FCEL - NASDAQ

Thank you for standing by. And welcome to the FuelCell Energy First Quarter of Fiscal 2025 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I would now like to turn the conference over to Tom Gelston. You may begin. 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, Inc. released our financial results for the first quarter of fiscal year 2025, and our earnings press release is available in the Investors 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 two hours after we conclude the call. Before we begin, please note that some of the information that you will hear or 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 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 factor 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. 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 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 will now like to 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. In the first fiscal quarter of 2025, our focus on cost discipline and moving toward profitability began to deliver results. By launching our global restructuring plan at the start of the first fiscal quarter, we successfully reduced expenses while driving revenue growth, significantly narrowing our operating losses compared to the same period last year. We have strategically rightsized our business and aligned our resources to seize attractive growth opportunities, including the newly announced MOU for our data center partnership with Diversified Energy and our joint development agreement with Malaysia Marine and Heavy Engineering. We believe the first fiscal quarter of 2025 marks our low watermark for revenue, setting the stage for growth as we increase our module deliveries to Goenkke Green Energy or GGE according to our production and shipment schedule. While our business is evolving, our purpose has not changed. FuelCell Energy, Inc. remains committed to enabling a world powered by clean energy. Whether you are new to our story or have followed us for many quarters and years, we want you to know that this purpose remains the cornerstone of our business. Our core value proposition enables commercial, industrial, and utility customers to integrate our technology platform seamlessly. No need to overhaul their business operations or face the risk of power interruptions from intermittent technologies. Our aim is to simply help them operate more reliably, efficiently, and affordably, all while reducing emissions and preserving air quality. It's that straightforward. Moving to slide four, I'd like to provide an overview of our five key messages for the quarter. First, following the end of the quarter, we took a major step forward in executing our strategic vision. We announced an exciting partnership with Diversified Energy and Tessiak, with the goal of directly addressing the critical energy demands of AI and high-performance computing data centers. Through this collaboration, we plan to deliver up to 360 megawatts of electricity to key locations in Virginia, West Virginia, and Kentucky, which we believe will position FuelCell Energy, Inc. at the forefront of powering the digital economy in this area. You've heard me talk about data centers, passive opportunity data centers represent for FuelCell Energy, Inc. And this partnership is the first step toward delivering on that vision. When fully implemented, we expect this initiative to be accretive to our business while also serving as a blueprint for the future of energy, where existing abundant natural resources and innovative clean energy technologies work in tandem to meet the rapidly growing energy demand and deliver large-scale distributed behind-the-meter power deployments in this high-growth sector. We believe that bringing together FuelCell Energy, Inc. and Diversified Energy in this way is a powerful demonstration of the "and" strategy, a forward-thinking approach that recognizes we don't have to choose between reliable baseload power or clean energy solutions. We can pursue both. Additionally, we expanded our global presence by signing a joint development agreement with Malaysia Marine and Heavy Engineering, pursuant to which we plan to collaborate on the co-development of large-scale hydrogen production systems and technologies across Asia, New

