FuelCell Energy, Inc.

ITEM 2.         MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains statements that the Company believes to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). All statements other than statements of historical fact included in this Form 10-Q, including statements regarding the Company’s future financial condition, results of operations, plans, objectives, expectations, future performance, business operations and business prospects, are forward-looking statements. Words such as “expects,” “anticipates,” “estimates,” “goals,” “projects,” “intends,” “plans,” “believes,” “predicts,” “should,” “seeks,” “will,” “could,” “would,” “may,” “forecast,” and similar expressions and variations of such words are intended to identify forward-looking statements and are included, along with this statement, for purposes of complying with the safe harbor provisions of the PSLRA. Forward-looking statements are neither historical facts, nor assurances of future performance. Instead, such statements are based only on our beliefs, expectations, and assumptions regarding the future. As such, the realization of matters expressed in forward-looking statements involves inherent risks and uncertainties. Such statements relate to, among other things, the following: (i) the development and commercialization by FuelCell Energy, Inc. and its subsidiaries of fuel cell technology and products and the market for such products; (ii) the expected timing of completion of our ongoing projects; (iii) our business plans and strategies; (iv) the markets in which we expect to operate and the demand for our products; (v) expected operating results such as revenue growth and earnings; (vi) our belief that we have sufficient liquidity to fund our business operations for the next 12 months; (vii) future funding under Advanced Technologies contracts; (viii) future financing for projects, including equity and debt investments by investors and commercial bank financing, as well as overall financial market conditions; (ix) the expected cost competitiveness of our technology; and (x) our ability to achieve our sales plans, our plans to increase our annualized production rate in connection with sales growth, market access and market expansion goals, and cost reduction targets.

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The forward-looking statements contained in this report are subject to risks and uncertainties, known and unknown, that could cause actual results and future events to differ materially from those set forth in or contemplated by the forward-looking statements, including, without limitation, the risks described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2025 and in the section below entitled “Item 1A. Risk Factors,” and the following risks and uncertainties: general risks associated with product development and manufacturing; general economic conditions; changes in interest rates, which may impact project financing; supply chain disruptions; changes in the utility regulatory environment; changes in the utility industry and the markets for distributed generation, distributed hydrogen, and fuel cell power plants configured for carbon capture or carbon separation; potential volatility of commodity prices that may adversely affect our projects; availability of government subsidies and economic incentives for alternative energy technologies; our ability to remain in compliance with U.S. federal and state and foreign government laws and regulations; our ability to maintain compliance with the listing rules of The Nasdaq Stock Market; rapid technological change; competition; the risk that our bid awards will not convert to contracts or that our contracts will not convert to revenue; market acceptance of our products; changes in accounting policies or practices adopted voluntarily or as required by accounting principles generally accepted in the United States (“GAAP”); factors affecting our liquidity position and financial condition; government appropriations; the ability of the government and third parties to terminate their development contracts at any time; the ability of the government to exercise “march-in” rights with respect to certain of our patents; our ability to successfully market and sell our products internationally; our ability to develop additional commercially viable products in the future; our ability to implement our strategy; our ability to reduce our levelized cost of energy and deliver on our cost reduction strategy generally; our ability to protect our intellectual property; litigation and other proceedings; the risk that commercialization of our new products will not occur when anticipated or, if it does, that we will not have adequate capacity to satisfy demand; our need for and the availability of additional financing; our ability to generate positive cash flow from operations; our ability to service our long-term debt; our ability to increase the output and longevity of our platforms and to meet the performance requirements of our contracts; and our ability to expand our customer base and maintain relationships with our largest customers and strategic business allies.

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We cannot assure you that: we will be able to meet any of our development or commercialization schedules; any of our new products or technologies, once developed, will be commercially successful; our power plants will be commercially successful; we will be able to obtain financing or raise capital to achieve our business plans; the government will appropriate the funds anticipated by us under our government contracts; the government will not exercise its right to terminate any or all of our government contracts; or we will be able to achieve any other result anticipated in any other forward-looking statement contained herein.

