FuelCell Energy, Inc. (FCEL) Earnings

Management highlights

- Commercial Execution and AI/Data Center Market Focus * Growing demand from AI and high-density compute infrastructure has outpaced grid expansion timelines, creating demand for behind-the-meter scalable baseload generation that Fuel Cell Energy's DC-native platform is positioned to meet. * Total pipeline of submitted proposals expanded over 250% quarter-over-quarter to 4 gigawatts, with 89% of the pipeline coming from potential data center customers; average proposal size doubled from 65 megawatts to 130 megawatts, reflecting large-scale engagement from hyperscalers. * Launched the new 12.5 megawatt pre-built utility-scale fuel cell energy block product, designed for modular phased capacity addition, rapid deployment in grid-constrained markets, and alignment with data center development needs, using the same proven architecture as the company's existing 1.25 megawatt base blocks. * Prioritizes disciplined pipeline conversion to contracted backlog, with a goal to convert high-quality submitted proposals within fiscal 2026. - Operational Discipline and Manufacturing Scale-Up * Increased planned annual manufacturing capacity expansion at the Torrington, Connecticut facility from 350 megawatts to 500 megawatts, in response to growing pipeline demand. * Total cost for the full expansion is estimated between $200 million and $275 million; future capacity expansion will only proceed aligned with contracted backlog, market demand, and structured capital support to avoid overbuilding and preserve shareholder capital. * Capacity will be added incrementally over time rather than a single binary increase to 500 megawatts, as production constraints are unlocked sequentially. - Strategic Partnership Progress * Ongoing module deliveries to GGE in South Korea continue, with progress on the AI data center MOU with Inuverse. * Carbon capture technology development with ExxonMobil's Low Carbon Solutions is transitioning from development to deployment: two carbon capture modules are en route to ExxonMobil's Rotterdam facility, expected for delivery in June 2026, to create physical commercial proof points for point-source emission reduction technology. - Balance Sheet and Financial Discipline * Ended the quarter with $440.9 million in total cash, cash equivalents, and restricted cash, including $373.2 million in unrestricted cash, providing strong liquidity for growth plans. * Raised $100.4 million in net proceeds via an at-the-market equity program in the quarter, with an additional $52.9 million raised post-quarter, strengthening the balance sheet; the company remains essentially debt-free with no near-term maturities. * Excluding the non-cash Groton impairment charge, core operating expenses declined year-over-year, demonstrating continued cost discipline on the path to positive adjusted EBITDA.

Guidance

- The company maintains its prior target of achieving adjusted EBITDA profitability when it reaches consistent annualized production volumes at or above 100 megawatts; the expansion of total planned capacity to 500 megawatts does not change this target. * Product sales for the new 12.5 megawatt block are targeted for 10-20% margins (higher if the company does not act as EPC, lower if it participates in EPC), while long-term service agreements for these projects are targeted for margins above 20%, with service backlog typically larger in value than the initial product sale. * Remaining GGE modules and upcoming CGN Yulcheon generation deliveries are expected to drive consistent product revenue in the second half of fiscal 2026. * Operating expenses are not expected to see significant growth as revenue scales, with only modest inflation-related increases expected, and the company expects to generate meaningful operating leverage from its current fixed cost structure.

Segment performance

Total revenue for Q2 FY2026 was $35.6 million, a 5% year-over-year decrease from $37.4 million in Q2 FY2025. The decline was driven by lower service revenue (no module exchanges in the quarter) and lower generation revenue (from the Groton project being under repair), which were partially offset by higher product revenue from scheduled module deliveries to Gunji Green Energy (GGE) in South Korea, and an uptick in advanced technology revenue. Total backlog as of April 30, 2026 was $1.14 billion, down from $1.26 billion in the prior year, with the following segment breakdown: product backlog was $36.1 million (3.16% of total backlog), service backlog was $155.4 million (13.63% of total backlog), generation backlog was $928.5 million (81.45% of total backlog, with a 15-year weighted average remaining contract term), and advanced technology contract backlog was $15.4 million (1.35% of total backlog, majority tied to joint development with ExxonMobil). Operating loss for the quarter was $77.9 million, up from $35.8 million YoY, driven primarily by a non-cash $42.6 million impairment charge for the Groton project. Net loss was $77.6 million, up from $37.7 million YoY; net loss attributable to common stockholders was $78.7 million ($1.45 per share), compared to $38.8 million ($1.79 per share) YoY. Non-GAAP adjusted EBITDA was negative $17.1 million, a 12% YoY improvement from negative $19.3 million in Q2 FY2025, reflecting cost reduction and operating efficiency progress.

Risks & headwinds

- Forward-looking statements (including expected financial results, commercialization timelines, capacity expansion, and market opportunities) are subject to material risks and uncertainties that could cause actual results to differ materially from projections; key risks are disclosed in the company's SEC filings, particularly the risk factor section of the most recent Form 10-K. * Larger transaction sizes with data center hyperscalers lead to proportionately extended customer due diligence timelines, which can delay pipeline conversion. * Manufacturing capacity expansion is dependent on market demand and contracted backlog growth; failure to convert the current pipeline to contracted projects could result in excess capacity and wasted capital expenditure.

Analyst Q&A

• Q: Which benefits of Fuel Cell Energy's technology are resonating most with potential data center customers right now? /

  A: Management says the company's long track record of proven utility-scale operations (with 50 years of cumulative runtime across just 5 installations) is a top selling point, since customers need a reliable, established solution for behind-the-meter power. Fast time-to-power, easier permitting with no Title V requirements, and a community-friendly profile are also major draws. The new 12.5 megawatt block is well-received, and the platform's native DC output aligns with future AI infrastructure trends, preserving long-term customer capital investment.

• Q: Will the capacity expansion change the 100 megawatts annual production target for adjusted EBITDA profitability, and should investors rule out additional near-term capital raises? /

  A: Management confirmed the profitability target remains unchanged: adjusted EBITDA positivity is still expected once the company hits consistent annualized production of 100 megawatts or more. The company is comfortable with its current liquidity position after recent capital raises that have strengthened its balance sheet, but it will continue evaluating all financing options (project financing, service agreement financing, periodic equity raises) to support future growth.

• Q: How has the 12.5 megawatt power block impacted customer conversations since launch? /

  A: Management says the new block has accelerated discussions because its size matches how data centers plan their power domains, enabling modular scaling that lets customers add capacity incrementally instead of overbuilding upfront. It also improves project economics by sharing balance of plant costs across a larger power block, while retaining the company's core flexibility for different project sizes alongside existing smaller 1.25 and 2.5 megawatt blocks.

• Q: Why did pipeline grow so dramatically this quarter, and what are the margin expectations for the new standardized power block? /

  A: Management says the pipeline growth comes from focused direct sales engagement with data center developers, hyperscalers, and GPU providers, paired with increased market education (including a well-received data center white paper) that has driven broader awareness of the company's differentiated solution. For margins, product sales are targeted 10-20% (higher without EPC involvement, lower with EPC), while long-term 15-20 year service agreements are targeted for margins above 20%, and service backlog is typically larger than the initial product sale.