Thank you, Jason. I would like to begin by providing an update on our global restructuring, which we announced in November. As Jason stated, we expect to reduce operating costs by approximately 15% in fiscal year 2025 compared with fiscal year 2024. Given the operational changes we made in our first quarter, we believe we are on track to achieve that goal. In addition to reducing operating costs in fiscal year 2025, we have good visibility into contracted revenue for the rest of this fiscal year, including revenues expected to be recognized upon delivery of replacement modules to GGE. As a result, we believe that our first quarter revenue represents the low watermark for revenue this fiscal year, and we expect to see a meaningful improvement to our revenues for fiscal year 2025 as compared to fiscal year 2024. For the first quarter of fiscal year 2025, we reported total revenues of $19 million compared to revenues of $16.7 million in the prior year quarter. We reported a loss from operations in the quarter of $32.9 million compared to $42.5 million in the first quarter of fiscal year 2024. The net loss attributable to common stockholders in the quarter was $29.1 million compared to a net loss to common stockholders of $20.6 million in the first quarter of fiscal year 2024. The resulting net loss per share attributable to common stockholders in the first quarter of fiscal year 2025 was $1.42 compared to $1.37 in the first quarter of fiscal year 2024. The increase in net loss per share is primarily due to the decrease in net loss attributable to non-controlling interest during the three months ended January 31, 2025, partially offset by a decrease in loss from operations. The net loss per common share for the three months ended January 31, 2025, benefited from the higher number of weighted average shares outstanding due to share issuances since January 31, 2024. The net loss per common share for the first quarter of fiscal year 2024 benefited from the tax equity financing of the Derby Connecticut projects. Adjusted EBITDA totaled negative $21.1 million in the first quarter of fiscal year 2025 compared to adjusted EBITDA of negative $29.1 million in the first quarter of fiscal year 2024. As of January 31, 2025, the company had cash, restricted cash, cash equivalents, and short-term investments of $270.7 million. Next, on slide thirteen, you will see additional details on our financial performance and backlog. In the graph, on the left-hand side, revenue is broken down by category. Product revenues were $0.1 million compared to no product revenue recognized. As I mentioned earlier, we do expect increases in this revenue line in 2025 as we execute on the commissioning of replacement modules for GGE. Service agreement revenues increased to $1.8 million from $1.6 million. The increase in service agreement revenues during the three months ended January 31, 2025, was primarily driven by revenue recognized under the company's long-term service agreement or LTSA with GGE for its 58.8 megawatt fuel cell power plant platform in Korea. There were no module exchanges during either period presented. Generation revenues increased 8.1% to $11.3 million from $10.5 million. Advanced technology contract revenues increased to $5.7 million from $4.6 million. Looking at the right-hand side of the slide, I will walk through the changes in gross loss and operating expenses. Gross loss for the first quarter of fiscal year 2025 totaled $5.2 million compared to a gross loss of $11.7 million in the comparable prior year quarter. The decrease in gross loss for the first quarter of fiscal year 2025 related to the decrease in cost of generation revenues. The overall decrease in cost of generation revenues was primarily related to a reduction in the expense construction costs related to the Toyota project, which were $0.3 million in the first quarter of 2025 compared to $3.5 million in the first quarter of fiscal 2024. The decrease in cost of generation revenues also reflects the fact that the company reported a derivative gain of $1.8 million related to net natural gas purchase contracts in Q1 2025 compared to a derivative loss of $1.9 million in Q1 of 2024. During the quarter, we made steady progress towards our goal of reducing operating expenses by 15% in fiscal year 2025. Operating expenses for the first quarter of fiscal 2025 decreased to $27.6 million from $30.8 million in the first quarter of fiscal 2024. Administrative and selling expenses decreased to $15 million during the first quarter of fiscal 2025 from $16.4 million in the first quarter of fiscal 2024. The decrease in administrative and selling expenses is primarily due to lower compensation expense as a result of the recent restructuring actions. Research and development expenses decreased to $11.1 million during Q1 2025 compared to $14.4 million in the comparable prior year period. The decrease in research and development expenses is primarily due to a reduction in spending on the company's ongoing commercial development efforts related to our solid oxide, power generation, and carbon separation and recovery solutions compared to the comparable prior year period, as well as a shift in engineering resource allocation towards supporting funded advanced technology activities. On the bottom right of the slide, you will see that backlog increased to $1.31 billion as of January 31, 2025, compared to $1.03 billion as of January 31, 2024. The increase in backlog reflects the LTSA entered into with GGE during the third quarter of fiscal 2024 and the 20-year power purchase agreement for a 7.4 megawatt fuel cell power plant that the company expects to build in Hartford, Connecticut, which was added to backlog in the first quarter of fiscal 2025. Backlog for the GGE LTSA has been allocated between product and service backlog. As a reminder, product backlog is being and will continue to be recognized as revenue as the company completes commissioning of the replacement modules. Under the GGE LTSA, 30 replacement fuel cell modules are expected to be commissioned throughout the course of calendar year 2025, and the remaining six replacement fuel cell modules are expected to be commissioned in calendar year 2026. Service backlog is being and will continue to be recognized as revenue as the company performs service at the GGE site over the term of the agreement. On slide fourteen, it provides an update on our liquidity position. As I mentioned earlier, as of January 31, 2025, we had cash, restricted cash, cash equivalents, and short-term investments of $270.7 million. During the quarter, we utilized short-term cash to build an inventory of modules to be shipped to Korea under our LTSA with GGE. We expect to recognize revenue from these module shipments during fiscal year 2025. As previously disclosed, in the fourth quarter of fiscal year 2024, we were able to arrange working capital financing with the Export-Import Bank of the United States to support certain obligations under the GGE LTSA. We remain focused on attracting similar supportive capital structures as we execute on our growth strategy. We also built project inventory as part of our safe harbor strategy for certain US project opportunities. During the three months ended January 31, 2025, approximately 0.7 million shares of the company's common stock were sold under the company's amended open market sale agreement at an average sale price of $9.19 per share, resulting in net proceeds to the company of approximately $5.9 million. In closing, I am pleased with the initial results of our strategic efforts to prioritize our commercially available technologies while reducing cost. We are thrilled with the just-announced collaboration with Diversified Energy and Tessiak, and we believe that FuelCell Energy, Inc. is well-positioned with available capacity and resources to execute on near-term data center opportunities. We will continue to take a highly disciplined approach to managing cash and allocating capital while pursuing our growth objectives. I will now turn the call over to the operator to begin Q&A.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. And we ask that you please limit yourself from asking one question and one follow-up. Once again, please press star one to join the queue. And your first question comes from the line of Dushyant Ailani with Jefferies. Please go ahead.

