FuelCell Energy, Inc. (NASDAQ:FCEL) Q1 2022 Earnings Conference Call March 10, 2022 10:00 AM ET Company Participants Tom Gelston - Senior Vice President, Finance and Investor Relations Jason Few - President, Chief Executive Officer and Chief Commercial Officer Michael Bishop - Executive Vice President, Chief Financial Officer and Treasurer Michael Lisowski - Executive Vice President and Chief Operating Officer Anthony Leo - Executive Vice President and Chief Technology Officer Conference Call Participants J ...

FuelCell Energy, Inc. (NASDAQ:FCEL) Q4 2021 Earnings Conference Call December 29, 2021 8:00 AM ET Company Participants Tom Gelston - Senior Vice President of Finance and investor relations Jason Few - President and Chief Executive Officer Mike Bishop - Executive Vice President, Chief Financial Officer, and Treasurer Conference Call Participants Joe Beninati - Oppenheimer Jed Dorsheimer - Canaccord Genuity Jeffrey Osborne - Cowen and Company Eric Stine - Craig-Hallum Capital Group Christopher Souther - B. R ...

Part I [Business](index=3&type=section&id=Item%201.%20Business) FuelCell Energy leads in environmentally responsible fuel cell power platforms for distributed power, hydrogen, and carbon capture [Business Overview](index=13&type=section&id=Business%20Overview) - FuelCell Energy is a global leader in delivering environmentally responsible distributed baseload power solutions using its proprietary fuel cell technology[21](index=21&type=chunk) - The company targets large-scale power users such as utility companies, municipalities, universities, and industrial enterprises, with primary geographic markets in the United States and South Korea[22](index=22&type=chunk) [Product Platforms and Applications Overview](index=14&type=section&id=Product%20Platforms%20and%20Applications%20Overview) - The company focuses on four key industry applications for its technology[26](index=26&type=chunk) - Distributed generation (commercially available) - Distributed hydrogen (commercially available) - Solid oxide based long-duration hydrogen energy storage and electrolysis (under development) - Carbon capture (under development) and carbon separation/utilization (commercially available)[26](index=26&type=chunk) [Business Strategy and Business Updates](index=17&type=section&id=Our%20Business%20Strategy%20and%20Business%20Updates) - The company's "Powerhouse" strategy, initiated in 2019, has evolved from "Transform, Strengthen and Grow" to a new focus on "Grow, Scale, and Innovate" for fiscal year 2022 and beyond[31](index=31&type=chunk)[37](index=37&type=chunk) - Key achievements in fiscal year 2021 under the "Transform" and "Strengthen" phases included raising capital, repaying significant debt, increasing factory production rates to a **45 MW/year** annualized rate, and advancing research on solid oxide platforms and carbon capture with EMRE[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) - The future strategy emphasizes penetrating key markets (biofuels, microgrids, hydrogen), expanding geographically (Asia, Europe), investing in manufacturing and commercial capabilities, and innovating in hydrogen-based energy storage and carbon capture technologies[37](index=37&type=chunk) [Current Products](index=21&type=section&id=Our%20Current%20Products) - The commercial product line, based on carbonate fuel cell technology, includes various SureSource platforms ranging from **250 kW to 3.7 MW**, and a **2.3 MW** hydrogen production platform[45](index=45&type=chunk) - Key advantages of the SureSource product line include sustainability (combustion-free process), fuel flexibility (natural gas, biogas), reliability (24/7 operation), high-quality thermal energy for CHP applications, and the use of readily available catalyst materials like nickel instead of precious metals[45](index=45&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk) - The electrical efficiency of the carbonate fuel cell solutions ranges from approximately **47% to 60%**, and can reach up to **90%** in Combined Heat and Power (CHP) configurations[53](index=53&type=chunk) [Business Model](index=32&type=section&id=Our%20Business%20Model) - The business model is based on multiple revenue streams: platform/component sales, recurring service revenue through long-term agreements, recurring electricity sales under Power Purchase Agreements (PPAs) for its generation portfolio, and research contracts[73](index=73&type=chunk) - The company has transitioned project structures in the U.S. predominantly to PPAs. It may retain ownership of projects to generate recurring revenue or sell them to third parties. As of October 31, 2021, the retained operating portfolio totaled **34.0 MW** with an additional **41.3 MW** under development[75](index=75&type=chunk)[76](index=76&type=chunk) - Following a settlement with POSCO Energy, the company has regained full market access to South Korea and broader Asian markets and plans to aggressively pursue product sales in these key growth regions[78](index=78&type=chunk)[79](index=79&type=chunk) [Advanced Technologies Programs](index=34&type=section&id=Advanced%20Technologies%20Programs) - The company engages in research and development programs funded by third parties, including the U.S. Department of Energy (DOE) and ExxonMobil Research and Engineering Company (EMRE), focusing on solid oxide fuel cells, distributed hydrogen, and carbon capture[81](index=81&type=chunk)[82](index=82&type=chunk) Total Research and Development Expenditures | (dollars in thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Cost of Advanced Technologies contract revenues | $16,496 | $16,254 | $12,884 | | Research and development expenses | $11,315 | $4,797 | $13,786 | | **Total research and development** | **$27,811** | **$21,051** | **$26,670** | [Backlog](index=45&type=section&id=Backlog) Backlog as of October 31 (in thousands) | Category | 2021 | 2020 | | :--- | :--- | :--- | | **Commercial** | | | | Product | $— | $— | | Service | $125,918 | $146,810 | | Generation | $1,099,006 | $1,067,228 | | License | $22,182 | $22,182 | | **Total Commercial** | **$1,247,106** | **$1,236,220** | | **Advanced Technologies** | | | | Non-U.S. Government | $17,611 | $37,652 | | U.S. Government - Funded | $22,932 | $11,281 | | U.S. Government - Unfunded | $220 | $220 | | **Total Advanced Technologies** | **$40,763** | **$49,153** | | **Total Backlog** | **$1,287,869** | **$1,285,373** | - Total backlog remained stable at approximately **$1.29 billion** as of October 31, 2021. Generation backlog is the largest component, representing future revenues from projects with Power Purchase Agreements (PPAs)[126](index=126&type=chunk)[129](index=129&type=chunk) - The service and generation backlog as of October 31, 2021, had a weighted average term of approximately **17 years**[125](index=125&type=chunk) [License Agreements and Royalty Income; Relationship with POSCO Energy](index=45&type=section&id=License%20Agreements%20and%20Royalty%20Income%3B%20Relationship%20with%20POSCO%20Energy) - On December 20, 2021, the company entered into a settlement agreement with POSCO Energy and its subsidiary Korea Fuel Cell Co., Ltd. (KFC), resolving all outstanding legal disputes and confirming FuelCell Energy's full access to the South Korean and broader Asian markets[149](index=149&type=chunk) - As part of the settlement, KFC will place firm, non-cancelable orders for **20 SureSource 3000 modules** at **$3.0 million per module** by June 30, 2022, and will use commercially reasonable efforts to order an additional **14 modules** by December 31, 2022[151](index=151&type=chunk) - The previous exclusive license agreements with POSCO Energy are amended to grant PE Group a limited 'Right to Service License' for existing customers only, with FuelCell Energy exclusively enjoying all other rights to its technology in Korea and Asia[150](index=150&type=chunk) [Human