FuelCell Energy, Inc.

Good morning and welcome to the fuel cell energy All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session. If you would like to ask a question during this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press star one. Thank you. Tom Gelston, Senior Vice President, Finance and Investor Relations. You may begin your conference.

Thank you, and good morning, everyone, and thank you for joining us on today's call. As a reminder, this call is being recorded. This morning, Fuel Cell Energy released our financial results for the second quarter of 2023, and our earnings press release and our annual report on Form 10-K are available in the Investor section of our website at www.fuelcellenergy.com. Consistent with our practice, in addition to this call and our earnings press release, we have posted a slide presentation on our website. This webcast is being recorded and will be available for replay on our website approximately two hours after we conclude the call. Before we begin, please note that some of the information that you will hear or be provided with today will consist of forward-looking statements within the meaning of the Securities Exchange Act of 1934. Such statements express our expectations, beliefs, and intentions regarding the future, and include without limitation statements with respect to our anticipated financial results, our plans and expectations regarding the continuing development, commercialization, and financing of our fuel cell technology, and our business plans and strategies. Our actual future results could differ materially from those described in or implied by such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the Safe Harbor Statement in the slide presentation and in our filings with the Securities and Exchange Commission, particularly with risk factor section of our most recently filed annual report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures, and we refer you to our website and to our earnings press release and the appendix of the slide presentation for the reconciliation of those measures to GAAP financial measures. Our earnings press release and a copy of today's webcast presentation are available on our website at www.fuelcellenergy.com under investors. For our call today, I am joined by Jason Few, Fuel Cell Energy's President and Chief Executive Officer, and Mike Bishop, Fuel Cell Energy's Executive Vice President and Chief Financial Officer. Following our prepared remarks, we will be available to take your questions and be joined by other members of the senior leadership team. I will now hand the call over to Jason for opening remarks. Jason?

Thank you, Tom, and good morning, everyone. Thank you for joining us on our call today. Today, we are pleased to announce another quarter of strong revenue growth. We also want to highlight our consistent operational progress on key projects and strategic objectives, including our tri-generation distributed hydrogen platform at the Port of Long Beach, California, which has entered the commissioning phase, continued development of our solid oxide power generation and electrolysis platforms, carbon separation, and carbon capture technologies, and our continued focus on extending advanced applications for our platforms. For anyone who may be new to the fuel cell energy story, we have included a company overview on slide three. Our purpose is to enable a world empowered by clean energy. We are proud to be a global leader in clean energy technology. In simple terms, our proprietary fuel cell technology platforms do two things, decarbonize power and produce hydrogen. We operate in North America, Asia, and Europe, and we are focused on entering additional markets around the world. We have 95 platform installations in commercial operation and have generated more than 13 million megawatt hours to date. The technology behind these high-temperature electrochemical energy platforms underpins both our tri-generation and carbon capture platforms, which we believe enables Fuel Cell Energy to leverage 20 years of operating history and sets the stage for us to meet the evolving needs of our current and future customers. Next, please turn to key messages for this quarter shown on slide four. First, we are very pleased to announce consistent operational progress on key projects. During the quarter, We completed new module exchanges at the plant owned by Korea Southern Power Company in Korea, which achieved commercial operations in fiscal year 2018. The new module exchanges were an important driver of our service agreement's revenue in the quarter. At our Toyota Port of Long Beach, California project, the fuel cell platform has advanced to the commissioning phase of project deployment. We anticipate that the remaining commissioning activity will be completed and commercial operations will be achieved in our third fiscal quarter. Under our hydrogen power purchase agreement with Toyota, this project has a 20-year firm offtake commitment for hydrogen and power. And we have entered into a contract with Energia to supply renewable natural gas. We will continue to leg into gas supply over time The renewable natural gas is produced from local food waste and municipal wastewater, which we expect will allow our tri-generation system to produce three emission-free value streams, hydrogen, electricity, and water for our customer Toyota. In Derby, Connecticut, on-site construction of the 14-megawatt project continues to advance, And four of the 10 modules required for the project have been delivered for installation. On-site civil construction of the 2.8 megawatt project is also advancing. We expect to achieve commercial operation on both of these projects in the fourth quarter of calendar year 2023. Secondly, we are progressing on the development of advanced applications of our platforms. We received an order from an affiliate of ExxonMobil Technology and Engineering Company, or EmTech, and ExxonMobil for long lead fuel cell equipment and tooling to be acquired from third party vendors, as well as engineering support from the company that would be required in connection with the implementation of a potential carbon capture demonstration. We continue to advance our testing work under our joint development agreement with EmTech, which we believe validates our confidence in our carbon capture technology. In addition, we believe that this demonstration project would provide an outstanding opportunity to demonstrate our technology's ability to address one of the largest environmental challenges of today, efficiently and cheaply capturing carbon at the direct point of emissions and destroying NOx. Government incentives such as 45Q in the United States and the carbon border adjustment mechanism in the European Union are just two examples of the global support for reducing carbon emissions. In addition, we recently announced that we have executed a memorandum of understanding with Chart Industries to partner in exploring opportunities in carbon capture for use or sequestration, as well as generation and storage of gaseous or liquefied hydrogen. I will discuss this in more detail later in the presentation. Thirdly, We are continuing to focus on expanding our solid oxide manufacturing capacity. Our plan to expand manufacturing capacity in our Calgary facility from 4 megawatts to 40 megawatts is progressing. We have more than doubled our manufacturing square footage, and we have hired and trained additional team members for a third shift production operation. During calendar year 2023, our Calgary manufacturing operation is expected to build and deliver four units. two units that will run internally for advanced testing, and two first article production units for delivery externally. We have started manufacturing the 250 kilowatt electrolysis platform for delivery to Idaho national laboratories. In addition, we continue to opportunistically evaluate options to benefit from global policy tailwinds. In addition to the Inflation Reduction Act, and the Infrastructure Investment and Jobs Act in the United States, global support for green energy includes the European Union's proposed approximately $270 billion program, also known as the European Green Deal, and Korea's Clean Hydrogen Energy Portfolio Standard, also known as Korea's Hydrogen Economy Roadmap. We believe that these policies will support and drive increasing demand for clean energy technologies to decarbonize power produce hydrogen, and deliver resiliency, reliability, redundancy, energy security, energy independence, and affordability. Lastly, we continue to focus on maintaining liquidity and exercising a disciplined approach to capital allocation. Subsequent to the end of the quarter, we closed on an $87 million non-recourse project financing facility. The facility, which was oversubscribed due to strong lender interest, further improves our balance sheet strength and flexibility. Now, I will turn the call over to Mike to discuss the financial results for the second quarter as well as our new financing arrangements in more detail. Mike?