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Investors are cautioned that forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond our ability to control, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors discussed herein. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement to the accompanying financial statements and footnotes to help provide an understanding of our financial condition, changes in our financial condition and results of operations. The preparation of financial statements and related disclosures 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, as well as management’s assessment of the Company’s ability to meet its obligations as they come due over the next twelve months. Actual results could differ from those estimates. Estimates are used in accounting for, among other things, revenue recognition, lease right-of-use assets and liabilities, excess, slow-moving and obsolete inventories, product warranty accruals, loss accruals on service agreements, share-based compensation expense, allowance for credit losses, depreciation and amortization, impairment of goodwill and in-process research and development intangible assets, impairment of long-lived assets (including project assets), valuation of derivatives, 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. The following discussion should be read in conjunction with information included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2025 filed with the Securities and Exchange Commission (“SEC”). Unless otherwise indicated, the terms “Company”, “FuelCell Energy”, “we”, “us”, and “our” refer to FuelCell Energy, Inc. and its subsidiaries. All tabular dollar amounts are in thousands.

OVERVIEW

FuelCell Energy is a clean energy technology company and a stationary fuel cell manufacturer with 22 years of operating experience in this field. We were founded in 1969 to research and develop electrochemical power generation technology and are headquartered in Danbury, Connecticut. Since the early 2000s, we have been manufacturing, selling and servicing our proprietary molten carbonate fuel cell systems, which deliver large-scale, continuous clean power and advanced emissions management. Unlike traditional power generation methods that rely on combustion, our fuel cells generate electricity electrochemically through a chemical reaction rather than burning fuel, resulting in ultra-low emissions and high efficiency. Our carbonate fuel cell systems are fuel-flexible, with the ability to run on biofuels, renewable natural gas, or hydrogen-hydrocarbon blends, and provide reliable baseload power, carbon capture, and thermal energy for chilling, heating, and process steam. As global energy demand rises driven by artificial intelligence (“AI”), electrification, and the need for enhanced grid resiliency, we believe solutions like ours will be vital in addressing next-generation needs, helping to strengthen the grid, reducing pollution, and supporting decarbonization goals. We have proven utility-scale projects operating at 10 MW, 20 MW, and 58.8 MW, with an average of over 10 years of continuous run time. As a company, we are motivated by our purpose of enabling a world empowered by clean energy.

We target a range of markets and applications with our products, including utilities and independent power producers, data centers, wastewater treatment, commercial and hospitality, and microgrids, among others. We market our products primarily in the U.S. and Canada, the European Union and the United Kingdom, and priority Asian markets including South Korea, Singapore, Malaysia, and Thailand. We selectively pursue additional opportunities in other regions that align with our strategic priorities. We focus our expansion on markets and regions that value clean distributed generation, have poor grid reliability and/or challenged transmission and distribution lines, and can benefit from the value streams our products provide.

In addition to our existing core molten carbonate-based commercial products, we engage strategically in research and development, both company-funded and carried out under grants from and commercial agreements with private companies and various government agencies through our Advanced Technologies programs. Our Advanced Technologies programs are currently focused on continued development and advancement of our core carbonate fuel cell technology as well as commercialization of our solid oxide electrolysis technology for distributed hydrogen. We focus on generating revenue from our core recurring and non-recurring revenue sources, while working to identify the next trends in clean energy we believe we can commercialize, take to market, and grow into future revenue streams.

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RECENT DEVELOPMENTS

As outlined in the “Liquidity and Capital Resources” section below, demand for our carbonate platform capacity continues to build alongside broader energy and infrastructure needs. In response, in May 2026, the Company started the execution phase of its plan to expand its carbonate manufacturing capacity at the Torrington facility to accommodate an annualized production rate of up to 500 MW. This manufacturing capacity expansion is expected to require an investment in the range of $200.0 to $275.0 million and is expected to be executed over the next twenty-four months. Also, beginning in May 2026, the Company initiated a ramp in production levels at its Torrington manufacturing facility, targeting an annualized production rate of at least 100 MW by October 31, 2026. This ramp in production levels represents the initial phase of a broader manufacturing expansion, with additional phases expected to be implemented in alignment with contracted backlog and market demand. In parallel, the Company continues to advance its work to evaluate incremental manufacturing capacity expansion beyond 500 MW through a “hub and spoke” model, targeting a potential range of approximately 1.5 gigawatts (“GW”) to 2.0 GW, with a site consultant engaged and initial site selection activities underway.