Hey, guys. Thanks for taking my question. We'd love to learn more about the diversified energy deal. Maybe specifically if you could talk a little bit about if the data centers are greenfield, brownfield, how will the financing arrangement work and, you know, in terms of permitting, if there's any permitting required for the infrastructure pipeline build-out of that's already laid out. Love to just learn more about that. Thank you.

Dushyant, good morning, and thank you for the question and thank you for joining the call. Yeah. So the partnership with Diversified is really focused on leveraging where Diversified has existing gas assets and availability. So even in cases where there might be a need to provide additional midstream infrastructure, I really think about it as, you know, kind of gas distribution infrastructure. The right of ways and access to do that, we feel very confident about executing on that pretty quickly. The deals that we are focused on cut across both greenfield and brownfield opportunities where there's existing data center operation and incremental capacity is needed. And so having that gas and then certainly our ability to deliver distributed platforms to meet those power needs, we think positions us quite well to satisfy the requirements of those data center customers. And then from a financing standpoint, the work that we're doing is work with Tessiak is bringing together, you know, financial partners as we have been able to do and successfully demonstrate corporately, and that goes across not only project financing, but tax equity and certainly back to leverage debt to support these projects. And so we feel pretty confident around the financing structure. And I guess the final thing I would say is we really think about this as being about as close to kind of data center in a box as you can get. From being able to bring gas and supply distributed power generation and land access, and then, of course, you know, the data center component to meet their power demands. And then from a permitting standpoint, you know, that's one big advantage of fuel cells. Right? Is that the fact that we can leverage fuel, but we don't combust that fuel makes permitting a lot easier for our technologies because we don't run into air permit issues because we don't, you know, combust, so we're not producing SOX, NOX, and other particulates. And that's even in, you know, tough markets like California where we enjoy those benefits. And so we feel really good about our position here. And then just the fuel flexibility of our platform to not only leverage natural gas but to leverage the coal mine methane, and then the ability that we have to deliver steam for absorption chilling really puts together a very nice compelling package for those data center customers.

Awesome. And then just one final one for me. If you could kind of talk about how you know, when the initial kind of talk started, how long it took to kind of ink the deal? And then how do we think about just, you know, going forward similar deals you know, for FuelCell Energy, Inc.?

Good morning, Dushyant. It's Mike. I will take that one. So as we've been talking about here, really, the past year, the company is ultra-focused on cracking into the data center market. We've been doing a fair amount of development with a variety of partners here in the US and really leveraging our existing platforms. If you look at what we have installed today in the US, utility-scale platforms, of 15 megawatts, for instance, operating in Bridgeport. And then you look at what we have globally, the largest fuel cell platform in the world. In Korea, 58 megawatts, which we're executing or repowering on, right now. So we believe we have the experience around existing installed base as well as the available capacity. And Jason mentioned time to power. Right? You know, we have existing capacity in our Torrington plant of up to 200 megawatts. Today, we're operating in the 30-ish megawatt range. So we have the capability to be able to ramp as orders are inked to be able to meet that demand. So to be direct, we've been in discussions here for a while and are really pleased with this partnership.

And I would just add to that in terms of our interest and activity relative to creating similar arrangements with suppliers of gas to leverage our distributed and land access to meet data center opportunities is an ongoing effort.

Understood. Thank you.

And your next question comes from the line of George Gianarikas with Canaccord Genuity. Please go ahead.

Hi, everyone. Good morning, and thank you for taking my questions. Good morning, George. I'd like to focus a little bit on the tri-gen project and ask about any updates there. And also, whether you're seeing interest from other customers in a similar project. Thank you.