Thank you, Jason, and good morning to everyone on the call today. Let's begin by reviewing the financial highlights for the quarter shown on slide six. For the second quarter of fiscal year 2023, we reported total revenues of $38.3 million compared to $16.4 million in the second quarter of fiscal year 2022, an increase of 134%. Net loss was $33.9 million in the second quarter of fiscal year 2023 compared to net loss of $30.1 million in the second quarter of fiscal year 2022. The resulting net loss per share attributable to common stockholders in the second quarter of fiscal year 2023 was negative 9 cents compared to negative 8 cents in the second quarter of fiscal year 2022. Adjusted EBITDA totaled negative 26 million in the second quarter of fiscal year 2023 compared to adjusted EBITDA of negative 21.2 million in the second quarter of fiscal year 2022. Please see the discussion of non-GAAP financial measures, including adjusted EBITDA, in the appendix at the end of our earnings release. Finally, the company held total cash, cash equivalents, and short-term investments of over $350 million as of April 30, 2023. Next, please turn to slide 7 for additional details on our financial performance and backlog. The chart on the left-hand side graphically shows our revenue composition by line item. Looking at revenue drivers by category, service agreement revenues increased to $26.2 million from $2.6 million. Service agreement revenues recognized during the second quarter of fiscal year 2023 were primarily driven by new module exchanges at the plant owned by Korea Southern Power Company in Korea While there were no new module exchanges during the comparable prior year quarter, the company expects a lower level of module exchanges during the balance of the fiscal year. Generation revenues decreased to $8.4 million from $9.1 million, which is primarily the result of the timing of revenue recognition for the sale of renewable energy credits compared to the comparable prior year period. Advanced technology contract revenues decreased to 3.7 million from 4.7 million. Compared to the second quarter of fiscal year 2022, advanced technologies contract revenues recognized under our joint development agreement with ExxonMobil Technology and Engineering Company were approximately $0.3 million higher and revenue recognized under government and other contracts were approximately $1.3 million lower as a result of the allocation of engineering resources during the quarter. Looking at the top right-hand side of the slide, I will walk through the changes in gross loss and operating expenses. Gross loss for the second quarter of fiscal year 2023 totaled $6.1 million compared to a gross loss of $7.3 million in the comparable prior year quarter. The decrease in gross loss is primarily due to favorable service agreement gross margins partially offset by the decrease in generation revenue gross margin resulting from a project asset impairment and a decrease in gross profit for advanced technologies. Operating expenses for the second quarter of fiscal year 2023 increased to $29.8 million from $20.9 million in the second quarter of fiscal year 2022. Administrative and selling expenses were higher during the second quarter of fiscal year 2023, primarily due to an increase in headcount. Research and development expenses increased to $14.7 million during the second quarter of fiscal year 2023, primarily due to an increase in spending on the company's ongoing commercial development efforts related to our solid oxide power generation and electrolysis platforms and carbon separation and carbon capture solutions compared to the prior year period. On the bottom right of the slide, you will see that we finished the quarter with backlog of approximately $1 billion, a decrease of 23% compared to backlog as of April 30th, 2022. Reduction in backlog is due in part to the decision in the fourth quarter of fiscal year 2022 not to move forward with certain generation projects given their economic profiles at the time as well as revenue recognition under product, generation, and service agreements since April 30, 2022. On slide 8 is an update on our liquidity and ongoing investment in project assets. As of April 30, 2023, we had total cash, cash equivalents, and short-term investments of $353.5 million. This total includes 246.8 million of unrestricted cash and cash equivalents represented by the darker blue bar on the chart in the center of the slide, 30.2 million of restricted cash and cash equivalents represented by the purple bar, and 76.4 million of short-term