Capital Resources](index=58&type=section&id=Human%20Capital%20Resources) - As of October 31, 2021, the company had **382 full-time employees**, an increase from **316 employees** as of October 31, 2020[35](index=35&type=chunk)[177](index=177&type=chunk) - The company maintains a strong focus on workforce health and safety, with an Environmental Management System certified to ISO 14001:2015 and an Occupational Health & Safety Management System certified to ISO 45001:2018. Its experience modification rate (EMR) for safety has been below the industry average for the last **5 years**[183](index=183&type=chunk)[184](index=184&type=chunk) [Risk Factors](index=66&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant financial, operational, and international risks, including persistent losses and supply chain disruptions - **Financial Risks:** The company has a history of incurring losses and anticipates continued losses and negative cash flows. Its ability to achieve profitability is uncertain[198](index=198&type=chunk) - **Operational Risks:** The business depends on third-party suppliers for key materials, faces significant competition from other energy technologies, and its products use flammable fuels, exposing it to potential liability claims[219](index=219&type=chunk)[235](index=235&type=chunk)[243](index=243&type=chunk) - **International & Legal Risks:** The company is subject to risks in international operations, including those related to the settlement agreement with POSCO Energy and KFC. There is no guarantee the parties will successfully work together or comply with the settlement terms[207](index=207&type=chunk)[211](index=211&type=chunk) - **Capital & Market Risks:** The company will need to raise additional capital, which may not be available on acceptable terms and could lead to stockholder dilution. The stock price has been and could remain volatile[271](index=271&type=chunk)[286](index=286&type=chunk) [Unresolved Staff Comments](index=98&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[310](index=310&type=chunk) [Properties](index=98&type=section&id=Item%202.%20Properties) The company owns its CT headquarters and leases manufacturing and R&D facilities across CT, Germany, and Canada Company Facilities | Location | Business Use | Footage | Ownership/Lease End | | :--- | :--- | :--- | :--- | | Danbury, Connecticut | Corporate HQ, R&D, Sales, Admin | 72,000 | Company owned | | Torrington, Connecticut | Manufacturing and Administrative | 167,000 | Leased until Dec 2030 | | Taufkirchen, Germany | Manufacturing and Administrative | 20,000 | Leased until June 2023 | | Calgary, Alberta, Canada | Research and Development | 32,220 | Leased until Jan 2023 | [Legal Proceedings](index=100&type=section&id=Item%203.%20Legal%20Proceedings) Significant legal proceedings with POSCO Energy and KFC are settled, with other matters deemed immaterial to financials - The legal proceedings with POSCO Energy and KFC have been settled. Details are incorporated by reference from the Business section of the report[314](index=314&type=chunk) - Management believes that other legal proceedings from the ordinary course of business will not have a material adverse effect on the company's consolidated financial statements[315](index=315&type=chunk) [Mine Safety Disclosures](index=100&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[316](index=316&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=101&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Common stock trades on Nasdaq under 'FCEL', no dividends paid, and authorized shares increased for capital raising - The company's common stock trades on the Nasdaq Global Market under the symbol "**FCEL**"[319](index=319&type=chunk) - No cash dividends have ever been paid on common stock, and none are anticipated in the foreseeable future[319](index=319&type=chunk) - The number of authorized shares of common stock was increased from **225.0 million** to **337.5 million** in May 2020, and further increased to **500.0 million** in April 2021[320](index=320&type=chunk)[321](index=321&type=chunk) [Reserved](index=103&type=section&id=Item%206.%20Reserved) This item is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=104&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) FY2021 saw slight revenue decrease and widened gross loss, but liquidity significantly improved to **$432.2 million** unrestricted cash [Results of Operations](index=112&type=section&id=Results%20of%20Operations) Fiscal Year 2021 vs. 2020 Performance (in thousands) | Metric | 2021 | 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $69,585 | $70,871 | $(1,286) | (2)% | | Total Costs of Revenues | $85,224 | $78,596 | $6,628 | 8% | | **Gross Loss** | **$(15,639)** | **$(7,725)** | **$(7,914)** | **102%** | | Gross Margin | (22.5)% | (10.9)% | - | - | - **Service & License Revenues:** Decreased by **21%** to **$19.8 million**, primarily due to the absence of **$4.7 million** in license revenues recognized in FY2020 from EMRE and POSCO Energy agreements, and a **$1.0 million** revenue reduction from higher future cost estimates for module exchanges[370](index=370&type=chunk)[371](index=371&type=chunk)[372](index=372&type=chunk) - **Generation Revenues:** Increased by **20%** to **$24.0 million** due to a larger operating portfolio and improved fleet output. However, the gross loss from generation widened by **51%** to **$12.0 million**, driven by higher maintenance costs, depreciation, and **$5.0 million** in impairment charges for certain projects[383](index=383&type=chunk)[384](index=384&type=chunk)[385](index=385&type=chunk)[386](index=386&type=chunk)[387](index=387&type=chunk) - **Operating Expenses:** Increased significantly, with administrative and selling expenses rising to **$37.9 million** and R&D expenses increasing to **$11.3 million** due to investments in hydrogen commercialization initiatives[394](index=394&type=chunk)[395](index=395&type=chunk) [Liquidity and Capital Resources](index=124&type=section&id=Liquidity%20and%20Capital%20Resources) - Unrestricted cash and cash equivalents increased significantly to **$432.2 million** as of October 31, 2021, from **$149.9 million** as of October 31, 2020[409](index=409&type=chunk) - The company raised approximately **$369.7 million** in net proceeds from an at-the-market offering program and **$156.4 million** from an underwritten offering. A portion of these proceeds was used to extinguish the Orion senior secured debt (**$87.3 million**) and the Series 1 Preferred Shares obligation (**$21.5 million**)[410](index=410&type=chunk)[411](index=411&type=chunk)[413](index=413&type=chunk)[415](index=415&type=chunk) Consolidated Cash Flow Summary (in thousands) | Cash Flow Activity | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(70,438) | $(36,781) | $(30,572) | | Net cash used in investing activities | $(73,230) | $(32,520) | $(69,300) | | Net cash provided by financing activities | $411,908 | $221,667 | $59,655 | - The company's generation operating portfolio stood at **34.0 MW** as of Oct 31, 2021, with an additional **41.3 MW** in development and construction[423](index=423&type=chunk)[425](index=425&type=chunk)[427](index=427&type=chunk) [Critical Accounting Policies and Estimates](index=143&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - Management is required to make significant estimates and assumptions affecting reported amounts, particularly in areas such as revenue recognition, contract loss accruals, inventory valuation, warranty accruals, and impairment of long-lived assets[479](index=479&type=chunk) - **Revenue Recognition:** Revenue is recognized based on a five-step approach under ASC Topic 606. Service agreement revenue is recognized over time using a cost-to-cost input method, requiring quarterly reviews of cost estimates which can lead to cumulative catch-up