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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to

Commission file number: 1-14204

 

FUELCELL ENERGY, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

06-0853042

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

3 Great Pasture Road

Danbury, Connecticut

 

06810

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (203) 825-6000

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes       No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

Number of shares of common stock, par value $0.0001 per share, outstanding as of June 1, 2018:  85,964,710

 


 

FUELCELL ENERGY, INC.

FORM 10-Q

Table of Contents

 

 

 

 

 

Page

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Consolidated Financial Statements (unaudited).

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets as of April 30, 2018 and October 31, 2017.

 

3

 

 

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Loss for the three months ended April 30, 2018 and 2017.

 

4

 

 

 

 

 

 

 

Consolidated Statements of Operations and Comprehensive Loss for the six months ended April 30, 2018 and 2017.

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended April 30, 2018 and 2017.

 

6

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements.

 

7

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

20

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk.

 

36

 

 

 

 

 

Item 4.

 

Controls and Procedures.

 

37

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings.

 

38

 

 

 

 

 

Item 1A.

 

Risk Factors.

 

38

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds.

 

38

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities.

 

38

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures.

 

38

 

 

 

 

 

Item 5.

 

Other Information.

 

38

 

 

 

 

 

Item 6.

 

Exhibits.

 

39

 

 

 

 

 

Signatures

 

 

 

40

 

 

2


FUELCELL ENERGY, INC.

Consolidated Balance Sheets

(Unaudited)

(Amounts in thousands, except share and per share amounts)

 

 

 

April 30,

 

 

October 31,

 

 

 

2018

 

 

2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents, unrestricted

 

$

66,973

 

 

$

49,294

 

Restricted cash and cash equivalents - short-term

 

 

5,249

 

 

 

4,628

 

Accounts receivable, net

 

 

46,189

 

 

 

68,521

 

Inventories

 

 

55,255

 

 

 

74,496

 

Other current assets

 

 

7,938

 

 

 

6,571

 

Total current assets

 

 

181,604

 

 

 

203,510

 

Restricted cash and cash equivalents - long-term

 

 

32,965

 

 

 

33,526

 

Project assets

 

 

79,595

 

 

 

73,001

 

Property, plant and equipment, net

 

 

44,667

 

 

 

43,565

 

Goodwill

 

 

4,075

 

 

 

4,075

 

Intangible asset

 

 

9,592

 

 

 

9,592

 

Other assets

 

 

15,121

 

 

 

16,517

 

Total assets

 

$

367,619

 

 

$

383,786

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

10,094

 

 

$

28,281

 

Accounts payable

 

 

42,813

 

 

 

42,616

 

Accrued liabilities

 

 

14,731

 

 

 

18,381

 

Deferred revenue

 

 

9,424

 

 

 

7,964

 

Preferred stock obligation of subsidiary

 

 

837

 

 

 

836

 

Total current liabilities

 

 

77,899

 

 

 

98,078

 

Long-term deferred revenue

 

 

17,841

 

 

 

18,915

 

Long-term preferred stock obligation of subsidiary

 

 

14,825

 

 

 

14,221

 

Long-term debt and other liabilities

 

 

82,804

 

 

 

63,759

 

Total liabilities

 

 

193,369

 

 

 

194,973

 

Redeemable Series B preferred stock (liquidation preference of $64,020 as of April 30, 2018 and October 31, 2017)

 

 

59,857

 

 

 

59,857

 

Redeemable Series C preferred stock (liquidation preference of $14,548 and $33,300 as of April 30, 2018 and October 31, 2017, respectively)

 

 

12,102

 

 

 

27,700

 

Total equity:

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock ($0.0001 par value); 225,000,000 and 125,000,000 shares

   authorized as of April 30, 2018 and October 31, 2017, respectively;

   84,898,762 and 69,492,816 shares issued and outstanding as of April 30, 2018

   and October 31, 2017, respectively

 

 

8

 

 

 

7

 

Additional paid-in capital

 

 

1,063,501

 

 

 

1,045,197

 

Accumulated deficit

 

 

(960,890

)

 

 

(943,533

)

Accumulated other comprehensive loss

 

 

(328

)

 

 

(415

)

Treasury stock, Common, at cost (182,962 and 88,861 shares as of April 30, 2018

   and October 31, 2017, respectively)

 

 

(447

)

 

 

(280

)

Deferred compensation

 

 

447

 

 

 

280

 

Total stockholders’ equity

 

 

102,291

 

 

 

101,256

 

Total liabilities and stockholders' equity

 

$

367,619

 

 

$

383,786

 

 

See accompanying notes to consolidated financial statements.