investments represented by the lighter blue bar. The short-term investments represent the amortized cost of U.S. Treasury securities purchased by the company during the first and second quarters of fiscal year 2023 as part of the company's cash management optimization effort, all of which are expected to be held to maturity. Looking at the right-hand side of the slide, there is a chart illustrating our total project assets, which make up our company-owned generation portfolio. As of April 30, 2023, our gross project assets total $273.2 million, which excludes accumulated depreciation. As detailed on slide 19 in the appendix of this presentation, our generation portfolio totaled 63.1 megawatts of assets as of April 30, 2023. This includes 43.7 megawatts of operating assets and 19.4 megawatts of projects in process. As projects in process begin commercial operation, they are expected to contribute to higher generation revenue. Now, please turn to slide nine, which is a great example of how the company has been able to recycle cash from our generation portfolio. We were very pleased to close on a new project financing agreement subsequent to the end of our second quarter. In spite of the current challenges in the fixed income markets, we're able to diversify our sources of capital and increase the efficiency of our financing structure by entering into an $87 million non-recourse project financing facility. After a portion of the proceeds were used to repay some of the company's existing indebtedness and certain restricted and unrestricted reserve accounts and cash reserves were released at closing, this financing transaction yielded net cash proceeds to Fuel Cell Energy of $60.6 million, of which $46.1 million is unrestricted and may be used to accelerate commercialization of our hydrogen fuel cell technologies for strategic initiatives and for general corporate purposes. 14.5 million of the net cash proceeds is restricted and has been used to fund performance reserves. We partnered with a diverse bank group consisting of Investec Bank, Bank of Montreal, Liberty Bank, Amalgamated Bank, and Connecticut Green Bank. This facility provides a seven-year term loan at competitive interest rates secured by six of our long-term contracted operating assets, which are contracted with investment grade counterparties. Finally, please turn to slide 10. I would like to confirm that our projected investments that we introduced at the beginning of the fiscal year are on track. The three primary targeted areas for investments are capital commitments for property, plant, and equipment, research and development, and continued build out of our generation portfolio. Capital commitments for property, plant, and equipment are expected to range between 60 to 90 million for fiscal year 2023. We expect cash for these commitments will be expended over fiscal years 2023 and 2024. CAPEX includes expected investments in our manufacturing facilities for both carbonate, including carbon capture, and solid oxide production capacity expansion. The addition of test facilities for new products and components The expansion of our laboratories and upgrades to an expansion of our business systems, the solid oxide production capacity expansion is well underway in our Calgary Canada facility. In addition, we are evaluating the potential for additional manufacturing facilities in the United States to complement Calgary and support the growth that we anticipate. Looking at research and development, our R&D efforts continue to be focused on commercialization of our hydrogen technologies, including long duration energy storage and carbon capture. We estimate that full year R&D expenses for fiscal year 2023 will be in the range of $50 to $70 million. We estimate that full year expenditures for project assets will be in the range of $45 to $65 million. This includes the amounts being expensed for the Toyota project. As projects in our generation portfolio begin operation under long-term power purchase agreements and hydrogen power purchase agreements, we expect this investment to translate into growth and recurring revenues and provide continued opportunities for tax equity and back leverage debt financing. All of the investments that I have described on this slide are expected to drive future growth. In closing, I am pleased with the progress made this past quarter. From a financial perspective, we believe that we remain well-positioned to execute on our near, medium, and long-term powerhouse business strategy. I will now turn the call back over to Jason.