adjustments[486](index=486&type=chunk)[492](index=492&type=chunk) - **Impairment of Long-Lived Assets:** Assets, including project assets, are reviewed for impairment when events indicate the carrying amount may not be recoverable. This process involves comparing carrying value to future undiscounted net cash flows. The company recorded project asset impairment charges in both fiscal 2021 and 2020[483](index=483&type=chunk)[484](index=484&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=154&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Market risks include interest rates, foreign currency, and fuel prices, with PPA fuel price exposure being the most significant - The company is exposed to market risks from interest rates, foreign currency exchange, and fuel prices[517](index=517&type=chunk) - Interest rate risk is not considered material based on the company's exposure as of October 31, 2021[518](index=518&type=chunk) - The company faces fuel price risk for certain projects. A sensitivity analysis indicates that a **$1/MMBTu** increase in natural gas prices would result in an annual cost impact of approximately **$1.4 million**, and a **$10/MMBTu** increase in RNG prices would result in an annual impact of approximately **$2.0 million**[521](index=521&type=chunk)[523](index=523&type=chunk)[525](index=525&type=chunk) [Consolidated Financial Statements and Supplementary Data](index=157&type=section&id=Item%208.%20Consolidated%20Financial%20Statements%20and%20Supplementary%20Data) Audited consolidated financial statements report a **$101.1 million** net loss for FY2021 and **$875.2 million** in total assets Consolidated Statement of Operations Highlights (in thousands) | | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total Revenues | $69,585 | $70,871 | $60,752 | | Gross Loss | $(15,639) | $(7,725) | $(21,269) | | Loss from Operations | $(64,902) | $(39,166) | $(66,929) | | Net Loss | $(101,025) | $(89,107) | $(77,568) | | Net Loss per Share | $(0.31) | $(0.42) | $(1.82) | Consolidated Balance Sheet Highlights (in thousands) | | Oct 31, 2021 | Oct 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents, unrestricted | $432,213 | $149,867 | | Total Current Assets | $543,386 | $233,981 | | Project Assets | $223,277 | $161,809 | | **Total Assets** | **$875,248** | **$523,538** | | Total Current Liabilities | $52,770 | $58,899 | | Long-term debt and other liabilities | $78,633 | $150,651 | | **Total Liabilities** | **$169,923** | **$269,133** | | **Total Equity** | **$642,438** | **$194,548** | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=263&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This item is not applicable to the company - Not applicable[892](index=892&type=chunk) [Controls and Procedures](index=263&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls and internal control over financial reporting were effective as of October 31, 2021 - The company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of October 31, 2021[894](index=894&type=chunk) - Management concluded that the company maintained effective internal control over financial reporting as of October 31, 2021[896](index=896&type=chunk) [Other Information](index=265&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[899](index=899&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=266&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Executive officer, director, and corporate governance information is incorporated by reference from the 2022 Proxy Statement - Information required by this item is incorporated by reference to the Company's 2022 Proxy Statement, to be filed within **120 days** after the fiscal year end[900](index=900&type=chunk) [Executive Compensation](index=266&type=section&id=Item%2011.%20Executive%20Compensation) The information required for this item concerning executive compensation is incorporated by reference from the company's 2022 Proxy Statement - Information required under this Item is incorporated by reference to the Company's 2022 Proxy Statement[902](index=902&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=266&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership is incorporated by reference from the 2022 Proxy Statement, with **8.4 million** securities available for issuance Equity Compensation Plan Information as of October 31, 2021 | Plan Category | Common Shares to be issued upon exercise | Weighted-average exercise price | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity incentive plans | 22,368 | $78.21 | 8,400,708 | | Employee stock purchase plan | — | — | 21,566 | | **Total** | **22,368** | **$78.21** | **8,422,274** | [Certain Relationships and Related Transactions, and Director Independence](index=267&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The information required for this item is incorporated by reference from the company's 2022 Proxy Statement - Information required under this Item is incorporated by reference to the Company's 2022 Proxy Statement[906](index=906&type=chunk) [Principal Accountant Fees and Services](index=267&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) The information required for this item is incorporated by reference from the company's 2022 Proxy Statement - Information required under this Item is incorporated by reference to the Company's 2022 Proxy Statement[907](index=907&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=268&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section provides a comprehensive index of all financial statements, schedules, and exhibits filed in the Annual Report - This section provides a comprehensive list of all documents filed as part of the report, including financial statements and exhibits[909](index=909&type=chunk) [Form 10-K Summary](index=284&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable - Not applicable[946](index=946&type=chunk)

FuelCell Energy, Inc. (NASDAQ:FCEL) Q3 2021 Earnings Conference Call September 14, 2021 10:00 AM ET Company Participants Jason Few – President and Chief Executive Officer Tom Gelston – Senior Vice President of Finance and investor relations Michael Bishop – Executive Vice President, Chief Financial Officer, and Treasurer Conference Call Participants Jeffrey Osborne – Cowen Colin Rusch – Analyst Laurence Alexander – Jefferies Praneeth Satish – Wells Fargo Noel Parks – Touhy Brothers Unidentified Analyst – An ...

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements.) This section presents unaudited consolidated financial statements, including balance sheets, statements of operations, equity changes, and cash flows, with notes on business and accounting policies [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) | ASSETS | July 31, 2021 ($ thousands) | October 31, 2020 ($ thousands) | | :------------------------------------------------ | :-------------------------- | :----------------------------- | | Cash and cash equivalents, unrestricted | 468,565 | 149,867 | | Restricted cash and cash equivalents - short-term | 10,212 | 9,233 | | Accounts receivable, net | 14,182 | 9,563 | | Unbilled receivables | 8,690 | 8,041 | | Inventories | 60,413 | 50,971 | | Other current assets | 12,170 | 6,306 | | **Total current assets** | **574,232** | **233,981** | | Restricted cash and cash equivalents - long-term | 15,243 | 32,952 | | Inventories - long-term | 4,586 | 8,986 | | Project assets | 199,218 | 161,809 | | Property, plant and equipment, net | 35,961 | 36,331 | | Operating lease right-of-use assets, net | 7,993 | 10,098 | | Goodwill | 4,075 | 4,075 | | Intangible assets, net | 18,994 | 19,967 | | Other assets | 19,330 | 15,339 | | **Total assets** | **879,632** | **523,538** | | | | | | Current liabilities: | | | | Current portion of long-term debt | 9,154 | 21,366 | | Current portion of operating lease liabilities | 950 | 939 | | Accounts payable | 10,893 | 9,576 | | Accrued