, and happy holidays to you.

So maybe first, if it's okay, I saw the Exxon announcement from yesterday. I'm curious as to how extensive Exxon's, I guess, trials are in building other pilot plants with other technologies outside of yours. Is this their first deal announced to build a pilot plant with carbon capture technology?

So, Exxon has a number of different efforts going on in carbon capture technology. So obviously, the work that we're doing with Exxon is exclusive to our carbonate fuel cell. And what makes it different is that of any of the trials or other work that's going on is that our platform is the only one that can capture carbon from an external source, produce power and hydrogen simultaneously. Exxon has announced other carbon capture projects that they're doing that are leveraging different technologies than ours. But this is the first trial using our platform.

Okay. And then maybe to focus on just the outlook for 2024, you mentioned your backlog and you also mentioned some increased spending initiatives. And so can you help us just compartmentalize what revenue could look like next year? You have a growing backlog. You also have -- we're all kind of waiting for the Treasury Department to give us more guidance as to the rules around hydrogen -- clean hydrogen production. So how should we think about balancing the investments you want to make and also what the pipeline and the executable pipeline and backlog are for next year and how that translates into revenue? Thank you.

Good morning, George. This is Mike, and thank you for the question. So, as I outlined in my remarks, we are planning on making targeted investments as we go into 2024, really a continuation of what we're doing in 2023 as far as commercializing our solid oxide technology and expanding manufacturing capacity at our Calgary facility, as well as beginning additional expansion in Torrington, particularly around carbon capture. Those investments set us up nicely for being competitive and increasing revenues in future years around those new technologies. So as Jason talked about carbon capture as well as electrolysis. So we expect to see those contributions in future years. As for 2024, we haven't put out specific guidance around revenue for 2024, but with Toyota coming online and with Derby coming online, you would expect to see increasing generation revenues as we go into 2024. We did put out expectations around R&D spend, expect that to be in the range as we were this past year. We ended last year with about $61 million. We've targeted $60 million to $75 million there. So potentially some slight increases there, but really focused on the targeted investments around commercializing the technologies that we've been developing here for some time.

And maybe just on the Treasury's decision and how that kind of impacts how you think about next year in terms of investment and revenue outlook?

As far as the Treasury, we're obviously carefully watching that. The company has a history of being able to monetize tax benefits, and we've talked about that here recently with tax benefits that we've monetized around both the Toyota projects as well as Derby. So wouldn't expect anything to impact that. It's obviously opportunity in the future for potential additional monetization, but we're watching it carefully like everybody else.

You had mentioned that, I think, in a previous call that you expect Toyota -- the Trigen facility to get $3 a kilogram, is that still the expectation or do you think that could change based on what happens?

So as far as the Trigen facility we announced in a press release that we put out last week that we have entered into an agreement to sell the production tax credits from that facility. We did not put out the exact number, but we've entered into a financing transaction to sell the PTCs which does add incremental value to that project.

Thank you so much.

Thank you.

Our Next question comes from Manav Gupta from UBS Financial. Your line is now open.

Thanks guys. I'll just take the queue and only ask one question. You are working on a DOE loan guarantee program, not a DOE loan, but a loan guarantee program. Can you help us understand how that process is going and any update on that and I'll turn it over after that. Thank you.

Hi, good morning and thank you for the question. Yeah, with respect to our expanding manufacturing around solid oxide in the US, we are in the process around the DOE loan guarantee. We are getting close to finalizing the location. We've narrowed it down to just around three locations, which is the next phase that we need to get through in that process. And then we'll continue to move forward with the DOE. But we're excited about the progress we're making, and certainly around the pipeline that we're seeing, which is obviously, we need to see from a -- as a corporate perspective before even moving forward with that.

Thank you, guys.

Our next question comes from Eric Stine from Craig-Hallum. Your line is now open.

Good morning, everyone.

Good morning.

Hey, so on the generation portfolio, Toyota up and Derby, I believe, shortly, I mean, you'll be at that 60 megawatts. As I think about the past, I mean, this goes back a ways, and I understand you're taking on much more investment here to drive some of these very sizable opportunities. But in the past, you had talked about a 50 megawatt to 60 megawatt kind of breakeven level for generation where you would be EBITDA positive. And I'm just curious, is that something that you plan to update? I mean, could you give a little color there as it stands given your new cost structure?