Thanks, Mike. As we have stated in previous quarters, our powerhouse business strategy serves as our framework for achieving long-term growth. I will summarize our approach on slide 12. The first tenet is growth. We are working to optimize our business for achieving growth in markets where we see significant opportunities for our platform technologies. We have created geographic market, segment, and application specific playbooks that are focused on building a robust sales pipeline. Our business development team is focused on moving the pipeline from prospects to executed agreements. The second is scale. We plan to scale our existing platforms by investing in, extending, and deepening our leadership and total human capital across the organization. Across our operations, we are focused on optimizing manufacturing capacity for our carbonate platform with the goal of achieving 100 megawatts of annualized integrated onsite manufacturing and conditioning capacity. We are also working to expand our solid oxide manufacturing capabilities with a goal of adding an additional 400 megawatts of manufacturing capacity in the United States. We believe that the legislation enacted and being contemplated around the world will, over time, serve as a catalyst to support the acceleration of adoption of products like ours and to ultimately drive down costs. And third, innovate. Over our 50-year history, we have never stopped innovating. As shown in the earlier slide, we have hundreds of patents granted or pending in jurisdictions around the world. We believe our technologies and our culture provide the opportunity for our participation in the growth of the hydrogen economy and carbon capture market, and will enable us to deliver on our purpose to enable a world empowered by clean energy. We are working to develop diversified revenue streams by delivering a range of solutions and services anchored by our multi-feature platforms that support the global energy transition. Please turn to slide 13. Our collaboration with Chart Industries announced after the end of the second quarter is a great example of how we plan to innovate and work with partners to deliver complete solutions to our customers. We are excited to collaborate with Chart Industries with the goal of delivering innovative sustainable solutions for our customers. As you may know, Chart Industries is a leading technology company that provides equipment and services for a range of applications, including CO2 and hydrogen liquefaction and compression. We at Fuel Cell Energy plan to bring our expertise in manufacturing high temperature electrochemical fuel cell energy platforms to the collaboration. Our intent is to apply our two companies' complementary strengths to deliver reliable and efficient carbon dioxide capture for use or sequestration, as well as generation and storage of gaseous or liquefied hydrogen. As an example, in the food and beverage industry, beverage-grade CO2 is a critical input but is often in short supply, lacks clear price signals, and generally does not offer long-term price or supply hedging. We believe our combined capabilities can help provide this sector with consistent pricing, surety of supply availability, and quality. We look forward to providing updates as this relationship further develops. Before moving to Q&A, I will conclude with takeaways on slide 14. I'm excited about how, over the last four years, our company has navigated our transformational journey. Our technologies under development are progressing toward commercialization, and we believe that these technologies will have a positive impact on our world in the future. We are making consistent operational progress. We are executing on large, complex projects for our customers and proving the capabilities of our multifunction technologies with two projects expected to begin commercial operation in the next six months. We are making progress on developing advanced applications of our platforms and are continuing to collaborate with EmTech and working to develop new collaborative relationships with companies like Chart Industries. We are working to expand our solid oxide manufacturing capacity. We believe that our investment in such expansion will support our future ability to capture market opportunities for sub-megawatt power generation and high-efficiency electrolysis products. Globally, policies to support the energy transition are gaining momentum. With the Inflation Reduction Act in the United States, as well as efforts we are seeing internationally, and we believe we are well positioned to benefit from these tailwinds. We have worked to maintain our liquidity, have remained focused on disciplined capital allocation, and have expanded our banking relationships, we believe we are positioned for future growth. We believe Fuel Cell Energy is well positioned to capture market opportunities over the coming years and deliver enhanced shareholder returns over the long run. I will now turn it over to the operator to begin Q&A.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We ask that you please limit yourself to one question and one follow-up. Your first question comes from the line of George Janerakis from Canaccord. Your line is open.