liabilities | 13,531 | 15,681 | | Deferred revenue | 8,454 | 10,399 | | Preferred stock obligation of subsidiary | — | 938 | | **Total current liabilities** | **42,982** | **58,899** | | Long-term deferred revenue | 28,969 | 31,501 | | Long-term preferred stock obligation of subsidiary| — | 18,265 | | Long-term operating lease liabilities | 8,011 | 9,817 | | Long-term debt and other liabilities | 73,582 | 150,651 | | **Total liabilities** | **153,544** | **269,133** | | Redeemable Series B preferred stock | 59,857 | 59,857 | | **Total stockholders' equity** | **666,231** | **194,548** | | **Total liabilities and stockholders' equity** | **879,632** | **523,538** | [Consolidated Statements of Operations and Comprehensive Loss](index=6&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) | Revenues (in thousands) | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 | | :---------------------- | :------------------------------- | :------------------------------- | | Product | $ — | $ — | | Service and license | 14,344 | 7,113 | | Generation | 6,230 | 4,722 | | Advanced Technologies | 6,246 | 6,893 | | **Total revenues** | **26,820** | **18,728** | | **Gross profit (loss)** | **1,100** | **(3,128)** | | **Loss from operations**| **(10,585)** | **(10,762)** | | **Net loss** | **(11,997)** | **(15,331)** | | Net loss attributable to common stockholders | **(12,797)** | **(16,131)** | | Loss per share basic and diluted | **(0.04)** | **(0.07)** | | Weighted average shares outstanding | 337,291,562 | 217,966,402 | | Revenues (in thousands) | Nine Months Ended July 31, 2021 | Nine Months Ended July 31, 2020 | | :---------------------- | :------------------------------ | :------------------------------ | | Product | $ — | $ — | | Service and license | 19,917 | 19,697 | | Generation | 17,306 | 14,795 | | Advanced Technologies | 18,427 | 19,380 | | **Total revenues** | **55,650** | **53,872** | | **Gross (loss) profit** | **(7,274)** | **320** | | **Loss from operations**| **(42,348)** | **(22,044)** | | **Net loss** | **(76,874)** | **(70,251)** | | Net loss attributable to common stockholders | **(79,274)** | **(72,782)** | | Loss per share basic and diluted | **(0.24)** | **(0.35)** | [Consolidated Statements of Changes in Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Equity) Total stockholders' equity significantly increased from **$194.5 million** as of October 31, 2020, to **$666.2 million** as of July 31, 2021, primarily driven by the sale of common stock, net of fees, totaling **$156.4 million** and **$369.0 million** in two separate offerings[16](index=16&type=chunk)[8](index=8&type=chunk)[30](index=30&type=chunk)[33](index=33&type=chunk) Additional paid-in capital increased from **$1,359.5 million** to **$1,908.0 million**, reflecting capital raised through equity issuances[16](index=16&type=chunk)[8](index=8&type=chunk) Accumulated deficit increased from **$(1,164.2) million** to **$(1,241.1) million**, indicating continued net losses[16](index=16&type=chunk)[8](index=8&type=chunk) [Consolidated Statements of Cash Flows](index=12&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) | Cash Flow Activity (in thousands) | Nine Months Ended July 31, 2021 | Nine Months Ended July 31, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Net cash used in operating activities | $(60,585) | $(24,577) | | Net cash used in investing activities | $(44,208) | $(24,264) | | Net cash provided by financing activities | $406,769 | $116,573 | | Net increase in cash, cash equivalents and restricted cash | $301,968 | $67,502 | | Cash, cash equivalents and restricted cash - end of period | $494,020 | $107,280 | Operating activities used significantly more cash in 2021 (**$60.6 million**) compared to 2020 (**$24.6 million**), primarily due to a higher net loss and increases in operating assets like inventories and receivables[21](index=21&type=chunk)[271](index=271&type=chunk) Investing activities cash usage increased from **$24.3 million** in 2020 to **$44.2 million** in 2021, driven by higher project asset and capital expenditures[21](index=21&type=chunk)[273](index=273&type=chunk) Financing activities provided substantial cash inflows, increasing from **$116.6 million** in 2020 to **$406.8 million** in 2021, mainly from common stock sales and warrant exercises, partially offset by debt repayments[21](index=21&type=chunk)[274](index=274&type=chunk) [Notes to Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [Note 1. Nature of Business and Basis of Presentation](index=13&type=section&id=Note%201.%20Nature%20of%20Business%20and%20Basis%20of%20Presentation) FuelCell Energy, founded in 1969, specializes in clean fuel cell power platforms for power, thermal energy, hydrogen, and carbon capture, serving global clients FuelCell Energy is a global leader in sustainable clean energy technologies, manufacturing proprietary fuel cell power platforms for power, thermal energy, hydrogen, long-duration hydrogen energy storage, and carbon capture applications[24](index=24&type=chunk) The company develops turn-key distributed power generation solutions and provides comprehensive service for the life of its power plants, focusing on molten-carbonate and solid oxide fuel cell technologies[24](index=24&type=chunk) Key markets include the United States and South Korea, with expansion efforts in other countries, serving utility companies, municipalities, universities, hospitals, government entities/military bases, and industrial/commercial enterprises[24](index=24&type=chunk) [Note 2. Recent Accounting Pronouncements](index=17&type=section&id=Note%202.%20Recent%20Accounting%20Pronouncements) ASU 2016-13 was adopted on November 1, 2020, with no material financial impact, and no other recent guidance is expected to have a material effect Adopted ASU 2016-13 (Measurement of Credit Losses) on November 1, 2020, with no material impact on financial statements[40](index=40&type=chunk) No other recent accounting guidance is expected to have a material impact[40](index=40&type=chunk) [Note 3. Revenue Recognition](index=17&type=section&id=Note%203.%20Revenue%20Recognition) Contract assets increased to **$22.3 million**, liabilities decreased to **$37.4 million**, and **$22.2 million** in license revenue was discontinued due to arbitration | Metric | July 31, 2021 ($ thousands) | October 31, 2020 ($ thousands) | | :----------------- | :-------------------------- | :----------------------------- | | Contract assets | 22,300 | 16,900 | | Contract liabilities | 37,400 | 41,900 | Remaining performance obligations as of July 31, 2021, include **$127.0 million** for service agreements, **$22.2 million** for license agreements, and **$40.0 million** for Advanced Technologies contracts[45](index=45&type=chunk) Discontinued revenue recognition of **$22.2 million** in deferred license revenue related to terminated POSCO Energy License Agreements due to pending arbitration[44](index=44&type=chunk) [Note 4. Accounts Receivable, Net and Unbilled Receivables](index=19&type=section&id=Note%204.%20Accounts%20Receivable,%20Net%20and%20Unbilled%20Receivables) Accounts and unbilled receivables increased to **$22.9 million**, including commercial and Advanced Technologies contracts, with no allowance for doubtful accounts | Category | July 31, 2021 ($ thousands) | October 31, 2020 ($ thousands) | | :-------------------------------------- | :-------------------------- | :----------------------------- | | Commercial Customers: | | | | Amount billed | 11,659 | 7,329 | | Unbilled receivables | 7,333 | 7,063 | | Advanced Technologies (incl. U.S. govt):| | | | Amount billed | 2,523 | 2,234 | | Unbilled receivables | 1,357 | 978 | | **Total Accounts receivable, net and unbilled receivables** | **22,872** | **17,604** | Additional long-term unbilled receivables of **$13.6 million** (July 31, 2021) and **$8.9 million** (October 31, 2020) are included in 'Other Assets'[46](index=46&type=chunk) The Company had no allowance for doubtful accounts as of July 31, 2021, and October 31, 2020[47](index=47&type=chunk) [Note 5. Inventories](index=20&type=section&id=Note%205.