Good morning, Eric. This is Mike. So I'll take that. So yes, as these additional projects come online, we will have over 60 megawatts of projects online in the portfolio. So finishing up investments that have been made in the last several years, that will increase our generation revenue. As far as EBITDA for the portfolio itself, that's a positive EBITDA portfolio. When you take out the depreciate -- on our financial statements, we're showing negative margins from the portfolio, but when you take out depreciation as well as the cost that we've expensed around the Toyota project for the quarter that came in around -- I'm sorry, for the fiscal year that came in around 45% and for the quarter around 42%. So positive cash generation from the portfolio. When we look at the overall business, as we said, we are making additional investments. We have increased our SG&A as well as R&D over the last several years to bring on these new technologies. As those come online and become revenue producers in the next few years, that will continue to improve the EBITDA profile of the company. We have not put out specific guidance around when the company gets to EBITDA positive, but we would expect to continue to drive in that direction as we get revenue from not only these new technologies, but continue to grow our activity on a global basis. Jason talked about the opportunity in Korea. We recently had a new service agreement come online that's revenue producing, and we see further opportunities there as well.

Okay, got it. That is helpful. And then maybe last one for me, just on the pipeline, do appreciate the breakdown both by application and by geography, but wondering, maybe I missed it, but did you give an actual amount or estimate of what that might be? I know that is something that you have done in the past.

Yeah, Eric, what we provided was really a look at the type of applications that we see in our pipeline. So if you look at that between power generation, electrolysis and hydrogen and carbon capture and what we refer to as carbon recovery. And then we gave a view of it by geography with those same applications. We did not provide a specific megawatt or gigawatt number to the pipeline. And I don't think we've done that in the past, at least since I've been here. But what I would say is if you look at what we talked about on the call today, if you take, for example, the service agreement that Mike just talked about in Korea, there's 100 megawatts of additional opportunity in the Korean market. We talked about three additional awards that are not fully negotiated yet. So we're starting to see that pipeline convert and the opportunities. We also see that some of the projects that we have in Europe, as they come up for renewal, we're having some success there. So we think that we're starting to get to a point to where we're seeing that pipeline convert to opportunities and we're excited about that.

Okay, I'll take the rest offline. Thanks.

Thank you.

Our next question comes from Jeff Osborne from TD Cowen. Your line is now open.

Yeah, thank you. Just two quick ones on my side. I think you had mentioned you had advanced the planning for the solid oxide fuel cell facility potentially in the US. Can you just give us an update on how that advancement has gone, if there's any update in terms of scope and/or CapEx? I think in the past you had talked about potentially upwards of $300 million. So I'd be interested in that. Then just following up on what you just said to Eric on the 100 megawatts in Korea, just hypothetically, if you were to receive an order tomorrow for that, when would the revenue flow through? Would you encourage the analysts to sort of model a proportion of that 100 megawatts for maybe the second half of next year or sort of zero out the product revenue for the year?

Jeff, thank you for your question. On the first part of your question, we've talked about for the US is a manufacturing facility that would have the ability to produce at 400 megawatts. We have since refined our view of that, and our view of the capital required to achieve that has come down by a factor of about two-thirds, or roughly, in terms of how we think about the cost. The facility that we have in Calgary is 40 megawatts is what we're expanding there to, and we think that we have the ability to get that to 80 with minor investment in making that happen. So we're excited about the opportunity to get the Calgary facility also to 80. But in the US, we think that's important, one, just because of where we see opportunity, and two, obviously to make sure we're in full position to take advantage of the IRA as we are with our carbonate platform, which we've always manufactured that here in the United States. With respect to the 100-megawatt opportunity, what I would say there is that if you think about the way our business works or our modules work, depending on when modules were installed, that's what really creates the opportunity for the upgrade cycle. So it's not an even distribution in the way you might think about it. So we can look to maybe help with that a little bit more in terms of how you might think about it, but that's all going to be driven by when modules come up for renewal and are working through those contracts with each of the GENCOs in the Korean market.