Hey, everyone. Good morning, and thanks for taking my questions, and congrats on the financing. Maybe just to start... You're very close to commercial launch of your Toyota tri-gen project. And I'm curious as to if you can kind of help us understand what the bottlenecks that are left are and making sure that you get that up and running shortly and whether or not you have seen any additional interest from others as you approach commercial launch with Toyota.

George, good morning and thank you for being on the call. This is Jason. I'll ask Mike Lozowski to give you a little bit more detail on where we are on the commissioning phase of our project at the Port of Long Beach with Toyota. But the first thing maybe I'll just say, and then I'll pass it over to Mike, is that we really are not seeing bottlenecks relative to getting to COD. It's just the normal part of our commissioning process that we go through on a platform like our tri-gen platform. But Mike, maybe you can give some more insight on where we are on commissioning and our timing for Q3 COD.

Yes, thank you, Jason, and thank you, George, for the question. So the Toyota project is advancing steadily forward, and Toyota is pleased with the progress and the status. As we've reported, the construction work is now complete, and we're in the final phase of the work, which is the commissioning phase. Overall, the system process and controls testing has been successfully completed and we're focused on the process of finalizing the subsystem optimization. This is the work that we'll do prior to preparing the plant to ramp up to commercial operation, which as we've reported is expected and will be achieved this summer.

Great. Thank you. And just as a follow-up, I'd like to switch gears a little bit and ask about things related to Washington and the Inflation Reduction Act. There are a few issues outstanding in terms of additionality, deliverability, and matching. I'm curious as to what your view is on where you think Washington ends up and how that could impact your business. Thanks.

It's a great question. And, you know, we clearly don't have a crystal ball in terms of where Washington is definitely going to land, but we expect that we'll get more clarity this month is kind of our view of where things stand today. We think that, you know, the IRA in general is a real positive for us as a company. We think that, you know, what the IRA is trying to deal with is both kind of driving demand and then also helping on the supply side. When you look at the ITC and the ability to get somewhere up between 50% to 70% cost recovery on these projects, that's really helpful to drive momentum from an adoption standpoint, really helpful to help drive scale to bring down costs. And we saw this play out with wind and solar. Ultimately, decisions around additionality, when the DOE and the Treasury Department really looks at that or the administration, I think that they're going to land probably on the right place and really look at the practicalities of implementation around IRA, how they're going to get the biggest momentum around this, and then phasing in maybe more aggressive things over time, but I think additionally, I think they're going to be really constructive on supporting projects that we're engaged in.

Thanks so much. Thank you, George.

And your next question comes from a line of Manav Gupta from UBS. Your line is open.

Good morning, guys. I want to go back to the May 1 announcement with ExxonMobil. Looks like you are making strong strides towards commercializing your carbon capture technology. So help us understand what could be the next steps in terms of your outlook, how much of this business could grow for you guys, and what else should we watch for? More customers, patents, like How should we track the progress of this specifically as it relates to the last May 1 announcement that you had?

Munaf, thank you very much for your question. This is Jason again. You know, look, we're really excited about the progress that we're making on our carbon capture technology as a company, right? We believe very strongly that carbon capture technology is one of the essential elements to achieving decarbonization. I think if you look at the IRA and legislation, like we talked about the EU carbon border tax, you see clear policy driving the need for solutions around carbon capture technology. If you look at just recently in May, the EPA ruling around power generation and decarbonization and what needs to happen there You've got really strong support globally to address what the EIA forecast to be roughly 38 gigatons of CO2 that we need to deal with. With our technology and Exxon and the May announcement, what that is driving toward is long lead items in support for the possibility of doing a demonstration project. That is driven largely by our demonstration of technical milestones that we continue to demonstrate with our carbon capture technology and the enhancements that we're making really around two things. You know, we refer to as carbon transfer and power density, and we feel really good about that. So we think over time, as we outlined previously, you know, in an analyst day a little over maybe a year ago, we see carbon capture and our technology really being able to participate in about a trillion dollar market between now and 2030. So the things that you should look for are additional demonstration announcements, not only with Exxon, but with other customers where we have the ability to showcase the technology, which is differentiated from the aspect of the only technology we're aware of that can capture carbon from an external source, produce power, and hydrogen simultaneously, and the extra benefit of doing something that is really also unique to our platform, and that's the destruction of NOx. So we feel really good about where we are. We think it's a big market opportunity, and we look forward to pursuing it.