3


FUELCELL ENERGY, INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(Amounts in thousands, except share, per share and related party revenue amounts)

 

 

 

Three Months Ended April 30,

 

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

Product (including $10.9 million and $0.2 million of related party revenues)

 

$

12,200

 

 

$

737

 

Service and license (including $0.6 million and $1.3 million of related party revenues)

 

 

3,206

 

 

 

12,592

 

Generation

 

 

1,742

 

 

 

1,634

 

Advanced Technologies

 

 

3,682

 

 

 

5,454

 

Total revenues

 

 

20,830

 

 

 

20,417

 

Costs of revenues:

 

 

 

 

 

 

 

 

Product

 

 

13,947

 

 

 

3,204

 

Service and license

 

 

2,531

 

 

 

12,159

 

Generation

 

 

2,036

 

 

 

1,294

 

Advanced technologies

 

 

2,945

 

 

 

3,377

 

Total costs of revenues

 

 

21,459

 

 

 

20,034

 

Gross (loss) profit

 

 

(629

)

 

 

383

 

Operating expenses:

 

 

 

 

 

 

 

 

Administrative and selling expenses

 

 

7,085

 

 

 

6,483

 

Research and development expenses

 

 

5,021

 

 

 

5,386

 

Restructuring expense

 

 

 

 

 

10

 

Total costs and expenses

 

 

12,106

 

 

 

11,879

 

Loss from operations

 

 

(12,735

)

 

 

(11,496

)

Interest expense

 

 

(2,059

)

 

 

(2,310

)

Other income, net

 

 

1,620

 

 

 

532

 

Loss before benefit for income taxes

 

 

(13,174

)

 

 

(13,274

)

Benefit for income taxes

 

 

 

 

 

36

 

Net loss

 

 

(13,174

)

 

 

(13,238

)

      Series C preferred stock deemed dividends

 

 

(4,199

)

 

 

 

Series B preferred stock dividends

 

 

(800

)

 

 

(800

)

Net loss attributable to common stockholders

 

$

(18,173

)

 

$

(14,038

)

Loss per share basic and diluted:

 

 

 

 

 

 

 

 

Net loss per share attributable to common stockholders

 

$

(0.23

)

 

$

(0.33

)

Basic and diluted weighted average shares outstanding

 

 

79,563,265

 

 

 

42,568,818

 

 

 

 

Three Months Ended April 30,

 

 

 

2018

 

 

2017

 

Net loss

 

$

(13,174

)

 

$

(13,238

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

54

 

 

 

32

 

Total comprehensive loss

 

$

(13,120

)

 

$

(13,206

)

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

4


FUELCELL ENERGY, INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(Amounts in thousands, except share, per share and related party revenue amounts)

 

 

 

Six Months Ended April 30,

 

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

Product (including $11.4 million and $0.3 million of related party revenues)

 

$

41,730

 

 

$

2,544

 

Service and license (including $1.8 million and $2.9 million of related party revenues)

 

 

7,310

 

 

 

19,528

 

Generation

 

 

3,634

 

 

 

3,719

 

Advanced technologies

 

 

6,769

 

 

 

11,628

 

Total revenues

 

 

59,443

 

 

 

37,419

 

Costs of revenues:

 

 

 

 

 

 

 

 

Product

 

 

40,084

 

 

 

7,259

 

Service and license

 

 

5,937

 

 

 

18,425

 

Generation

 

 

3,645

 

 

 

2,409

 

Advanced technologies

 

 

5,771

 

 

 

7,130

 

Total costs of revenues

 

 

55,437

 

 

 

35,223

 

Gross profit

 

 

4,006

 

 

 

2,196

 

Operating expenses:

 

 

 

 

 

 

 

 

Administrative and selling expenses

 

 

13,227

 

 

 

12,487

 

Research and development expenses

 

 

9,067

 

 

 

10,778

 

Restructuring expense

 

 

 

 

 

1,355

 

Total costs and expenses

 

 

22,294

 

 

 

24,620

 

Loss from operations

 

 

(18,288

)

 

 

(22,424

)

Interest expense

 

 

(4,200

)

 

 

(4,577

)

Other income, net

 

 

2,096

 

 

 

123

 

Loss before benefit (provision) for income taxes

 

 

(20,392

)

 

 

(26,878

)

Benefit (provision) for income taxes

 

 

3,035

 

 

 

(45

)

Net loss

 

 

(17,357

)

 

 

(26,923

)

      Series C preferred stock deemed dividends

 

 

(7,662

)

 

 

 

Series B preferred stock dividends

 

 

(1,600

)

 

 

(1,600

)

Net loss attributable to common stockholders

 

$

(26,619

)

 

$

(28,523

)

Loss per share basic and diluted:

 

 

 

 

 

 

 

 

Net loss per share attributable to common stockholders

 

$

(0.35

)

 

$

(0.71

)

Basic and diluted weighted average shares outstanding

 

 

75,731,565

 

 

 

40,049,948

 

 

 

 

Six Months Ended April 30,

 

 

 

2018

 

 

2017

 

Net loss

 

$

(17,357

)

 

$

(26,923

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

87

 

 

 

(38

)

Total comprehensive loss

 

$

(17,270

)

 

$

(26,961

)

 

See accompanying notes to consolidated financial statements.

 

 

5


FUELCELL ENERGY, INC.