%20Inventories) Total inventories increased to **$65.0 million**, including raw materials and work-in-process, with **$1.7 million** in manufacturing variances incurred | Inventory Category | July 31, 2021 ($ thousands) | October 31, 2020 ($ thousands) | | :----------------- | :-------------------------- | :----------------------------- | | Raw materials | 30,831 | 21,726 | | Work-in-process | 34,168 | 38,231 | | **Total Inventories** | **64,999** | **59,957** | | Inventories - short-term | (60,413) | (50,971) | | Inventories - long-term | 4,586 | 8,986 | Work-in-process includes **$18.6 million** (July 31, 2021) and **$19.6 million** (October 31, 2020) of completed standard components and modules[50](index=50&type=chunk) Incurred **$1.7 million** in excess plant capacity and manufacturing variances for the three months ended July 31, 2021, a decrease from **$2.6 million** in the prior year, due to increased production volumes[51](index=51&type=chunk) [Note 6. Project Assets](index=20&type=section&id=Note%206.%20Project%20Assets) Net project assets increased to **$199.2 million**, comprising operating and construction-in-progress assets, with nine operating installations generating power | Project Asset Category | July 31, 2021 ($ thousands) | October 31, 2020 ($ thousands) | | :------------------------------ | :-------------------------- | :----------------------------- | | Project Assets - Operating | 138,659 | 99,351 | | Project Assets - Construction in progress | 99,646 | 91,276 | | **Total** | **238,305** | **190,627** | | Accumulated depreciation | (39,087) | (28,818) | | **Project Assets, net** | **199,218** | **161,809** | As of July 31, 2021, there were nine completed, commissioned installations generating power, compared to eight as of October 31, 2020[53](index=53&type=chunk) Project asset depreciation was **$10.3 million** for the nine months ended July 31, 2021, up from **$8.6 million** in the prior year[53](index=53&type=chunk) [Note 7. Goodwill and Intangible Assets](index=22&type=section&id=Note%207.%20Goodwill%20and%20Intangible%20Assets) Goodwill remained at **$4.1 million**, net intangible assets decreased to **$19.0 million**, with no impairment found for goodwill or IPR&D | Intangible Asset Category | Gross Amount ($ thousands) | Accumulated Amortization ($ thousands) | Net Amount ($ thousands) | | :------------------------------ | :------------------------- | :------------------------------------- | :----------------------- | | **As of July 31, 2021** | | | | | In-Process Research and Development | 9,592 | — | 9,592 | | Bridgeport PPA | 12,320 | (2,918) | 9,402 | | **Total** | **21,912** | **(2,918)** | **18,994** | | **As of October 31, 2020** | | | | | In-Process Research and Development | 9,592 | — | 9,592 | | Bridgeport PPA | 12,320 | (1,945) | 10,375 | | **Total** | **21,912** | **(1,945)** | **19,967** | Amortization expense for the Bridgeport Fuel Cell Project PPA asset was **$1.0 million** for the nine months ended July 31, 2021[58](index=58&type=chunk) No impairment of goodwill or IPR&D was determined after the annual impairment analysis as of July 31, 2021[59](index=59&type=chunk) [Note 8. Other Current Assets](index=22&type=section&id=Note%208.%20Other%20Current%20Assets) Other current assets increased to **$12.2 million**, primarily due to higher advance payments to vendors and prepaid expenses | Category | July 31, 2021 ($ thousands) | October 31, 2020 ($ thousands) | | :---------------------------- | :-------------------------- | :----------------------------- | | Advance payments to vendors | 4,156 | 1,954 | | Prepaid expenses and other | 8,014 | 4,352 | | **Total Other current assets**| **12,170** | **6,306** | [Note 9. Other Assets](index=23&type=section&id=Note%209.%20Other%20Assets) Other assets increased to **$19.3 million**, primarily driven by higher long-term unbilled receivables | Category | July 31, 2021 ($ thousands) | October 31, 2020 ($ thousands) | | :---------------------------- | :-------------------------- | :----------------------------- | | Long-term stack residual value| 263 | 890 | | Long-term unbilled receivables| 13,625 | 8,856 | | Other | 5,442 | 5,593 | | **Total Other assets** | **19,330** | **15,339** | [Note 10. Accrued Liabilities](index=23&type=section&id=Note%2010.%20Accrued%20Liabilities) Accrued liabilities decreased to **$13.5 million**, mainly due to lower legal and professional expenses, partially offset by increased performance guarantees | Category | July 31, 2021 ($ thousands) | October 31, 2020 ($ thousands) | | :-------------------------------------- | :-------------------------- | :----------------------------- | | Accrued payroll and employee benefits | 4,085 | 4,461 | | Accrued product warranty cost | 78 | 97 | | Accrued service agreement and PPA costs | 7,334 | 7,037 | | Accrued legal, taxes, professional and other | 2,034 | 4,086 | | **Total Accrued liabilities** | **13,531** | **15,681** | Accruals for performance guarantees, including PPA performance guarantees, increased to **$2.0 million** as of July 31, 2021, from **$1.4 million** as of October 31, 2020[66](index=66&type=chunk) [Note 11. Leases](index=23&type=section&id=Note%2011.%20Leases) Operating lease expense increased to **$1.1 million**, with a weighted average remaining lease term of **20 years** and a **7.9%** discount rate | Lease Payments (Undiscounted, $ thousands) | Operating Leases | Finance Leases | | :--------------------------------------- | :--------------- | :------------- | | Due Year 1 | 1,357 | 62 | | Due Year 2 | 1,242 | 50 | | Due Year 3 | 758 | 29 | | Due Year 4 | 723 | — | | Due Year 5 | 750 | — | | Thereafter | 14,389 | — | | **Total undiscounted lease payments** | **19,219** | **141** | | Less imputed interest | (10,258) | (25) | | **Total discounted lease payments** | **8,961** | **116** | Operating lease expense for the three months ended July 31, 2021, was **$0.4 million**, compared to **$0.2 million** for the same period in 2020[70](index=70&type=chunk) The weighted average remaining lease term was approximately **20 years**, and the weighted average discount rate was **7.9%** as of July 31, 2021[70](index=70&type=chunk) [Note 12. Stockholders' Equity and Warrant Liabilities](index=25&type=section&id=Note%2012.%20Stockholders'%20Equity%20and%20Warrant%20Liabilities) Authorized common stock increased to **500 million shares**, raising **$369.0 million** and **$156.4 million** from offerings, with Orion Warrants fully exercised Authorized common stock increased from **337,500,000** to **500,000,000 shares** on April 8, 2021[72](index=72&type=chunk) Sold approximately **44.0 million shares** through an Open Market Sale Agreement, generating **$369.0 million** in net proceeds through July 31, 2021[33](index=33&type=chunk)[73](index=73&type=chunk) Closed an underwritten offering of **25.0 million shares** in December 2020, yielding **$156.4 million** in net proceeds[30](index=30&type=chunk)[77](index=77&type=chunk) | Warrants Activity | Series C Warrants | Orion Warrants | | :------------------------------- | :---------------- | :------------- | | Balance as of October 31, 2020 | 964,128 | 2,700,000 | | Warrants exercised | (14,026) | (2,700,000) | | Balance as of July 31, 2021 | 950,102 | — | [Note 13. Redeemable Preferred Stock](index=29&type=section&id=Note%2013.