RESULTS OF OPERATIONS

Management evaluates our results of operations and cash flows using a variety of key performance indicators, including revenues compared to prior periods and internal forecasts, costs of our products and results of our cost reduction initiatives, and operating cash use. These are discussed throughout the “Results of Operations” and “Liquidity and Capital Resources” sections. Results of Operations are presented in accordance with GAAP.

Comparison of the Three Months Ended April 30, 2026 and 2025

Revenues and Costs of revenues

Our revenues and cost of revenues for the three months ended April 30, 2026 and 2025 were as follows:

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Total revenues for the three months ended April 30, 2026 of $35.6 million reflects a decrease of $1.8 million from $37.4 million for the same period in the prior year. Cost of revenues for the three months ended April 30, 2026 of $48.5 million reflects an increase of $1.7 million from $46.8 million for the same period in the prior year. A discussion of the changes in product revenues, service agreements revenues, generation revenues and Advanced Technologies contract revenues follows.

Product revenues

Our product revenues and related costs for the three months ended April 30, 2026 and 2025 were as follows:

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Product revenues were $18.0 million during the three months ended April 30, 2026 and $13.0 million in the comparable prior year period. The increase in product revenues during the three months ended April 30, 2026 was primarily driven by $18.0 million of revenue recognized under the Company’s long-term service agreement (“LTSA”) with Gyeonggi Green Energy Co., Ltd. (“GGE”) for the delivery and commissioning of six fuel cell modules for GGE’s 58.8 MW fuel cell power plant platform in Hwaseong-si, Korea (the “GGE Platform”), compared to $12.0 million of revenue recognized for the delivery and commissioning of four fuel cell modules for the GGE Platform in the comparable prior year period.

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Cost of product revenues increased $4.0 million for the three months ended April 30, 2026 to $20.3 million, compared to $16.3 million in the same period in the prior year, primarily due to the higher product sales in the three months ended April 30, 2026. Manufacturing variances, primarily related to production volumes and unabsorbed overhead costs, totaled approximately $3.1 million for the three months ended April 30, 2026, compared to approximately $2.9 million for the three months ended April 30, 2025.

For the three months ended April 30, 2026, we operated at an annualized production rate of approximately 36.4 MW in our Torrington, CT manufacturing facility, compared to an annualized production rate of 29.9 MW for the three months ended April 30, 2025.

Service agreements revenues

Service agreements revenues and related costs for the three months ended April 30, 2026 and 2025 were as follows:

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Service agreements revenues for the three months ended April 30, 2026 decreased $4.0 million to $4.2 million from $8.1 million for the three months ended April 30, 2025. The decrease in service agreements revenues during the three months ended April 30, 2026 was primarily due to the fact that there were no module exchanges during the three months ended April 30, 2026 compared to the three module exchanges during the three months ended April 30, 2025.

Cost of service agreements revenues decreased $5.6 million to $3.5 million for the three months ended April 30, 2026 from $9.1 million for the three months ended April 30, 2025, primarily because there were no costs associated with module exchanges during the three months ended April 30, 2026, compared to the cost of three module exchanges in the three months ended April 30, 2025.

Overall gross profit from service agreements revenues was $0.7 million for the three months ended April 30, 2026, compared to a gross loss of $0.9 million for the three months ended April 30, 2025. The overall gross margin was 16.4% for the three months ended April 30, 2026 compared to a gross margin of (11.3)% in the comparable prior year period.