So just to follow up on the CapEx, if it previously was $300 million and two-thirds less, is it $100 million now or are my figures off?

Initially to build out a facility, that's more of what we're thinking will end up being.

Got it and then you [won't be] (ph) more specific on Korea and how many units are roughly five years old that might be up for renewal? Is there a way of thinking about that portfolio and what would be up for the next 12 to 18 months?

Jeff, this is Mike. Let me take a shot at that. So, and as you mentioned, currently we do not have product backlogs, so would not expect to see product revenues early in the fiscal year. But as Jason said, we are in the process of working through transition of the portfolio in Korea, which is currently under POSCO Energy or KFC. That's 100 megawatts of opportunity. It's all of our carbonate fuel cells. So we do have inventory for that. As those renewals happen and these repowering opportunities happen, we will be as prudent as we can about shipping those modules to Korea. There is a time lag there, but we will be producing the inventory and we'll be able to ship modules to Korea in the second half of the year. It just really depends on timing of transitioning these projects from POSCO Energy or KFC to FuelCell Energy and the cycle in which those renewals happen.

Perfect. And just lastly, Mike, is there any more -- similar to the $10.5 million from performance guarantees, is there any residual performance guarantees flowing through in the next fiscal year from prior unit shift that we need to model pure profit on?

We wouldn't expect anything significant there, Jeff. Those modules which the performance guarantees were related to were Noeul Green and those were installed this past quarter.

Great, that's all I have. Thank you.

Okay, thanks.

Our next question comes from [indiscernible] from Jefferies. Your line is now open.

Hi, thank you. Good morning, everyone. I just had maybe one or two quick ones. Just on the timing of the pilot for the carbon capture with Exxon, could you maybe share more about how -- when the pilot's going to take place, when that's going to be -- what's the next steps after that?

Sure. So if you think about the announcement we just made yesterday, part of that work that's going on with Exxon includes their participation with the Innovation Fund in the EU. And right now the timing for the pilot is slated for early 2026. And there's a -- there's documents out there that you can see online around the EU innovation funding to give some more clarity on that, but we expect that we'll be operational in that time frame.

Awesome, thank you. And then just in the hydrogen hubs, I know that you talked about your technology being in the two hubs and then also you have discussions going around, so maybe just timing around that as well.

Yeah, so I think the -- if you think about the hubs and what's going on there, the negotiations between, I'll call them hub owners for lack of a better expression, is going on between them and the DOE around how the funding is going to work. But what we're excited about when you look at all seven hubs, four of the seven all have an aspect of transportation tied to them. We think our Toyota project is a great example of our ability to execute a project like that very quickly. If you think about the fuel mix or the way in which the DOE is trying to demonstrate these hydrogen hubs, there's a cross between doing electrolysis, whether that's through wind and solar or things like hydro, or utilizing fuel to do that. There's also hubs that have the opportunity around doing blue hydrogen as it used to be called and doing that by capturing CO2. So we think we're really well positioned to add value across all seven of the hubs. And so as those hub owners work through the funding cycle with the DOE, we are working with them in lock stop to provide technology as part of the solutions they need to make the hydrogen hubs work.

Awesome, thank you. I'll turn it over.

Our next question comes from Ryan Pfingst from B Riley. Your line is now open.

Hey guys, thanks for taking my questions. With the Trigen site now available for potential customer visits, can you talk about the interest you've seen from others in recent months and your confidence in attracting another customer.

All right, good morning and thank you for the question. We -- one of the things that's really exciting about the Toyota project is that unlike even some of the other projects that have been talked about, this is a real commercial implementation of the solution for a customer that has a real need to leverage the power, the hydrogen, and the water from the platform. Between the platform and its capabilities and the way in which Toyota, as the customer is leveraging the platform, that has served as a catalyst to generate a lot of interest in the product itself. We continue to do a number of tours. We have a number of opportunities that we're pursuing around Trigen as a solution. In addition, like I just mentioned, we think that there is maybe some applicability for Trigen even in some of the hydrogen hub opportunities.

That's helpful. And nice to see the nuclear related announcements the last couple months in the UK and Canada. How big of an opportunity do you see with nuclear, and what does that look like here in the US?