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

 

 

 

Six Months Ended April 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(17,357

)

 

$

(26,923

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Share-based compensation

 

 

1,378

 

 

 

2,226

 

Loss from change in fair value of embedded derivatives

 

 

45

 

 

 

25

 

Depreciation

 

 

4,302

 

 

 

4,296

 

Non-cash interest expense on preferred stock and debt obligations

 

 

2,845

 

 

 

2,958

 

Unrealized foreign exchange gains

 

 

(367

)

 

 

(259

)

Deferred income taxes

 

 

(3,035

)

 

 

 

Project asset impairment

 

 

485

 

 

 

 

Other non-cash transactions, net

 

 

203

 

 

 

241

 

Decrease (increase) in operating assets:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

24,379

 

 

 

(9,020

)

Inventories

 

 

30,981

 

 

 

(1,779

)

Other assets

 

 

(1,382

)

 

 

(366

)

Increase (decrease) in operating liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

3,290

 

 

 

(4,837

)

Accrued liabilities

 

 

(4,238

)

 

 

(5,684

)

Deferred revenue

 

 

386

 

 

 

547

 

Net cash provided by (used in) operating activities

 

 

41,915

 

 

 

(38,575

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(5,506

)

 

 

(8,290

)

Project asset expenditures

 

 

(21,749

)

 

 

(10,154

)

Cash acquired from asset acquisition

 

 

 

 

 

633

 

Net cash used in investing activities

 

 

(27,255

)

 

 

(17,811

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment of debt

 

 

(10,919

)

 

 

(6,299

)

Proceeds from debt

 

 

13,091

 

 

 

17,891

 

Payment of deferred financing costs

 

 

(352

)

 

 

(119

)

Payment of preferred dividends and return of capital

 

 

(2,096

)

 

 

(2,067

)

Cash received for common stock issued for stock plans

 

 

 

 

 

50

 

Proceeds from sale of common stock and warrant exercises, net

 

 

3,268

 

 

 

12,785

 

Net cash provided by financing activities

 

 

2,992

 

 

 

22,241

 

Effects on cash from changes in foreign currency rates

 

 

87

 

 

 

(38

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

17,739

 

 

 

(34,183

)

Cash, cash equivalents and restricted cash-beginning of period

 

 

87,448

 

 

 

118,316

 

Cash, cash equivalents and restricted cash-end of period

 

$

105,187

 

 

$

84,133

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

 

Cash interest paid

 

$

1,144

 

 

$

2,821

 

Noncash financing and investing activity:

 

 

 

 

 

 

 

 

Common stock issued for Employee Stock Purchase Plan in settlement of prior

   year accrued employee contributions

 

 

 

 

 

50

 

Net noncash reclass of project assets to inventory

 

 

11,740

 

 

 

 

Assumption of debt in conjunction with asset acquisition

 

 

 

 

 

2,289

 

Acquisition of project assets

 

 

 

 

 

2,386

 

Series C preferred share conversions

 

 

15,598

 

 

 

 

Accrued purchase of fixed assets, cash paid in subsequent period

 

 

273

 

 

 

1,816

 

Accrued purchase of project assets, cash paid in subsequent period

 

 

1,504

 

 

 

115

 

 

See accompanying notes to consolidated financial statements.

 

 

6


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Tabular amounts in thousands, except share and per share amounts)

Note 1.  Nature of Business and Basis of Presentation

FuelCell Energy, Inc., together with its subsidiaries (the “Company”, “FuelCell Energy”, “we”, “us”, or “our”) is a leading integrated fuel cell company with a growing global presence.  We design, manufacture, install, operate and service ultra-clean, efficient and reliable stationary fuel cell power plants.  Our SureSource power plants generate electricity and usable high quality heat for commercial, industrial, government and utility customers.  We have commercialized our stationary carbonate fuel cells and are also pursuing the complementary development of planar solid oxide fuel cells and other fuel cell technologies.  Our operations are funded primarily through sales of equity instruments to strategic investors or in public markets, corporate and project level debt financing and local or state government loans or grants.  In order to produce positive cash flow from operations, we need to be successful at increasing annual order volume and production and in our cost reduction efforts.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial information.  Accordingly, they do not contain all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements.  In the opinion of management, all normal and recurring adjustments necessary to fairly present our financial position and results of operations as of and for the six months ended April 30, 2018 have been included.  All intercompany accounts and transactions have been eliminated.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.  The balance sheet as of October 31, 2017 has been derived from the audited financial statements at that date, but it does not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with our financial statements and notes thereto for the year ended October 31, 2017, which are contained in our Annual Report on Form 10-K previously filed with the SEC.  The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.

Use of Estimates

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Estimates are used in accounting for, among other things, revenue recognition, excess and obsolete inventories, product warranty costs, accruals for service agreements, allowance for uncollectible receivables, depreciation and amortization, impairment of goodwill, indefinite-lived intangible assets and long-lived assets, income taxes, and contingencies. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.  Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates.

Related Parties

POSCO Energy Co., Ltd. (“POSCO Energy”) is a related party and owned approximately 3.0% of the outstanding common shares of the Company as of April 30, 2018.  Revenues from POSCO Energy for the three months ended April 30, 2018 and 2017 represent approximately 4.0% and 7.0%, respectively, of consolidated revenues and revenues from POSCO Energy for the six months ended April 30, 2018 and 2017 represent approximately 3.0% and 8.0%, respectively, of consolidated revenues.

NRG Energy, Inc. (“NRG”) is a related party and owned approximately 2.0% of the outstanding common shares of the Company as of April 30, 2018.  NRG Yield, Inc. (“NRG Yield”) is a dividend growth-oriented company formed by NRG that owns, operates and acquires a diversified portfolio of contracted renewable and conventional generation and thermal infrastructure assets in the United States.  Revenues from NRG and NRG Yield for the three months ended April 30, 2018 and 2017 represent approximately 52.0% and 0.3%, respectively, of consolidated revenues and revenues for the six months ended April 30, 2018 and 2017 represent approximately 18.1% and 0.4%, respectively, of consolidated revenues.