Generation revenues

Generation revenues and related costs for the three months ended April 30, 2026 and 2025 were as follows:

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Generation revenues for the three months ended April 30, 2026 totaled $8.7 million, which represents a decrease of $3.4 million from the $12.1 million of generation revenues recognized for the three months ended April 30, 2025. The decrease in generation revenues reflects lower output from plants in our generation portfolio during the quarter compared to output from plants in our generation portfolio during the same period in the prior year. The Company incurred approximately $1.6 million of liquidated damages due to the lower output from plants in our generation portfolio during the three months ended April 30, 2026 compared to $0.2 million in the three months ended April 30, 2025. Liquidated damages are recognized as a reduction to revenue. The largest contributor to the lower output during the quarter was the Groton Project which was undergoing repairs. The Company has elected to upgrade this project, and such upgrade would be expected to be completed in fiscal year 2027. Generation revenues for the three months ended April 30, 2026 and 2025 reflect revenue from electricity generated under our power purchase agreements (“PPAs”) and the sale of renewable energy credits from our generation portfolio.  

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Cost of generation revenues totaled $22.1 million for the three months ended April 30, 2026, compared to $18.4 million for the three months ended April 30, 2025. The overall increase in cost of generation revenues is primarily related to a mark-to-market net loss of $4.8 million related to natural gas purchase contracts recognized during the three months ended April 30, 2026, compared to a mark-to-market net loss of $0.8 million during the three months ended April 30, 2025. Cost of generation revenues included depreciation and amortization of approximately $8.7 million for both of the three month periods ended April 30, 2026 and 2025.

We currently have four projects with fuel sourcing risk, which are the Toyota Project, the 14.0 MW Derby Fuel Cell Project and the 2.8 MW SCEF Fuel Cell Project, the latter two of which are located in Derby, Connecticut (collectively, the “Derby Projects”), and our 7.4 MW project in Yaphank, Long Island (the “LIPA Yaphank Project”), all of which require natural gas for which there is no pass-through mechanism. A new one-year fuel supply contract (through May 2027) has been executed for the Toyota Project. Six-year (through October 2029) fuel supply contracts have been executed for the 14.0 MW and 2.8 MW Derby Projects. We are currently in the midst of a seven-year contract (through September 2028) for our 7.4 MW LIPA Yaphank Project. The Company will look to extend the duration of these contracts should market and credit conditions allow. If the Company is unable to secure fuel on favorable economic terms, it may result in impairment charges to the Derby Project assets or the LIPA Yaphank Project asset and further impairment charges for the Toyota Project asset.

We had 62.8 MW of power plants in our generation portfolio as of April 30, 2026, which was unchanged from April 30, 2025. This includes 7.4 MW attributed to the design rated output of the Groton Project, although the Groton Project was not operating as of April 30, 2026.

Advanced Technologies contract revenues

Advanced Technologies contract revenues and related costs for the three months ended April 30, 2026 and 2025 were as follows:

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Advanced Technologies contract revenues for the three months ended April 30, 2026 increased to $4.7 million from $4.1 million for the three months ended April 30, 2025. Advanced Technologies contract revenues recognized under our Joint Development Agreement with ExxonMobil Technology and Engineering Company (“EMTEC”) were approximately $2.1 million, revenues arising from the purchase order received from Esso Nederland B.V. (“Esso”), an affiliate of EMTEC and Exxon Mobil Corporation, related to the Rotterdam project were approximately $2.4 million and revenue recognized under government contracts and other contracts were approximately $0.2 million for the three months ended April 30, 2026. This compares to Advanced Technologies contract revenues recognized under our Joint Development Agreement with EMTEC of approximately $2.3 million, revenue recognized under the Esso purchase order of approximately $1.2 million and revenue recognized under government contracts and other contracts of approximately $0.6 million for the three months ended April 30, 2025.

Cost of Advanced Technologies contract revenues decreased to $2.7 million for the three months ended April 30, 2026, compared to $3.1 million for the three months ended April 30, 2025.  

Advanced Technologies contracts for the three months ended April 30, 2026 generated a gross profit of $2.0 million, compared to a gross profit of $1.0 million for the same period in the prior year.