A great question, and maybe I'll ask Tony to chime in here a little bit about why we are excited about the nuclear opportunity given our solid oxide electrolysis platform and why it's such a good pairing with nuclear and the renewed interest that we're seeing around nuclear not only here in the US but around the world.

Yeah, happy to do that. The key advantage of marrying nuclear power to solid oxide electrolysis is that it's zero carbon power and it's available 24/7. So if you think of the other zero carbon solutions that can produce zero carbon hydrogen through electrolysis, they tend to be intermittent renewables. So nuclear, A, has that very high capacity factor, and B, it also provides waste heat which we can use to increase our electrical efficiency. It starts out high at about 90% but we can literally get it to 100% if we have an external source of waste heat which we can get from nuclear power. So it's a really good fit for our solid oxide electrolysis.

Got it. Yeah, it's an application that seems to make a lot of sense. Happy holidays guys. I'll turn it back.

Happy holidays to you, too. Thank you.

Our last question comes from Noel Parks from Touhy Brothers. Your line is now open.

Hi, good morning.

Good morning.

I just want to talk on sort of a general topic on the product development side. I wonder if you could talk a bit about some of the work you've been doing as far as reducing the footprint of the fuel cells, any particular progress you expect to see in the coming fiscal year and how that might manifest itself?

Good morning and thank you for the question. I think if you look at our two platforms, our carbonate platform and our solid oxide platform, if you look at solid oxide, it's effectively the size of a container, the module size. And it, too, just like our carbon platform, is very modularized. And we think that creates an advantage for us in terms of space and how we utilize space. If you take the Trigen platform just as an example, that's a platform providing 2.3 megawatts of power. It's providing hydrogen. It's providing water. And it's on the equivalent of roughly three basketball courts. So not a lot of footprint needed for our platforms. And as you think about the ability around solid oxide and rack mounting and doing other things like that with a platform that's more containerized, you can be very efficient in space utilization while delivering a lot of power or other benefits, like hydrogen and/or carbon capture.

Okay, great. And I apologize if you touched on this earlier, but when it comes to the recent announcement of the Exxon deal, I was wondering if you could talk a little bit about maybe the last stages of getting to the agreement? I feel like earlier in the year, maybe in your comments about the JDA, you mentioned a good deal about the joint marketing aspects of it. To a degree, that may be -- think maybe the first announcement would actually be something other than Rotterdam, but then of course I'm probably surprised to hear that that was the project. So anything you could talk about sort of the background of kind of what's been happening in the last couple of quarters?

Yeah, no, as we've talked about, one of the things that both Exxon and FuelCell were very focused on in the joint development was really around optimizing the platform. And optimization of the platform really centered around how effective were we in capturing and transferring carbon. How good was the platform in terms of maintaining power density, right? Because we think that's a significant advantage to our platform versus any other technology out there to capture carbon. So we spent a lot of time on those two things. And then thirdly, one of the other elements was just around life and how long in a carbon capture mold would our cell stack life last. And life testing takes time. And so those things were all things that we really focused on through this development effort. After solving those things from a technical standpoint and both sides being comfortable with the results that we were able to generate, the next phase was to move to this demonstration project and we're really excited to do that not only because it's Exxon and they've been our -- who we've worked with jointly around optimizing the technology, but like they said in the press release that after successfully demonstrating, this is technology that they think they could deploy at their other sites. And if you just look at them as a customer, right, that's a pretty significant opportunity. And then if you open up the aperture and you look at industrial customers broadly, that is a significant market opportunity for technology like ours that will capture carbon and produce power simultaneously and have the benefit, have the optionality of delivering other benefits, like hydrogen, as part of the platform.

Great. Thanks a lot.

Thank you.

The question-and-answer session is now closed. I'd now like to hand back over to Jason Few for closing remarks.

Ellie, thank you. We will continue to execute our powerhouse business strategy with the goal of delivering growth and optimizing returns. Thank you all for joining the call today and for your interest in FuelCell Energy. We wish you all a peaceful and happy holiday season and we look forward to updating you again next quarter. Have a great day. Thank you.

Thank you for attending today's conference. We hope you have a wonderful day and happy holidays. You may now disconnect.