 

7


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Tabular amounts in thousands, except share and per share amounts)

 

Note 2.  Recent Accounting Pronouncements

Recent Accounting Guidance Not Yet Effective

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” This ASU provides for five principles which should be followed to determine the appropriate amount and timing of revenue recognition for the transfer of goods and services to customers. The principles in this ASU should be applied to all contracts with customers regardless of industry. The amendments in this ASU were initially effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with two transition methods of adoption allowed. Early adoption for reporting periods prior to December 15, 2016 is not permitted. In March 2015, the FASB voted to defer the effective date by one year to fiscal years, and interim periods within those fiscal years beginning after December 15, 2017 (which, for the Company, will be the first quarter of fiscal year 2019), but allow adoption as of the original effective date.  The Company has numerous different revenue sources including the sale and installation of fuel cell power plants, site engineering and construction services, sale of modules and spare parts, extended warranty service agreements, sale of electricity under power purchase agreements, license fees and royalty income from manufacturing and technology transfer agreements and customer-sponsored Advanced Technologies projects.  This requires application of various revenue recognition methods under current accounting guidance.  Although we anticipate that upon adoption of this new ASU the timing of revenue recognition for certain of our revenue sources might change, we are still evaluating the financial statement impacts of the guidance in this ASU and determining which transition method we will utilize. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606).”  This ASU provides narrow-scope improvements and practical expedients regarding collectability, presentation of sales tax collected from customers, non-cash consideration, contract modifications at transition, completed contracts at transition and other technical corrections.  We have initiated a review of the contracts for our significant revenue streams to understand the impact of the adoption of this ASU.

In February 2016, the FASB issued ASU 2016-02, “Leases” which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. This ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (which, for the Company, will be the first quarter of fiscal year 2020). Early adoption is permitted. The Company has both operating and capital leases (refer to Note 17. “Commitments and Contingencies”) as well as sale-leasebacks accounted for under the finance method and may have other arrangements that contain embedded leases as characterized in this ASU.  We expect that adoption of this ASU will result in the recognition of right-of-use assets and lease liabilities not currently recorded in our consolidated financial statements under existing accounting guidance. However, we are still evaluating all of the Company’s contractual arrangements and the impact that adoption of ASU 2016-02 will have on the Company’s consolidated financial statements.

Note 3.  Accounts Receivable, Net

Accounts receivable as of April 30, 2018 and October 31, 2017 consisted of the following:

 

 

 

April 30,

 

 

October 31,

 

 

 

2018

 

 

2017

 

Commercial Customers:

 

 

 

 

 

 

 

 

Amount billed

 

$

15,621

 

 

$

41,073

 

Unbilled recoverable costs (1)

 

 

22,746

 

 

 

18,162

 

 

 

 

38,367

 

 

 

59,235

 

Advanced Technologies (including U.S. government(2)):

 

 

 

 

 

 

 

 

Amount billed

 

 

1,980

 

 

 

1,934

 

Unbilled recoverable costs

 

 

5,842

 

 

 

7,352

 

 

 

 

7,822

 

 

 

9,286

 

Accounts receivable, net

 

$

46,189

 

 

$

68,521

 

 

(1)

Additional long-term unbilled recoverable costs of $11.2 million and $12.8 million are included within “Other assets” as of April 30, 2018 and October 31, 2017, respectively. 

(2)

Total U.S. government accounts receivable, including unbilled recoverable cost, outstanding as of April 30, 2018 and October 31, 2017 were $4.5 million and $3.2 million, respectively.

8


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Tabular amounts in thousands, except share and per share amounts)

 

We bill customers for power plant and power plant component sales based on certain contractual milestones being reached.  We bill service agreements based on the contract price and billing terms of the contracts. Generally, our Advanced Technologies contracts are billed based on actual recoverable costs incurred, typically in the month subsequent to incurring costs.  Some Advanced Technologies contracts are billed based on contractual milestones or costs incurred.  Unbilled recoverable costs relate to revenue recognized on customer contracts that have not been billed.  Accounts receivable are presented net of an allowance for doubtful accounts of $0.1 million as of April 30, 2018 and October 31, 2017.  Uncollectible accounts receivable are charged against the allowance for doubtful accounts when all collection efforts have failed and it is deemed unlikely that the amount will be recovered.

Accounts receivable from commercial customers (including unbilled recoverable costs) included amounts due from POSCO Energy of $12.2 million and $6.2 million as of April 30, 2018 and October 31, 2017, respectively, and amounts due from NRG and NRG Yield of $0.02 million and $0.1 million as of April 30, 2018 and October 31, 2017, respectively. 

Note 4.  Inventories

Inventories as of April 30, 2018 and October 31, 2017 consisted of the following:

 

 

 

April 30,

 

 

October 31,

 

 

 

2018

 

 

2017

 

Raw materials

 

$

19,355

 

 

$

20,065

 

Work-in-process (1)

 

 

35,900

 

 

 

54,431

 

Inventories

 

$

55,255

 

 

$

74,496

 

 

(1)

Work-in-process includes the standard components of inventory used to build the typical modules or module components that are intended to be used in future power plant orders or to service our service agreements.  Included in work-in-process as of April 30, 2018 and October 31, 2017 was $29.3 million and $46.3 million, respectively, of completed standard components.