Perfect. My quick follow-up is if you could also help us give some more details around the commercialization of your solid oxide fuel cells and electrolyzers. And let's say a decade down the line, do you actually think that solid oxide could be a more prevailing technology and you would be bigger in solid oxide than other technologies? So how does this shake out? Would you be like a 50-50 company in terms of solid oxide or would that become the dominating technology even for fuel cells?

That's a really good question. I think if I go a decade out and I tried to use a crystal ball of what I see, You know, I think that we will see strong growth in our solid oxide platform for kind of two primary reasons. One, we see time to power as a really significant issue when you look across not only the U.S., but around the world and just interconnection and other issues and transmission and things that are creating significant delays to implementing power infrastructure. And we see that our ability to now have a sub-megawatt platform will give us a chance to participate in more opportunities than we've traditionally participated in as a company. So we see growth there. We also see really strong growth around one of the second things that we consider really important to the decarbonization effort, and that is hydrogen. And so electrolysis is And with the growth of hydrogen both as a replacement fuel or an additive fuel to traditional hydrocarbons, as well as transportation, we see strong growth there. We think our differentiation on solid oxide electrolysis, both from an efficiency standpoint, reversibility, the ability to use the same stack for hydrogen production and power generation, we think will give us some advantages in the market. So I think, you know, looking 10 years out, We certainly see strong growth on solid oxide. We think it will be a significant part of our portfolio. Where we see growth in carbonate though, as you think about the platform today, I'd ask you to maybe think about it slightly differently 10 years from now, because our carbonate platform is the driver for carbon capture. And we think that is a big market. Like I talked about, that's a trillion dollar TAM the way we see it between now and 2030 so i think what you'll see is strong growth in solid oxide and perhaps some power generation pure power generation applications maybe solid oxide becomes you know a bigger part of our portfolio i think when you think about uh hydrogen generation we certainly see that solid oxide and electrolysis takes on a bigger piece of the opportunity for us but We still see opportunity for carbonate, like for our Trigen platform, like we're building in California, because there are going to be markets where water is going to be a constraint. There's going to be markets where there's strong power markets where a platform like Trigen actually is the better solution for that particular application. So we see strong opportunity for carbonate there as well over time. So I think you're going to see an application makes difference. but you'll definitely see strong growth in solid oxide for sub-megawatt and electrolysis.

Thank you so much for the detailed response.

Thank you.

Your next question comes from the line of Eric Stein from Craig Hallam. Your line is open.

Hi everyone. Hey Eric, good morning. Hey, good morning. So maybe just on the product side, I know You know, with the with the POSCO settlement, you know, you're kind of freed up in Asia and you've been made you've been making a number of investments in this area. And, you know, over the last couple of quarters, more optimism of traction there. So just maybe if you could give an update, I don't know if it's by geography, but just looking for any details on, you know, a potential pickup on the product side.

Yeah, so I assume Eric, maybe you're referring to like product sales. Is that what you mean by pickup on the product side?

I mean, product side, yeah, product sales, you know, adding a backlog and obviously traction there, something you've been targeting.