George, thank you for the question. As you know, at least here domestically, clean hydrogen, if you will, in the transportation sector has probably been pushed a little bit to the right. We continue to have very interesting conversations with our existing customer as well as other customers about future opportunities around that platform and leveraging hydrogen. But I think some of the uncertainty and lack of clarity around what's gonna happen relative to things like the PTC and other things are certainly putting a bit of a slowdown on those opportunities at least domestically.

Thank you. And maybe just understand a little bit about the revenue this year and beyond and some of the cost reductions you've put in place. Can you help us just sort of compartmentalize the run rate base of revenue that will take you to EBITDA positive? Just so we can for our models? Thank you.

Sure, George. This is Mike. I will take that question. So as far as revenue for this fiscal year, as we mentioned in the prepared remarks, we really see Q1 as the low watermark for revenue for the year. We have been building inventory for the GGE project. We are shipping that inventory to Korea, which will result in increasing revenue over the course of the fiscal year. As we mentioned, around backlog, we have 30 modules which will be delivered and installed in this calendar year. So we haven't put out exact dates of when those modules are installed as it's not all in the company's control. However, we're very comfortable in saying there will be a meaningful increase year over year as a result of these deliveries to Korea, and we're executing on those now. As far as the path to EBITDA positive at this run rate and with the investment cycle that we're in, particularly around solid oxide, the company is not EBITDA positive. As the solid oxide technology gets closer to commercialization and as we're able to take advantage of the available capacity in our factory in Torrington, that will allow the company to increase revenue and increase cash flow from that revenue and get the company to EBITDA positive. We have not obviously put out exact dates around that. It's really order dependent in continuing to fill up the backlog and increase our run rate in the Torrington sack.

Thanks.

And your next question comes from the line of Ryan Pfingst with B. Riley Securities. Please go ahead.

Yes. Thanks for taking my questions. Could you talk about the timeline for the recently announced Hartford project and maybe any other details related to PPA terms that you're able to share?

Sure, Ryan. Good morning. This is Mike. As far as the Hartford project, we're really excited about getting the Hartford project back in backlog. For those of that have followed the company for a while, this was actually a project award that we had several years ago. It came out of backlog as it proved to be uneconomic in the site that it was originally sited at. So we had essentially spent the last year plus in working with our counterparts, the two Connecticut utilities on that power purchase agreement as well as Connecticut regulators to change the site to another location in Hartford, Connecticut, which made it economic. As a result, that project is back in backlog, and we're in advanced development. Around that project, we expect it to be constructed in the 2026 time frame. And we'll provide further updates around this project as the development cycle continues.

I would just add that it is a firm 20-year PPA commitment on that project. And it's $160 million in backlog was added. And, you know, we also have no gas exposure on that project as well.

Appreciate that detail. And then can you comment on the impact you've seen on the market broadly under the new US administration? And there's been any hesitancy to project development with, you know, some uncertainty around tax credits or other incentives.

Yeah, Ryan. Like I just mentioned on TriNet, for example, some of the lack of clarity or concern around PTC, we definitely seen some of that. But as we think about our business and we think about the current administration, we think that, you know, electricity clearly plays a key role in energy dominance. And the fact that our platform is fuel flexible and leverage natural gas and biofuels and coal mine methane and other forms of fuel. We think we're really well positioned to take advantage of the things that this new administration is focused on. We also think that there's good activity right now going on around kind of tax legislation. And we think that there's some optimism around our view on the ITC and what's gonna happen relative to ITC or the legacy ITC is being something that comes back as a benefit for us. And so we feel pretty confident about where things are headed but no doubt there's a level of uncertainty in the market, and so you're seeing people being very thoughtful about how they wanna move forward on projects. But we continue to see strong customer engagement. To move forward on particularly around, you know, time to power. As I like to really think about it, time to revenue opportunities.

Appreciate it. Thanks, guys.

Thank you.

And your next question comes from the line of Jeffrey Campbell with Seaport Research Partners. Please go ahead.

Good morning, and congratulations on the cost reduction efforts. Starting to show some teeth. That's good. I'll ask my two questions. I'll go back to the JDA again. First, I was wondering, how's it feel still gonna be compensated for its participation in the project? Meaning, will this mainly be for unit sales, or will you have some sort of an enduring cash flow stream from a given project?

Good morning, Jeff. I'll take that. So yeah. So all of the above. Really, what this partnership allows us is the ability to provide our technology in a meaningful way in a short period of time as we start to close these orders. So, certainly, we will get product sales through that opportunity, and then, of course, with every product sale that we do, there's a long-term service opportunity. These data center opportunities will likely be 20 plus year opportunities. So long-term revenue stream coming from that, and then, of course, participating in a partnership like this in a joint venture type acquisition development company, certainly, we would expect there to be long-term cash flows from that arrangement that the company could participate in as an investor.