%20Redeemable%20Preferred%20Stock) Series B Preferred Stock had a **$59.9 million** carrying value, paying **$0.8 million** quarterly dividends, while Series 1 Preferred Shares were fully repaid for **$21.5 million** **64,020 shares** of Series B Preferred Stock outstanding with a liquidation preference of **$1,000** per share and a carrying value of **$59.9 million** as of July 31, 2021[85](index=85&type=chunk) Series B Preferred Stock dividends were **$0.8 million** for each of the three-month periods ended July 31, 2021 and 2020[85](index=85&type=chunk) The Series 1 Preferred Shares held by Enbridge Inc. were fully repaid in December 2020 for approximately **$21.5 million** (Cdn. **$27.4 million**), extinguishing all related obligations[31](index=31&type=chunk)[91](index=91&type=chunk) [Note 14. Loss Per Share](index=32&type=section&id=Note%2014.%20Loss%20Per%20Share) Net loss attributable to common stockholders was **$79.3 million**, with loss per share improving to **$0.24** from **$0.35** due to increased shares outstanding | Metric | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 | | :----------------------------------------- | :------------------------------- | :------------------------------- | | Net loss attributable to common stockholders | $(12,797) | $(16,131) | | Loss per share basic and diluted | $(0.04) | $(0.07) | | Weighted average basic common shares | 337,291,562 | 217,966,402 | | Metric | Nine Months Ended July 31, 2021 | Nine Months Ended July 31, 2020 | | :----------------------------------------- | :------------------------------ | :------------------------------ | | Net loss attributable to common stockholders | $(79,274) | $(72,782) | | Loss per share basic and diluted | $(0.24) | $(0.35) | | Weighted average basic common shares | 323,983,465 | 210,389,907 | Potentially dilutive securities, including Series C Warrants, outstanding options, and unvested restricted stock units, totaled **3,676,091** as of July 31, 2021[95](index=95&type=chunk) [Note 15. Restricted Cash](index=32&type=section&id=Note%2015.%20Restricted%20Cash) Total restricted cash decreased to **$25.5 million**, mainly due to the release of reserves from Orion Facility repayment and PNC sale-leaseback obligations | Restricted Cash Category | July 31, 2021 ($ thousands) | October 31, 2020 ($ thousands) | | :------------------------------------------------------ | :-------------------------- | :----------------------------- | | Cash Restricted for Outstanding Letters of Credit | 6,478 | 6,543 | | Cash Restricted for PNC Sale-Leaseback Transactions | 7,419 | 15,125 | | Cash Restricted for Crestmark Sale-Leaseback Transaction| 433 | 431 | | Bridgeport Fuel Cell Park Project Debt Service and Performance Reserves | 10,597 | 7,549 | | Orion Facility - Reserves and Project Proceeds Account | — | 11,193 | | Other | 528 | 1,344 | | **Total Restricted Cash** | **25,455** | **42,185** | | Restricted Cash and Cash Equivalents - Short-Term | (10,212) | (9,233) | | Restricted Cash and Cash Equivalents - Long-Term | 15,243 | 32,952 | The decrease in restricted cash is partly due to the release of **$11.2 million** from the Orion Facility reserves upon its repayment in December 2020[103](index=103&type=chunk) Short-term restricted cash (**$10.2 million**) is expected to be released and become unrestricted within twelve months[99](index=99&type=chunk) [Note 16. Debt](index=34&type=section&id=Note%2016.%20Debt) Total debt decreased significantly to **$81.6 million**, primarily due to the repayment of the Orion Credit Facility (**$80.0 million**) and PPP Note (**$6.5 million**) | Debt Category | July 31, 2021 ($ thousands) | October 31, 2020 ($ thousands) | | :---------------------------------------------------- | :-------------------------- | :----------------------------- | | Orion Energy Partners Credit Facility | — | 80,000 | | Connecticut Green Bank Loan | 4,800 | 4,800 | | Connecticut Green Bank Loan (Bridgeport Fuel Cell Project) | 4,511 | 5,065 | | Liberty Bank Term Loan Agreement (Bridgeport Fuel Cell Project) | 7,986 | 9,549 | | Fifth Third Bank Term Loan Agreement (Bridgeport Fuel Cell Project) | 7,986 | 9,549 | | Finance obligation for sale-leaseback transactions | 48,626 | 49,274 | | State of Connecticut Loan | 8,832 | 9,454 | | Liberty Bank Promissory Note (PPP Note) | — | 6,515 | | Finance lease obligations | 116 | 38 | | Deferred finance costs | (1,304) | (3,737) | | Unamortized debt discount | — | (5,152) | | **Total debt and financing obligations** | **81,553** | **165,355** | | Current portion of long-term debt and financing obligations | (9,154) | (21,366) | | Long-term debt and financing obligations | 72,399 | 143,989 | The Orion Credit Agreement was fully repaid on December 7, 2020, for **$87.3 million**, including a **$4.0 million** prepayment premium and expensing **$7.1 million** in deferred finance costs and debt discount[102](index=102&type=chunk) The Liberty Bank PPP Note of **$6.5 million** was repaid on February 11, 2021, after the company withdrew its forgiveness application[32](index=32&type=chunk)[106](index=106&type=chunk) [Note 17. Benefit Plans](index=36&type=section&id=Note%2017.%20Benefit%20Plans) The 2018 Omnibus Incentive Plan authorized **12.3 million shares**, with share-based compensation increasing to **$3.5 million** due to new LTI Plan grants The 2018 Omnibus Incentive Plan was amended to authorize a total of **12,333,333 shares** of common stock[110](index=110&type=chunk)[112](index=112&type=chunk) Share-based compensation expense for the nine months ended July 31, 2021, was **$3.5 million**, compared to **$1.2 million** in the prior year[21](index=21&type=chunk)[113](index=113&type=chunk) The LTI Plan, approved in November 2020, includes relative TSR performance units, absolute TSR performance units, and time-vesting restricted stock units for senior management[109](index=109&type=chunk) | Restricted Stock Awards and Units Activity | Shares | Weighted-Average Fair Value | | :--------------------------------------- | :---------- | :-------------------------- | | Outstanding as of October 31, 2020 | 2,067,140 | $5.06 | | Granted - performance units | 551,252 | $14.89 | | Granted - time-vesting restricted stock units | 296,826 | $3.28 | | Vested | (221) | $20.40 | | Outstanding as of January 31, 2021 | 2,914,997 | $5.46 | | Granted - time-vesting restricted stock units | 37,550 | $11.05 | | Vested | (81,878) | $13.13 | | Forfeited | (53,532) | $10.86 | | Outstanding as of April 30, 2021 | 2,817,137 | $5.24 | | Granted - time-vesting restricted stock units | 19,826 | $7.00 | | Vested | (835) | $22.44 | | Forfeited | (170,364) | $7.53 | | Outstanding as of July 31, 2021 | 2,665,764 | $5.10 | [Note 18. Commitments and Contingencies](index=38&type=section&id=Note%2018.%20Commitments%20and%20Contingencies) Unconditional purchase commitments totaled **$78.1 million**; ongoing legal disputes with POSCO Energy involve claims of over **$200 million** and counterclaims of **$880 million** Unconditional purchase commitments totaled **$78.1 million** as of July 31, 2021[118](index=118&type=chunk) The company terminated License Agreements with POSCO Energy in June 2020 due to material breaches, including unauthorized spin-off of its fuel cell business to Korea Fuel Cell Co., Ltd. (KFC)[122](index=122&type=chunk)[329](index=329&type=chunk) FuelCell Energy is seeking over **$200 million** in damages from POSCO Energy and KFC in arbitration, while POSCO Energy has filed counterclaims seeking approximately **$880 million**[124](index=124&type=chunk)[332](index=332&type=chunk) A Delaware court denied POSCO Energy's demand to inspect company books and records, finding an improper purpose for the request[126](index=126&type=chunk)[334](index=334&type=chunk) [Note 19. Subsequent Events](index=43&type=section&id=Note%2019.