Sure. So I think, you know, when we look at our pipeline today, we see pretty good diversification geographically. So if I look at Asia and North America, probably representing the biggest aspect of our pipeline, Oceania and Europe kind of making up the balance or the larger portion of the balance and then other markets around the world. So we see good geographic diversification in terms of the opportunities that we're pursuing. As we look at the pipeline and we look at it from an application standpoint between hydrogen and electric power generation or traditional combined heat and power, we see a strong opportunity in our pipeline across both of those. I mean, hydrogen is obviously growing as an opportunity. in our pipeline. A lot of those projects are kind of longer dated projects, but certainly a lot of activity in hydrogen. And then we're seeing strong growth around CO2 utilization, actually, as there continues to be regional constraints on CO2 and, you know, just vast differences in pricing across CO2 in various markets. And then, you know, between our technologies, between solid oxide, solid oxide electrolysis, and our carbonate platform, you know, kind of based on, you know, kind of following on the last question, you know, we're seeing really strong uptake around electrolysis and our solid oxide fuel cell and kind of steady mix around carbonate. A lot of that, you know, carbonate growth in the short run is we see as opportunities because of the Korean market being a strong opportunity for us. As we indicated, we had been out of that market for almost six years. We've been back in the market for a little over a year now, and starting in January of this year, the restrictions around actually offering long-term service agreements to the existing customer base that was sold to by POSCO has expired as well. And so we see that as a really strong opportunity for the company as we are the only alternative, if you will, to do module replacements against that set of opportunities. So we think there will be strong pickup in Korea is our expectation. You know, there's some things that still need to be worked out there relative to those customers because those customers had over the last, call it five years or so, had been, you know, working under an LTSA with POSCO. So there were some things that were working with those customers to work through, but we feel optimistic about the opportunity there. And then when you look at programs like the Clean Hydrogen Portfolio Standard in Korea, You know, that's all greenfield opportunity. That's 200 megawatts of opportunities a year that Korea intends to deploy. So we, you know, we'll compete very aggressively for those opportunities.

Okay, that's great color. I guess maybe I should, I could have asked another way as well. I mean, if you look out two to four quarters, do you think that there is some product backlog to go along with obviously the, you know, billion dollar plus in the rest of your business?

Yeah, you know, we certainly don't give, you know, kind of outlooks that way. But what I would say is, yes, that's clearly, you know, an expectation that we'll build product backlog. And, you know, we've invested money in our sales organization. We brought in a new sales leader about a year ago, Mark Fiesel, that we brought in from Schneider, who is a very experienced sales leader. And the playbooks that we've developed from a sales opportunity standpoint, we feel good about. We feel good about the pipeline, the quality of the pipeline, our move of deals into contract and negotiation phases. So we should expect that you'll start to see backlog for product sales as well.

Okay, thanks.

And your next question comes from a line of Chris Souther from B. Riley. Your line is open.

Hey, guys. Thanks for taking my questions here. Maybe just a little bit more on the timing of the solid oxide deployment in Idaho and any update as far as, you know, what, you know, customer engagement looks like, you know, for that segment specifically as you're building up the pipeline. Do you think potential customers are waiting to see that project up and running? Is it kind of more clarity on kind of IRA? Like, what are customers kind of looking for, you know, and where are we in the education process?

Yeah, so maybe just to start with INL, you know, we expect to deliver INL this year. As we've talked about publicly, we expect to build and deliver four solid oxide platforms through our manufacturing capacity in Calgary. We think that the demonstration of the INL project will certainly serve as a catalyst to show what we believe will be strong differentiation of our product versus other products available on the market or other products that are in development on the market. You know, this application in INL is going to be a strong example of the power of integrating our platform with nuclear. And that really, you know, does two things. It demonstrates not only just the efficiency of our product, but the added value of being a high temperature fuel cell and being able to use waste heat from nuclear to even drive greater efficiency, to get the efficiency to 100% electrical efficiency. So we think that that'll serve as a catalyst. With respect to IRA and more clarification around that, I mean, look, part of the IRA is clear. ITC has been available for a while. That's pretty clear. The PTC is getting clearer in terms of how that's going to work. So as those things get finalized, that will also serve as another key to opening the gate to some of these opportunities as customers get much more comfortable in terms of how they're going to be able to take advantage of the tax attributes.

Got it. Okay. And then maybe a separate one. On the generation growth margins, you called out an impairment. Could you come and talk about that a little bit? And then can you talk about how overall generation growth margins should evolve with Toyota, Derby, and Trinity College coming online this year. Thanks.

Sure. Good morning, Chris. This is Mike, and I'll take those questions. So as we look at generation, yes, we did have one impairment which came through generation related to an old development asset that the company chose not to move forward with. As we think about generation margins going forward, you know, one thing that has been coming through the P&L, which has been a drag on generation margins, is we've been expensing capital costs related to the Toyota project. I believe there's about four and a half million coming through this quarter. Certainly as Toyota comes online, those costs will mitigate. What we target for our generation portfolio is EBITDA in the 40 to 50% range. So when you do the math and you essentially back out the charges for tariff impairments as well as depreciation, we're in that range this quarter and are for the fiscal year. So that's how we think about the EBITDA margins in that portfolio going forward.

Got it. Okay. That's helpful. Yep.

