FuelCell Energy(FCEL) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements 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 | 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 | 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 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][8][30][33] Additional paid-in capital increased from $1,359.5 million to $1,908.0 million, reflecting capital raised through equity issuances[16][8] Accumulated deficit increased from $(1,164.2) million to $(1,241.1) million, indicating continued net losses[16][8] Consolidated Statements of Cash Flows | 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][271] 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][273] 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][274] Notes to Consolidated Financial Statements Note 1. Nature of Business and Basis of Presentation 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] 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] 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] Note 2. Recent Accounting Pronouncements 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] No other recent accounting guidance is expected to have a material impact[40] Note 3. Revenue Recognition 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] Discontinued revenue recognition of $22.2 million in deferred license revenue related to terminated POSCO Energy License Agreements due to pending arbitration[44] Note 4. Accounts Receivable, Net and Unbilled Receivables 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] The Company had no allowance for doubtful accounts as of July 31, 2021, and October 31, 2020[47] Note 5. Inventories 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] 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] Note 6. Project Assets 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] 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] Note 7. Goodwill and Intangible Assets 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] No impairment of goodwill or IPR&D was determined after the annual impairment analysis as of July 31, 2021[59] Note 8. Other Current Assets 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 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 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] Note 11. Leases 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] 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] Note 12. Stockholders' Equity and Warrant Liabilities 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] Sold approximately 44.0 million shares through an Open Market Sale Agreement, generating $369.0 million in net proceeds through July 31, 2021[33][73] Closed an underwritten offering of 25.0 million shares in December 2020, yielding $156.4 million in net proceeds[30][77] | 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 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] Series B Preferred Stock dividends were $0.8 million for each of the three-month periods ended July 31, 2021 and 2020[85] 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][91] Note 14. Loss Per Share 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] Note 15. Restricted Cash 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] Short-term restricted cash ($10.2 million) is expected to be released and become unrestricted within twelve months[99] Note 16. Debt 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] The Liberty Bank PPP Note of $6.5 million was repaid on February 11, 2021, after the company withdrew its forgiveness application[32][106] Note 17. Benefit Plans 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][112] 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][113] 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] | 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 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] 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][329] 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][332] A Delaware court denied POSCO Energy's demand to inspect company books and records, finding an improper purpose for the request[126][334] Note 19. Subsequent Events 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][153][154] 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][156] 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][159] 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][160][163] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operations, and outlook, covering recent developments, revenue/expense comparisons, liquidity, and critical accounting policies FORWARD-LOOKING STATEMENTS 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] 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] Investors are cautioned that forward-looking statements are not guarantees of future performance and are based only on information currently available[149] OVERVIEW AND RECENT DEVELOPMENTS 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] 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][156] 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][163] 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] RESULTS OF OPERATIONS 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 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][177][179] Generation revenues increased by 32% to $6.2 million, driven by higher operating output and an increase in the generation fleet size[180] 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] Research and development expenses increased to $3.0 million from $1.0 million, reflecting increased spending on hydrogen commercialization initiatives[187] 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][199] Comparison of Nine Months Ended July 31, 2021 and 2020 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][207][208] 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][211][213] 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] Research and development expenses increased to $7.8 million from $3.3 million, due to increased spending on hydrogen commercialization initiatives[216] 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] LIQUIDITY AND CAPITAL RESOURCES 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][232] Net proceeds from common stock offerings totaled approximately $156.4 million in December 2020 and $369.0 million through July 31, 2021[30][33][233][236] 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][32][233][235] The operating portfolio includes 34.0 MW of power plants as of July 31, 2021, generating approximately $19.9 million in annual revenue[181][243] Projects in process total an additional 42.1 MW, expected to generate operating cash flows upon completion[243][247] | 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 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][315] Estimates are reviewed periodically, and revisions are reflected in the consolidated financial statements in the period they are determined to be necessary[27][315] ACCOUNTING GUIDANCE UPDATE 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] Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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] A 1% change in interest rates would not have a material impact on results of operations as of July 31, 2021[318] 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] 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][321] Item 4. CONTROLS AND PROCEDURES 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] No material changes in internal controls over financial reporting occurred during the last fiscal quarter[324] PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS 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][326][327] 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] POSCO Energy has filed counterclaims seeking approximately $880 million in damages, alleging misrepresentation of fuel cell technology capabilities[332] A Delaware court denied POSCO Energy's demand to inspect company books and records, concluding the purpose was improper[334] The company believes all legal actions by POSCO Energy are for improper purposes and continues to vigorously defend itself[336] Item 1A. RISK FACTORS 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] 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] 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][347][349] Risks associated with the PPP Loan include potential enforcement actions, fines, penalties, adverse publicity, and governmental investigations[347] Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 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] Item 3. DEFAULT UPON SENIOR SECURITIES No defaults upon senior securities were reported during the period Item 4. MINE SAFETY DISCLOSURES No mine safety disclosures were reported Item 5. OTHER INFORMATION No other information was reported in this section Item 6. EXHIBITS 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][357] Lists warrant forms and letter agreements related to preferred stock and credit facilities[355][357] 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] Includes Inline XBRL documents for data tagging and presentation[357]