Raw materials consist mainly of various nickel powders and steels, various other components used in producing cell stacks and purchased components for balance of plant.  Work-in-process inventory is comprised of material, labor, and overhead costs incurred to build balance of plant components, fuel cell stacks and modules, which are subcomponents of a power plant.

Note 5.  Project Assets

Project assets as of April 30, 2018 and October 31, 2017 were $79.6 million and $73.0 million, respectively.  Project assets as of April 30, 2018 and October 31, 2017 included five completed, commissioned installations generating power with respect to which we have a power purchase agreement (“PPA”) with the end-user of power and site host with an aggregate value of $31.1 million and $32.1 million as of April 30, 2018 and October 31, 2017, respectively.  Certain of these assets are the subject of sale-leaseback arrangements with PNC Energy Capital, LLC (“PNC”), which are recorded under the financing method of accounting for a sale-leaseback.  Under the financing method, the Company does not recognize the proceeds received from the lessor as a sale of such assets.  

The Project assets balance as of April 30, 2018 and October 31, 2017 also includes assets with an aggregate value of $48.5 million and $40.9 million, respectively, which are being developed and constructed by the Company and have not been placed in service.

On April 5, 2018, the Company sold a project asset to NRG Yield which resulted in the recognition of product revenue of $10.8 million.  The total reduction in project assets relating to the sale to NRG Yield was $9.8 million which was recorded as product cost of revenues.  The Company also had a $0.5 million impairment of a project asset during the six months ended April 30, 2018 due to the termination of the project.  The impairment was recorded as generation cost of revenues.

Project construction costs incurred for the long-term project assets are reported as investing activities in the Consolidated Statements of Cash Flows.  The proceeds received from the sale and subsequent leaseback of project assets are classified as “Cash flows from financing activities” within the Consolidated Statements of Cash Flows and are classified as a financing obligation within “Current portion of long-term debt” and “Long-term debt and other liabilities” on the Consolidated Balance Sheets (refer to Note 14 for more information).

9


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Tabular amounts in thousands, except share and per share amounts)

 

Note 6.  Other Current Assets

Other current assets as of April 30, 2018 and October 31, 2017 consisted of the following:

 

 

 

April 30,

 

 

October 31,

 

 

 

2018

 

 

2017

 

Advance payments to vendors (1)

 

$

2,714

 

 

$

1,035

 

Deferred finance costs (2)

 

 

129

 

 

 

129

 

Prepaid expenses and other (3)

 

 

5,095

 

 

 

5,407

 

Other current assets

 

$

7,938

 

 

$

6,571

 

 

(1)

Advance payments to vendors relate to payments for inventory purchases ahead of receipt.

(2)

Represents the current portion of direct deferred finance costs that relate primarily to securing the $40.0 million loan facility with NRG which is being amortized over the five-year life of the facility.

(3)

Primarily relates to other prepaid expenses including insurance, rent and lease payments.

Note 7.  Other Assets

Other assets as of April 30, 2018 and October 31, 2017 consisted of the following:

 

  

 

April 30,

 

 

October 31,

 

 

 

2018

 

 

2017

 

Long-term stack residual value (1)

 

$

1,096

 

 

$

987

 

Deferred finance costs (2)

 

 

32

 

 

 

97

 

Long-term unbilled recoverable costs (3)

 

 

11,153

 

 

 

12,806

 

Other (4)

 

 

2,840

 

 

 

2,627

 

Other assets

 

$

15,121

 

 

$

16,517

 

 

(1)

Relates to estimated residual value for module exchanges performed under the Company’s service agreements where the useful life extends beyond the contractual term of the service agreement and the Company obtains title to the module from the customer upon expiration or termination of the service agreement.  If the Company does not obtain rights to title from the customer, the full cost of the module is expensed at the time of the module exchange.

(2)

Represents the long-term portion of direct deferred finance costs relating to the Company’s loan facility with NRG which is being amortized over the five-year life of the facility.

(3)

Represents unbilled recoverable costs that relate to revenue recognized on customer contracts that will be billed in future periods in excess of twelve months from the balance sheet date.

(4)

The Company entered into an agreement with one of its customers on June 29, 2016 which includes a fee for the purchase of the plants at the end of the term of the agreement.  The fee is payable in installments over the term of the agreement and the total paid as of April 30, 2018 and October 31, 2017 was $2.0 million and $1.6 million, respectively.  Also included within “Other” are long-term security deposits.

Note 8.  Accounts Payable

 

Accounts payable as of April 30, 2018 and October 31, 2017 was $42.8 million and $42.6 million, respectively.  Included in the balance were amounts due to POSCO Energy of $32.7 million as of April 30, 2018 and October 31, 2017 for the purchase of inventory.