And again, if you would like to ask a question, press star, then the number one on your telephone keypad. Your next question comes from a line of Noel Parks from Tuohy Brothers. Your line is open.

Hi, good morning. Good morning.

I was wondering, could you talk a bit about, I'm thinking in particular about the partnership with Chart. It seems that we are seeing more, lately, partnerships between standalone public companies rather than maybe what we've been seeing in the past, sort of like the public companies taking a smaller private under their wing with the potential for vertical integration and some functions. And so I just wonder if you see these sort of partnerships as sort of a one-off for you or something that's more inevitable or a harbinger of heading towards consolidation across some related cleantech sectors?

Yeah, no, this is Jason. Maybe I'll start here. I won't make any comments relative to M&A or consolidation, but I'll talk about partnerships more broadly. We think that a partnership with Chart is a great example of our commitment to be able to take fully integrated solutions to our customers. customers really want to buy energy as a service. They're not looking to be the integrators of energy technologies. So when you think about our platforms, just as an example, and if you were to use an analogy of our platform to like an enterprise software platform. So our platform has a number of different capabilities and you can plus those capabilities on or you can plus those capabilities off. So when you begin to plus those capabilities on, let's take something like carbon utilization in food and beverage category as an example. There are elements of that solution for a customer that we need that we feel so energy don't manufacture and we don't intend to manufacture because there are other people that do that and we'll leverage those technologies. So Chart, as an example, is one of those companies that gives us the ability to to go to a customer and say, we can deliver you onsite generation, we can deliver to you thermal energy, so you can either reduce boilers or replace boilers, and we can deliver to you beverage-grade CO2 for use in your food or beverage process. In so doing that, with someone like Chart, we can take a full solution that will include not only our platform, but other elements that you need, storage for the CO2, purification of the CO2, which we don't do. And so that partnership and having integrated solutions that you know you can take to customers and can replicate also helps you close transactions faster because you have an integrated solution through a partnership. So I think you're going to see more of that if you look at the work that we're doing at Toyota, right? Our platform is delivering power, hydrogen, and water, but, you know, we don't make fueling stations, and so there's another provider that's delivering the fueling station infrastructure that's also needed to fuel the Mirai and to fuel the Class 8 heavy duty truck they've jointly developed with PACCAR. So we see these kind of partnerships as really important to our overall strategy, just like the one we announced with MMHE, where there we're working to do large scale solid oxide electrolysis opportunities. And so those kind of partnerships become really important to total solution delivery. And we'll continue to do those things where it makes sense.

Great. Thanks a lot. It's really illuminating. And you talked a little bit about margins you're looking for with a generation portfolio. I just wondered if you could talk a little more broadly about sort of what's next for the portfolio. If we look ahead to the next few quarters, are you seeing more interest or more urgency around utility projects or more like the municipal or industrial water projects?

Yes. So we see a few things, right? When you think about, if I just take North America, the government's been pretty clear about where focus ought to be, right? They said infrastructure is really important, the IRA is really important, and chips are really important. We participate in two of those things, right? Infrastructure and the IRA, and we have solutions that deliver on the grid side, resiliency, reliability, redundancy, and affordability. We think that's important, and we are seeing, you know, more and more time to power projects, more desire to do distributed power generation where there's actually demand in those demand centers. And a lot of that is also being driven by just the amount of time it's taking to permit, do interconnections, or build new high voltage transmission, which is well chronicled in the challenges that exist around that. So we are seeing more opportunity there. We're seeing really solid opportunity around, like I talked about, you know, CO2 utilization. We have a number of opportunities in our pipeline around carbon capture, you know, and that's consistent with the work that we're doing with Exxon as an example. So we are seeing that across our technology, there's real market interest for what we're doing. And we're seeing, you know, interest in sub-megawatt, you know, around our solid oxide platform. And we talked earlier this year around a sale that we've closed there. And so we look forward to continuing to move forward with both our platforms and addressing specific applications where we think we have a right to win.

Great. Thanks a lot.

Thank you. And as there are no more questions, I'd like to turn the call back over to Jason Few for final closing remarks.

Rob, thank you. We will continue to execute on our powerhouse business strategy with the goal of delivering growth and optimizing returns. Thank you all for joining the call today and for your interest in fuel cell energy. We look forward to updating you again next quarter. I hope everyone has a great day. Thank you very much.

This concludes today's conference call. Thank you for your participation. You may now disconnect.