Okay. Great. Thank you. The press this one's kind of a multiparter, but hopefully not too confusing. The JDA press release yesterday mentioned net zero power and it also noted emissions capture ready technology to reduce a customer's carbon footprint. Setting a new industry standard. I was wondering first, can you add some color on what this technology refers to and if it would be supplied by FuelCell Energy, Inc.? And second, is this technology integral to the net zero status for a JDA project?

Yeah. So this is Jason. Great question. So when you think about our ability to leverage the same fuel and the fact that these projects would be operating in the PJM market, we have an opportunity to leverage the fact that that's a net zero fuel, if you will, or carbon-negative fuel, and the benefit that our platform can operate on that fuel gives us the ability to deliver a net zero solution relative to these data center opportunities when we're using the coal mine methane. With respect to the ability to deploy carbon recovery technology, that's our ability to recover carbon from the fuel that we would use. So let's take the net gas scenario. And that's just to point our carbon recovery technology into these opportunities if that's the customer's desire. And you really build, you know, maybe three potential opportunities off of that around the CO2. One would clearly be if we had the ability to capture the CO2 and then sequester the CO2, and if you look at we're talking about some of these projects around the Appalachian basin and that whole area, that's certainly an opportunity because you've got geological formations to support that. The second opportunity around that could be the capture that carbon and clean it up and purify it and potentially sell it to customers in an area that may need it for food and beverage applications. And then the third one is potentially to use that CO2 or add that to, you know, on the production side, you use that CO2 potentially even in EOR and or enhanced oil recovery applications. So a lot of opportunity can be spawned from the fact that we can deliver CO2 as a benefit from these projects.

But to be clear, the idea is let's get the project up first, and then these ancillary opportunities will be taken on as they present themselves.

Absolutely. Time to revenue.

Alright. Thanks very much. Appreciate it.

Thank you.

And once again, if you would like to ask a question, simply press star followed by the number one on your telephone keypad. And your next question comes from the line of Noel Parks with Touhey Brothers. Please go ahead.

Hi. Good morning. Just had a couple. You know, I was thinking that when it comes to FuelCell Energy, Inc.'s experience in particular, with multiple input sources, particularly I think, with more experience using biogas as a source than competing fuel cell companies, you're talking about potential data center locations with potential customers, is sort of your lead in biofuels a topic that comes up a lot?

So there was a little bit of a break up there, but I think your question was whether or not biofuels comes up as a topic related to data center opportunities. Is that correct?

Sure. And given your experience with that in particular.

Yeah. So, you know, one big advantage that we have on biofuels is the fact that we can use direct biofuels. We don't need biofuels to be upgraded to pipeline quality gas so that gas never needs to see its way onto a common carrier pipeline. So we can co-locate at a biofuel source or an anaerobic digester source and directly utilize that fuel to deliver power. So in those cases where that fuel source is available, that is certainly an interest and certainly something that we talk to customers about. As one way to deliver a net zero or negative carbon solution around a data center. And the upside of that is the fact that you're doing that with a baseload power solution and delivering a negative or net zero carbon intensity score, which is certainly something that a lot of the data center suppliers are focused on.

Right. Right. It was on my mind, it has served as a differentiating advantage. And I just wonder, on the hydrogen front, is it I I'm wondering, are you seeing much discussion or interest in certain clean hydrogen in particular, from the energy storage standpoint. Just wondered if that's something that's been on the radar screen, maybe a little more persistently.

Yeah. Hi. This is Mark Feasel. You know, we are in conversations and getting the conversation around utilization of hydrogen, you know, for different use cases. Energy storage is one of those topics. And a function of that is how and where can it be produced, and then how can it be used once it's produced. And so playing into that equation is, as Jason's talked about, incentives and things here in North America associated with the production of hydrogen and then how to monetize that on power grid with prices. So it's very locational in terms of looking at those two aspects, around the world.

Great. Fair enough. Thanks a lot.

Thank you.

And I'm showing no further questions at this time. I would like to turn it back to Jason Few for closing remarks.

Thank you, Operator. Thank you all for listening in today. We have an exciting rest of 2025 ahead and I hope you will stay tuned through the remainder of the year to see what we have in store. Hope that everyone has a great day and thank you for joining.