10


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Tabular amounts in thousands, except share and per share amounts)

 

Note 9.  Accrued Liabilities

Accrued liabilities as of April 30, 2018 and October 31, 2017 consisted of the following:

 

 

 

April 30,

 

 

October 31,

 

 

 

2018

 

 

2017

 

Accrued payroll and employee benefits

 

$

3,124

 

 

$

5,315

 

Accrued contract loss

 

 

 

 

 

37

 

Accrued product warranty cost (1)

 

 

343

 

 

 

348

 

Accrued material purchases (2)

 

 

548

 

 

 

2,396

 

Accrued service agreement costs (3)

 

 

1,726

 

 

 

3,319

 

Contractual milestone billings for inventory (4)

 

 

5,921

 

 

 

4,440

 

Accrued legal, taxes, professional and other

 

 

3,069

 

 

 

2,526

 

Accrued liabilities

 

$

14,731

 

 

$

18,381

 

 

(1)

Activity in the accrued product warranty costs for the six months ended April 30, 2018 included additions for estimates of future warranty obligations of $0.3 million on contracts in the warranty period and reductions related to actual warranty spend of $0.3 million as contracts progress through the warranty period or are beyond the warranty period.

(2)

The Company acts as a procurement agent for POSCO Energy under an Integrated Global Supply Chain Agreement whereby the Company procures materials on POSCO Energy’s behalf for its Korean production facility.  This liability represents amounts received for the purchase of materials on behalf of POSCO Energy.  Amounts due to vendors is recorded as “Accounts payable.”

(3)

The loss accruals on service contracts were $1.1 million as of October 31, 2017 which decreased to $1.0 million as of April 30, 2018.  The accruals for performance guarantees decreased from $2.2 million as of October 31, 2017 to $0.7 million as of April 30, 2018 resulting from payments offset by additional accruals for the minimum power output falling below the contract requirements for certain service agreements.

(4)

Amounts represent contractual milestone billings for inventory that will be provided to POSCO Energy within the next twelve months under a transaction that will not result in revenue recognition.

Note 10.  Stockholders’ Equity

Changes in stockholders’ equity

Changes in stockholders’ equity were as follows for the six months ended April 30, 2018:

 

 

 

Total

Stockholders’

Equity

 

Balance as of October 31, 2017

 

$

101,256

 

Share-based compensation

 

 

1,378

 

Proceeds from common stock issuance and warrant exercises, net of fees

 

 

3,268

 

Common stock issued, non-employee compensation

 

 

282

 

Taxes paid upon vesting of restricted stock awards, net of stock issued under benefit plans

 

 

(621

)

Preferred dividends – Series B

 

 

(1,600

)

Conversion of Redeemable Series C preferred stock

 

 

15,598

 

Other comprehensive income -  foreign currency translation adjustments

 

 

87

 

Net loss

 

 

(17,357

)

Balance as of April 30, 2018

 

$

102,291

 

 

11


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Tabular amounts in thousands, except share and per share amounts)

 

Authorized Common Stock

On December 14, 2017, the number of authorized shares of the Company’s common stock was increased from 125,000,000 to 225,000,000, by a vote of the holders of a majority of the outstanding shares of the Company’s common stock.

NASDAQ Marketplace Rule 5635(d)

On December 14, 2017, in accordance with NASDAQ Marketplace Rule 5635(d), the Company’s common stockholders approved the issuance of shares of the Company’s common stock exceeding 19.9% of the number of shares outstanding on September 5, 2017, upon the conversion and/or redemption of the Series C Convertible Preferred Stock issued in an underwritten offering in September 2017.

Public Offerings and Outstanding Warrants

On May 3, 2017, the Company completed an underwritten public offering of (i) 12,000,000 shares of its common stock, (ii) Series C warrants to purchase 12,000,000 shares of its common stock and (iii) Series D warrants to purchase 12,000,000 shares of its common stock.  The Series C warrants have an exercise price of $1.60 per share and a term of five years.  A total of 11,536 shares of common stock were issued during the first six months of fiscal year 2018 upon exercise of Series C warrants and the Company received total proceeds of $0.02 million in connection with such exercises.  The Series D warrants have an exercise price of $1.28 per share and a term of one year.  A total of 2,584,174 shares of common stock were issued during the first six months of fiscal year 2018 upon the exercise of Series D warrants and the Company received total proceeds of $3.3 million in connection with such exercises.  As of April 30, 2018, all Series D warrants have been exercised.

On July 12, 2016, the Company closed on a registered public offering of securities to a single institutional investor pursuant to a placement agent agreement with J.P. Morgan Securities LLC.  In conjunction with the offering, the Company issued 7,680,000 Series A Warrants, all of which remained outstanding as of April 30, 2018, at an exercise price of $5.83 per share.

The following table summarizes outstanding warrant activity during the six months ended April 30, 2018:

 

 

 

Series A

Warrants

 

 

Series C

Warrants

 

 

Series D

Warrants

 

Balance as of October 31, 2017

 

 

7,680,000

 

 

 

11,580,900

 

 

 

2,584,174

 

Warrants exercised

 

 

 

 

 

(11,536

)

 

 

(2,584,174

)

Warrants expired

 

 

 

 

 

 

 

 

 

Balance as of April 30, 2018

 

 

7,680,000

 

 

 

11,569,364

 

 

 

 

 

Note 11.  Redeemable Preferred Stock

The Company is authorized to issue up to 250,000 shares of preferred stock, par value $0.01 per share, issuable in one or more series.  Of these authorized shares, the Company had, as of April 30, 2018, issued and outstanding shares of Series C Convertible Preferred Stock and 5% Series B Cumulative Convertible Perpetual Preferred Stock in the amounts described below.