Administrative and selling expenses

Administrative and selling expenses were $14.7 million and $16.5 million for the three months ended April 30, 2026 and 2025, respectively. Administrative and selling expenses were lower during the three months ended April 30, 2026 than during the three months ended April 30, 2025 primarily due to lower compensation expense as a result of the restructuring actions in June 2025.

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Research and development expenses

Research and development expenses decreased to $7.7 million for the three months ended April 30, 2026 compared to $9.9 million for the three months ended April 30, 2025. The decrease is primarily due to a decrease in spending on the Company’s commercial development efforts related to our solid oxide power generation and electrolysis platforms and related lower compensation expense as a result of the restructuring actions in November and June of fiscal year 2025.

Restructuring expense

Restructuring expense of $0.01 million for the three months ended April 30, 2025 related to the Company’s workforce reductions in November 2024. There were no comparable charges during the three months ended April 30, 2026.

Impairment expense

In April 2026, the Company identified a triggering event for its project assets related to the Groton Project and evaluated the assets for impairment. The fuel cells installed at the Groton Project are the only SureSource 4000 fuel cells in the Company’s fleet. Due to performance issues encountered with the SureSource 4000 fuel cells at the Groton Project, the Company has elected to upgrade the equipment pursuant to the Groton Project’s PPA to utilize three of the Company’s standard 2.5 MW power blocks, with seven-year stack life design and high efficiency. As a result, an impairment expense of $42.6 million for the three months ended April 30, 2026 was recorded related to certain project assets and inventories for the Groton Project.

Loss from operations

Loss from operations for the three months ended April 30, 2026 was $77.9 million compared to $35.8 million for the three months ended April 30, 2025. This increase was driven primarily by the impairment charges related to the Company’s decision to upgrade the Groton Project, partially offset by decreases in Administrative and selling expenses and Research and development expenses for the three months ended April 30, 2026 compared to the comparable prior year period.

Interest expense

Interest expense for the three months ended April 30, 2026 and 2025 was $2.9 million and $2.5 million, respectively. Interest expense for both periods includes interest on the Derby Senior Back Leverage Loan Facility, the Derby Subordinated Back Leverage Loan Facility, the OpCo Financing Facility, the Groton Senior Back Leverage Loan Facility, the Groton Subordinated Back Leverage Loan Facility, and the 2024 EXIM Financing (in each case, as defined elsewhere herein), which was entered into in October 2024. Interest expense for the three months ended April 30, 2026 also includes interest on the 2025 EXIM Financing (as defined elsewhere herein), which was entered into in November 2025.

Interest income

Interest income was $2.5 million and $1.8 million for the three months ended April 30, 2026 and 2025, respectively. The increase in interest income during the three months ended April 30, 2026 was primarily driven by higher money market investments compared to the three months ended April 30, 2025. Interest income for the three months ended April 30, 2026 represents interest earned on money market investments. Interest income for the three months ended April 30, 2025 represents interest earned on money market investments and interest earned on investments in U.S. Treasury Securities.

Other income (expense), net

Other income (expense), net was $0.6 million and $(1.1) million for the three months ended April 30, 2026 and 2025, respectively. Other income, net for the three months ended April 30, 2026 relates primarily to unrealized gains of $0.3 million on the OpCo Financing Facility interest rate swap derivative and $0.5 million relating to research and development tax credits, offset by foreign currency losses of $0.1 million. Other expense, net for the three months ended April 30, 2025 relates primarily to unrealized losses of $1.6 million on the OpCo Financing Facility interest rate swap derivative.

Benefit from (provision for) income taxes

We have not paid federal or state income taxes in several years due to our history of net operating losses, although we have paid foreign income and withholding taxes, primarily in South Korea. Benefit from (provision for) income tax recorded for the three months ended April 30, 2026 and 2025 was $0.1 million and $(0.1) million, respectively.

Series B preferred stock dividends

Dividends recorded on our 5% Series B Cumulative Convertible Perpetual Preferred Stock (“Series B Preferred Stock”) were $0.8 million for each of the three month periods ended April 30, 2026 and 2025.