%20Subsequent%20Events) Post-quarter, a San Bernardino sale-leaseback generated **$5.3 million** cash, and Groton Project tax equity financing secured an initial **$3.0 million** draw Completed a sale-leaseback transaction for the **1.4 MW** San Bernardino plant with Crestmark in August 2021, selling it for **$10.2 million** and leasing it back[133](index=133&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) The San Bernardino transaction resulted in approximately **$5.3 million** in net unrestricted cash proceeds after deducting initial rent, debt/module reserves, and fees[134](index=134&type=chunk)[156](index=156&type=chunk) Closed a tax equity financing transaction with East West Bank in August 2021 for the **7.4 MW** Groton Project, with a total commitment of **$15 million**[139](index=139&type=chunk)[159](index=159&type=chunk) The Groton Project financing is structured as a 'partnership flip,' with an initial draw of **$3.0 million**, and the remaining **$12 million** eligible upon commercial operation[140](index=140&type=chunk)[160](index=160&type=chunk)[163](index=163&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses financial condition, operations, and outlook, covering recent developments, revenue/expense comparisons, liquidity, and critical accounting policies [FORWARD-LOOKING STATEMENTS](index=46&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section contains forward-looking statements on future expectations, subject to risks and uncertainties, and are not guarantees of future performance The report contains forward-looking statements about product development, operating results, liquidity, financing, and market expansion[145](index=145&type=chunk) These statements are subject to known and unknown risks and uncertainties, including general economic conditions, regulatory changes, competition, and the ability to secure financing[146](index=146&type=chunk) Investors are cautioned that forward-looking statements are not guarantees of future performance and are based only on information currently available[149](index=149&type=chunk) [OVERVIEW AND RECENT DEVELOPMENTS](index=48&type=section&id=OVERVIEW%20AND%20RECENT%20DEVELOPMENTS) FuelCell Energy, a clean energy leader, completed a San Bernardino sale-leaseback and Groton Project financing, implementing COVID-19 vaccination policies FuelCell Energy is a global leader in sustainable clean energy technologies, providing megawatt-class installations globally and sub-megawatt solutions in Europe[151](index=151&type=chunk) Completed a sale-leaseback transaction for the **1.4 MW** San Bernardino plant with Crestmark, generating approximately **$5.3 million** in net unrestricted cash[153](index=153&type=chunk)[156](index=156&type=chunk) Closed a tax equity financing transaction with East West Bank for the **7.4 MW** Groton Project, structured as a 'partnership flip,' with an initial draw of **$3.0 million**[159](index=159&type=chunk)[163](index=163&type=chunk) Instituted mask mandates and a mandatory vaccination policy for all U.S. employees by November 1, 2021, in response to the Delta variant of COVID-19[166](index=166&type=chunk) [RESULTS OF OPERATIONS](index=54&type=section&id=RESULTS%20OF%20OPERATIONS) Operating results show mixed performance with increased revenues, declining gross profit for nine months, higher operating expenses, and improved loss per share [Comparison of Three Months Ended July 31, 2021 and 2020](index=54&type=section&id=Comparison%20of%20Three%20Months%20Ended%20July%2031,%202021%20and%202020) Total revenues increased **43%** to **$26.8 million**, achieving **$1.1 million** gross profit, driven by service and generation revenues, despite increased operating expenses | Metric (in thousands) | 3 Months Ended July 31, 2021 | 3 Months Ended July 31, 2020 | Change ($) | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Total revenues | $26,820 | $18,728 | $8,092 | 43% | | Total costs of revenues | $25,720 | $21,856 | $3,864 | 18% | | Gross profit (loss) | $1,100 | $(3,128) | $4,228 | (135)% | | Gross margin | 4.1% | (16.7)% | | | Service and license revenues increased by **102%** to **$14.3 million**, primarily due to more module exchanges for projects with higher margins[175](index=175&type=chunk)[177](index=177&type=chunk)[179](index=179&type=chunk) Generation revenues increased by **32%** to **$6.2 million**, driven by higher operating output and an increase in the generation fleet size[180](index=180&type=chunk) Administrative and selling expenses increased to **$8.7 million** from **$6.6 million**, due to legal expenses for tax equity financings, higher share-based compensation, and increased compensation expense[186](index=186&type=chunk) Research and development expenses increased to **$3.0 million** from **$1.0 million**, reflecting increased spending on hydrogen commercialization initiatives[187](index=187&type=chunk) Net loss attributable to common stockholders decreased to **$12.8 million** from **$16.1 million**, and loss per share improved to **$0.04** from **$0.07**, due to higher gross margin and lower interest expense, despite increased operating expenses[196](index=196&type=chunk)[199](index=199&type=chunk) [Comparison of Nine Months Ended July 31, 2021 and 2020](index=61&type=section&id=Comparison%20of%20Nine%20Months%20Ended%20July%2031,%202021%20and%202020) Total revenues increased **3%** to **$55.7 million**, but a **$7.3 million** gross loss occurred due to higher costs and operating expenses, despite improved loss per share | Metric (in thousands) | 9 Months Ended July 31, 2021 | 9 Months Ended July 31, 2020 | Change ($) | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Total revenues | $55,650 | $53,872 | $1,778 | 3% | | Total costs of revenues | $62,924 | $53,552 | $9,372 | 18% | | Gross (loss) profit | $(7,274) | $320 | $(7,594) | (2,373)% | | Gross margin | (13.1)% | 0.6% | | | Service and license revenues marginally increased by **$0.2 million** to **$19.9 million**, but gross loss from service and license revenues was **$1.1 million**, down from a gross profit of **$3.3 million**, due to residual value charges and increased performance guarantees[206](index=206&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk) Generation revenues increased by **17%** to **$17.3 million**, but gross loss from generation revenues increased by **114%** to **$6.0 million**, due to higher plant maintenance costs and depreciation[210](index=210&type=chunk)[211](index=211&type=chunk)[213](index=213&type=chunk) Administrative and selling expenses increased to **$27.3 million** from **$19.0 million**, driven by legal expenses for tax equity financings, higher share-based compensation, and increased compensation[215](index=215&type=chunk) Research and development expenses increased to **$7.8 million** from **$3.3 million**, due to increased spending on hydrogen commercialization initiatives[216](index=216&type=chunk) Net loss attributable to common stockholders increased to **$79.3 million** from **$72.8 million**, but loss per share improved to **$0.24** from **$0.35**, primarily due to higher weighted average shares outstanding[231](index=231&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=69&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Liquidity significantly improved to **$468.6 million** unrestricted cash, driven by equity offerings and debt reduction, with future liquidity tied to project completion and cash flows Unrestricted cash and cash equivalents increased to **$468.6 million** as of July 31, 2021, from **$149.9 million** as of October 31, 2020[29](index=29&type=chunk)[232](index=232&type=chunk) Net proceeds from common stock offerings totaled approximately **$156.4 million** in December 2020 and **$369.0 million** through July 31, 2021[30](index=30&type=chunk)[33](index=33&type=chunk)[233](index=233&type=chunk)[236](index=236&type=chunk) Repaid **$87.3 million** of the Orion Credit Agreement and **$6.5 million** of the PPP Note during the nine months ended July 31, 2021[30](index=30&type=chunk)[32](index=32&type=chunk)[233](index=233&type=chunk)[235](index=235&type=chunk) The operating portfolio includes **34.0 MW** of power plants as of July 31, 2021, generating approximately **$19.9 million** in annual revenue[181](index=181&type=chunk)[243](index=243&type=chunk) Projects in process total an additional **42.1 MW**, expected to generate operating cash flows upon completion[243](index=243&type=chunk)[247](index=247&type=chunk) | Commitment/Obligation (in thousands) | Total | Less than 1 Year | 1 – 3 Years | 3 – 5 Years | More than 5 Years | | :----------------------------------- | :------- | :--------------- | :---------- | :---------- | :---------------- | | Purchase commitments | $78,118 | $76,734 | $1,384 | $— | $— | | Term loans (principal and interest) | 38,257 | 8,031 | 15,875 | 9,706 | 4,645 | | Capital and operating lease commitments | 19,360 | 1,419 | 2,079 | 1,473 | 14,389 | | Sale-leaseback financing obligation | 17,216 | 2,977 | 5,423 | 5,386 | 3,430 | | Natural gas supply contract | 13,783 | 1,477 | 3,938 | 3,938 | 4,430 | | Option fee | 150 | 150 | — | — | — | | **Totals** | **$166,884** | **$90,788** | **$28,699** | **$20,503** | **$26,894** | [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=94&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) Management's critical estimates and assumptions impact financial statements, covering revenue, inventory, warranties, share-based compensation, and asset impairment, with periodic reviews Management's estimates and assumptions are critical for revenue recognition, contract loss accruals, inventory, product warranty, service agreement losses, share-based compensation, depreciation, impairment of goodwill and long-lived assets, lease liabilities, and contingencies[27](index=27&type=chunk)[315](index=315&type=chunk) Estimates are reviewed periodically, and revisions are reflected in the consolidated financial statements in the period they are determined to be necessary[27](index=27&type=chunk)[315](index=315&type=chunk) [ACCOUNTING GUIDANCE UPDATE](index=94&type=section&id=ACCOUNTING%20GUIDANCE%20UPDATE) Refer to Note 2 for details on recently adopted accounting guidance, with ASU 2016-13 having no material impact Refer to Note 2 for details on recently adopted accounting guidance[317](index=317&type=chunk) [Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=94&type=section&id=Item%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK.) Market risk exposure primarily involves interest rates and foreign currency, with limited impact from rate changes and an interest rate swap managing LIBOR fluctuations Cash is invested overnight with high credit quality financial institutions, limiting interest rate exposure on cash holdings[318](index=318&type=chunk) A **1%** change in interest rates would not have a material impact on results of operations as of July 31, 2021[318](index=318&type=chunk) Approximately **1.0%** of total cash and cash equivalents were in non-U.S. dollar currencies (Euro, Canadian dollars, South Korean Won) as of July 31, 2021, exposing the company to foreign currency exchange risk[320](index=320&type=chunk) An interest rate swap agreement is in place for the BFC Credit Agreement to fix the interest rate at **5.09%**, with fair value adjustments recorded quarterly[302](index=302&type=chunk)[321](index=321&type=chunk) [Item 4. CONTROLS AND PROCEDURES](index=96&type=section&id=Item%204.%20CONTROLS%20AND%20PROCEDURES.) Disclosure controls and procedures were effective as of July 31, 2021, with no material changes in internal controls over financial reporting Disclosure controls and procedures were evaluated and concluded to be effective as of July 31, 2021[323](index=323&type=chunk) No material changes in internal controls over financial reporting occurred during the last fiscal quarter[324](index=324&type=chunk) PART II. OTHER INFORMATION [Item 1. LEGAL PROCEEDINGS](index=97&type=section&id=Item%201.%20LEGAL%20PROCEEDINGS) Significant legal proceedings with POSCO Energy involve alleged license breaches, with FuelCell Energy seeking over **$200 million** and counterclaims of **$880 million** FuelCell Energy terminated License Agreements with POSCO Energy in June 2020 due to material breaches, including the unauthorized spin-off of its fuel cell business to Korea Fuel Cell Co., Ltd. (KFC)[329](index=329&type=chunk)[326](index=326&type=chunk)[327](index=327&type=chunk) The company is seeking over **$200 million** in damages from POSCO Energy and KFC in arbitration for losses suffered due to breaches and disclosure of proprietary information[332](index=332&type=chunk) POSCO Energy has filed counterclaims seeking approximately **$880 million** in damages, alleging misrepresentation of fuel cell technology capabilities[332](index=332&type=chunk) A Delaware court denied POSCO Energy's demand to inspect company books and records, concluding the purpose was improper[334](index=334&type=chunk) The company believes all legal actions by POSCO Energy are for improper purposes and continues to vigorously defend itself[336](index=336&type=chunk) [Item 1A. RISK FACTORS](index=101&type=section&id=Item%201A.%20RISK%20FACTORS) Updated risk factors include adverse COVID-19 impacts on operations and supply chain, plus ongoing risks from the repaid PPP Loan and an informal SEC inquiry The COVID-19 pandemic has adversely affected, and may continue to affect, business operations, supply chain, and financial results, leading to increased costs and potential disruptions[341](index=341&type=chunk) The company instituted mask mandates and a mandatory vaccination policy for U.S. employees by November 1, 2021, in response to the Delta variant[341](index=341&type=chunk) Repaid the **$6.5 million** PPP Loan in February 2021 and withdrew its forgiveness application, but the loan remains subject to SBA audit and an informal SEC inquiry[346](index=346&type=chunk)[347](index=347&type=chunk)[349](index=349&type=chunk) Risks associated with the PPP Loan include potential enforcement actions, fines, penalties, adverse publicity, and governmental investigations[347](index=347&type=chunk) [Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=105&type=section&id=Item%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The company repurchased **311 shares** in June 2021, solely for employee tax withholding related to stock-based compensation awards | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--------------------------- | :------------------------------- | :--------------------------- | | May 1, 2021 – May 31, 2021 | — | $— | | June 1, 2021 – June 30, 2021 | 311 | $10.09 | | July 1, 2021 – July 31, 2021 | — | $— | | **Total** | **311** | **$10.09** | Shares purchased were exclusively those surrendered by employees to satisfy statutory tax withholding obligations upon vesting of stock-based compensation awards[352](index=352&type=chunk) [Item 3. DEFAULT UPON SENIOR SECURITIES](index=105&type=section&id=Item%203.%20DEFAULT%20UPON%20SENIOR%20SECURITIES.) No defaults upon senior securities were reported during the period [Item 4. MINE SAFETY DISCLOSURES](index=105&type=section&id=Item%204.%20MINE%20SAFETY%20DISCLOSURES.) No mine safety disclosures were reported [Item 5. OTHER INFORMATION](index=105&type=section&id=Item%205.%20OTHER%20INFORMATION.) No other information was reported in this section [Item 6. EXHIBITS](index=106&type=section&id=Item%206.%20EXHIBITS.) This section lists all Form 10-Q exhibits, including corporate documents, warrant forms, agreements, and CEO/CFO certifications, plus XBRL documents Includes various corporate governance documents such as Certificates of Incorporation and By-Laws[355](index=355&type=chunk)[357](index=357&type=chunk) Lists warrant forms and letter agreements related to preferred stock and credit facilities[355](index=355&type=chunk)[357](index=357&type=chunk) Contains certifications from the Chief Executive Officer and Chief Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[357](index=357&type=chunk) Includes Inline XBRL documents for data tagging and presentation[357](index=357&type=chunk)