Series C Preferred Stock

The Company issued an aggregate of 33,500 shares of its Series C Convertible Preferred Stock (“Series C Preferred Stock” and such shares, the “Series C Preferred Shares”), $0.01 par value and $1,000 stated value per share, during the fiscal year ended October 31, 2017.  As of April 30, 2018 and October 31, 2017, there were 14,548 and 33,300 shares of Series C Preferred Stock issued and outstanding, respectively, with a carrying value of $12.1 million and $27.7 million, respectively.

12


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Tabular amounts in thousands, except share and per share amounts)

 

During the six months ended April 30, 2018, holders of our Series C Preferred Stock converted 18,752 shares of the Series C Preferred Stock into common shares through installment conversions resulting in a reduction of $15.6 million to the carrying value being recorded to equity.  Installment conversions in which the conversion price is below the fixed conversion price of $1.84 per share result in a variable number of shares being issued to settle the installment amount and are treated as a partial redemption of the Series C Preferred Shares.  Installment conversions during the three and six months ended April 30, 2018 that were settled in a variable number of shares and treated as redemptions resulted in deemed dividends of $4.2 million and $7.7 million, respectively.  The deemed dividend represents the difference between the fair value of the common shares issued to settle the installment amounts and the carrying value of the Series C Preferred Shares.

Based on review of pertinent accounting literature including Accounting Standards Codification (“ASC”) 470 – Debt, ASC 480 - Distinguishing Liabilities from Equity and ASC 815 - Derivative and Hedging, the Series C Preferred Shares are classified outside of permanent equity on the Consolidated Balance Sheets and were recorded at fair value on the issuance date (proceeds from the issuance, net of direct issuance cost).  An assessment of the probability of the exercise of the potential redemption features in the Certificate of Designations (as defined below) for the Series C Preferred Stock is performed at each reporting date to determine whether any changes in classification are required.  As of April 30, 2018 and October 31, 2017, the Company determined that none of the contingent redemption features were probable.  As Series C Preferred Shares are converted to common shares, a proportional reduction in the carrying value will be recorded to equity.  

A summary of certain terms of the Series C Preferred Stock are described as follows:

Conversion Rights. The Series C Preferred Shares are convertible into shares of common stock subject to the beneficial ownership limitations provided in the Certificate of Designations for Series C Preferred Stock (the “Certificate of Designations”), at a conversion price equal to $1.84 per share of common stock (“Conversion Price”), subject to adjustment as provided in the Certificate of Designations, at any time at the option of the holder.  In the event of a triggering event, as defined in the Certificate of Designations, the Series C Preferred Shares are convertible into shares of common stock at a conversion price of the lower of $1.84 per share and 85% of the lowest volume weighted average price (“VWAP”) of the common stock of the five trading days immediately prior to delivery of the applicable conversion notice.  The holders will be prohibited from converting Series C Preferred Shares into shares of common stock if, as a result of such conversion, such holder, together with its affiliates, would own more than 8.99% of the total number of shares of common stock then issued and outstanding. Each holder has the right to increase its maximum percentage up to 9.99% upon 60 days’ notice to the Company.

Installment Payments. On November 1, 2017 and on the sixteenth day and first day of each calendar month thereafter until March 1, 2019, subject to extension in certain circumstances (the “Maturity Date”), inclusive, the Company will redeem the stated value of Series C Preferred Shares in thirty-three equal installments of $1.0 million (each bimonthly amount, an “Installment Amount” and the date of each such payment, an “Installment Date”). The holders will have the ability to defer installment payments, but not beyond the Maturity Date. In addition, during each period commencing on the 11th trading day prior to an Installment Date and prior to the immediately subsequent Installment Date, the holders may elect to accelerate the conversion of Series C Preferred Shares at the then applicable installment conversion price, provided that the holders may not elect to effect any such acceleration during such installment period if either (a) in the aggregate, all the accelerations in such installment period exceed the sum of three other Installment Amounts, or (b) the number of Series C Preferred Shares subject to prior accelerations exceeds in the aggregate twelve Installment Amounts.

Subject to certain conditions as provided in the Certificate of Designations, the Company may elect to pay the Installment Amounts in cash or shares of common stock or in a combination of cash and shares of common stock.

Installment Amounts paid in shares will be that number of shares of common stock equal to (a) the applicable Installment Amount, to be paid in common stock divided by (b) the least of (i) the then existing conversion price, (ii) 87.5% of the VWAP of the common stock on the trading day immediately prior to the applicable Installment Date, and (iii) 87.5% of the arithmetic average of the two lowest VWAPs of the common stock during the ten consecutive trading day period ending and including the trading day immediately prior to the applicable Installment Date as applicable, provided that the Company meets standard equity conditions. The Company shall make such election no later than the eleventh trading day immediately prior to the applicable Installment Date.

If the Company elects or is required to pay an Installment Amount in whole or in part in cash, the amount paid will be equal to 108% of the applicable Installment Amount.

13


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Tabular amounts in thousands, except share and per share amounts)

 

Dividends. Each holder of the Series C Preferred Shares shall be entitled to receive dividends (a) if no triggering event, as defined in the Certificate of Designations, has occurred and is continuing when and as declared by the Board of Directors, in its sole and absolute discretion or (b) if a triggering event has occurred and until such triggering event has been cured, a dividend of 15% per annum based on the holder’s outstanding number of Series C Preferred Shares multiplied by the stated value.  There were no triggering events or dividends declared in fiscal year 2017 or during the six months ended April 30, 2018.

Redemption. In the event of a triggering event, as defined in the Certificate of Designations, the holders of the Series C Preferred Shares can force redemption at a price equal to the greater of (a) the conversion amount to be redeemed multiplied by 125% and (b) the product of (i) the conversion rate with respect to the conversion amount in effect at such time as such holder delivers a triggering event redemption notice multiplied by (ii) the greatest closing sale price of the common stock on any trading day during the period commencing on the date immediately preceding such triggering event and ending on the date the Company makes the entire payment required.

Liquidation. In the event of the Company’s liquidation, dissolution, or winding up, prior to distribution to holders of securities ranking junior to the Series C Preferred Shares, holders of Series C Preferred Shares will be entitled to receive the amount of cash, securities or other property equal to the greater of (a) the stated value thereof on the date of such payment plus accrued dividends, if any and (b) the amount per share such holder would receive if such holder converted such Series C Preferred Shares into common stock immediately prior to the date of such payment.

Ranking and Voting Rights. Shares of Series C Preferred Stock rank with respect to dividend rights and rights upon the Company’s liquidation, winding up or dissolution:

 

senior to shares of our common stock;

 

junior to our debt obligations;

 

junior to our outstanding Series B Preferred Stock; and

 

effectively junior to our subsidiaries’ (i) existing and future liabilities and (ii) capital stock held by others.

The holders of the Series C Preferred Shares have no voting rights, except as required by law. Any amendment to the Company’s certificate of incorporation or bylaws or the Certificate of Designations that adversely affects the powers, preferences and rights of the Series C Preferred Shares requires the approval of the holders of a majority of the Series C Preferred Shares then outstanding.

Redeemable Series B Preferred Stock

We have 105,875 shares of our 5% Series B Cumulative Convertible Perpetual Preferred Stock (Liquidation Preference $1,000.00 per share) (“Series B Preferred Stock”) authorized for issuance. As of April 30, 2018 and October 31, 2017, there were 64,020 shares of Series B Preferred Stock issued and outstanding, with a carrying value of $59.9 million.  Dividends of $1.6 million were paid in cash for each of the six month periods ended April 30, 2018 and 2017, respectively.

Class A Cumulative Redeemable Exchangeable Preferred Shares

FCE FuelCell Energy Ltd. (“FCE Ltd”), a subsidiary of the Company, has 1,000,000 Class A Cumulative Redeemable Exchangeable Preferred Shares (the “Series 1 Preferred Shares”) outstanding, which are held by Enbridge, Inc. (“Enbridge”), which is a related party.  The Company made its scheduled payments of Cdn. $0.5 million during each of the six month periods ended April 30, 2018 and 2017 under the terms of the Company’s agreement with Enbridge.  The Company also recorded interest expense, which reflects the amortization of the fair value discount of approximately Cdn. $1.4 million and Cdn. $1.3 million for the six months ended April 30, 2018 and 2017, respectively.  As of April 30, 2018 and October 31, 2017, the carrying value of the Series 1 Preferred Shares was Cdn. $20.1 million (U.S. $15.7 million) and Cdn. $19.4 million (U.S. $15.1 million), respectively, and is classified as a preferred stock obligation of a subsidiary on the Consolidated Balance Sheets.

14


FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Tabular amounts in thousands, except share and per share amounts)

 

Note 12.  Loss Per Share

The calculation of basic and diluted loss per share was as follows:

 

 

 

Three Months Ended April 30,

 

 

Six Months Ended April 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(13,174

)

 

$

(13,238

)

 

$

(17,357

)

 

$

(26,923

)

Series C preferred stock deemed dividends

 

 

(4,199

)

 

 

 

 

 

(7,662

)

 

 

 

Series B preferred stock dividends

 

 

(800

)

 

 

(800

)

 

 

(1,600

)

 

 

(1,600

)

Net loss attributable to common stockholders

 

$

(18,173

)

 

$

(14,038

)

 

$

(26,619

)

 

$

(28,523

)

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic common shares

 

 

79,563,265

 

 

 

42,568,818

 

 

 

75,731,565

 

 

 

40,049,948

 

Effect of dilutive securities (1)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average diluted common shares

 

 

79,563,265

 

 

 

42,568,818

 

 

 

75,731,565

 

 

 

40,049,948

 

Basic loss per share

 

$

(0.23

)

 

$

(0.33

)

 

$

(0.35

)

 

$

(0.71

)

Diluted loss per share (1)

 

$

(0.23

)

 

$

(0.33

)

 

$

(0.35

)

 

$

(0.71

)

 

(1)

Due to the net loss to common stockholders in each of the periods presented above, diluted loss per share was computed without consideration to potentially dilutive instruments as their inclusion would have been antidilutive.  As of April 30, 2018 and 2017, potentially dilutive securities excluded from the diluted loss per share calculation are as follows:

 

 

 

April 30,

 

 

April 30,

 

 

 

2018

 

 

2017

 

May 2017 Offering - Series C Warrants

 

 

11,569,364

 

 

 

 

July 2016 Offering - Series A Warrants