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Net income attributable to noncontrolling interests

Net income attributable to noncontrolling interests is the result of allocating profits and losses to noncontrolling interests under the hypothetical liquidation at book value (“HLBV”) method. HLBV is a balance sheet-oriented approach for applying the equity method of accounting when there is a complex structure, such as the flip structure of our tax equity financings with East West Bancorp, Inc. (“East West Bank”), Renewable Energy Investors, LLC (“REI”), and Franklin Park 2023 FCE Tax Equity Fund, LLC (“Franklin Park”).

For the three months ended April 30, 2026 and 2025, net (loss) income attributable to noncontrolling interest totaled $(0.03) million and $0.01 million, respectively, for the Groton Project tax equity financing transaction with East West Bank.

For both of the three month periods ended April 30, 2026 and 2025, net loss attributable to noncontrolling interest totaled $0.1 million for the LIPA Yaphank Project tax equity financing transaction with REI.

For both of the three month periods ended April 30, 2026 and 2025, net income attributable to noncontrolling interest totaled $0.4 million for the Derby Projects tax equity financing transaction with Franklin Park.

Net loss attributable to common stockholders and net loss per common share

Net loss attributable to common stockholders represents the net loss for the period less the preferred stock dividends on the Series B Preferred Stock. For the three month periods ended April 30, 2026 and 2025, net loss attributable to common stockholders was $78.7 million and $38.8 million, respectively, and net loss per common share was $1.45 and $1.79, respectively. The increase in net loss attributable to common stockholders was primarily due to the increase in loss from operations for the three months ended April 30, 2026. The decrease in net loss per common share for the three months ended April 30, 2026 was primarily due to the higher number of weighted average shares outstanding due to share issuances since April 30, 2025.

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Comparison of the Six Months Ended April 30, 2026 and 2025

Revenues and Costs of revenues

Our revenues and cost of revenues for the six months ended April 30, 2026 and 2025 were as follows:

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Total revenues for the six months ended April 30, 2026 of $66.1 million reflects an increase of $9.7 million from $56.4 million for the same period in the prior year. Cost of revenues for the six months ended April 30, 2026 of $84.9 million reflects an increase of $13.9 million from $71.0 million for the same period in the prior year. A discussion of the changes in product revenues, service agreements revenues, generation revenues and Advanced Technologies contract revenues follows.

Product revenues

Our product revenues and related costs for the six months ended April 30, 2026 and 2025 were as follows:

Product revenues for the six months ended April 30, 2026 were $30.1 million, compared to $13.1 million in product revenues for the six months ended April 30, 2025. Product revenues for the six months ended April 30, 2026 were driven primarily by revenue recognized under the Company’s LTSA with GGE for the delivery and commissioning of eight fuel cell modules for the GGE Platform, and $6.0 million of revenue recognized under the Company's LTSA with CGN-Yulchon Generation Co., Ltd. (“CGN”) for the delivery and commissioning of two fuel cell modules for CGN’s Yulchon facility in South Korea (the “CGN Platform”). Product revenues for the six months ended April 30, 2025 were driven primarily by revenue recognized under the Company’s LTSA with GGE for the delivery and commissioning of four fuel cell modules for the GGE Platform.

Cost of product revenues totaled $36.7 million in the six months ended April 30, 2026, compared to $19.3 million in the six months ended April 30, 2025. The increase in cost of product revenues in the six months ended April 30, 2026 is primarily due to the ten fuel cell modules that were delivered and commissioned under the Company’s LTSAs with GGE and CGN. Manufacturing variances, primarily related to production volumes and unabsorbed overhead costs, increased to approximately $7.2 million for the six months ended April 30, 2026, compared to approximately $5.6 million for the six months ended April 30, 2025.

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For the six months ended April 30, 2026, we operated at an annualized production rate of approximately 34.5 MW in our Torrington, CT manufacturing facility, compared to an annualized production rate of 30.6 MW for the six months ended April 30, 2025.

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Service agreements revenues

Service agreements revenues and related costs for the six months ended April 30, 2026 and 2025 were as follows: