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Revenue Recognition | 12 Months Ended
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Oct. 31, 2022
Revenue Recognition |
Revenue Recognition | Note 2. Revenue Recognition Contract Balances Contract assets as of October 31, 2022 and 2021 were $20.7 million ($9.7 million long-term) and $20.5 million ($11.6 million long-term), respectively. The contract assets relate to the Company’s rights to consideration for work completed but not billed. These amounts are included on a separate line item as Unbilled receivables, and balances expected to be billed later than one year from the balance sheet date are included within Other assets on the accompanying Consolidated Balance Sheets. We bill customers for power platform and power platform 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 revenues recorded, typically in the subsequent month. Some Advanced Technologies contracts are billed based on contractual milestones or costs incurred. The net change in contract assets represents amounts recognized as revenue offset by customer billings. For the years ended October 31, 2022 and 2021, a total of $5.3 million and $5.2 million, respectively, was transferred to accounts receivable from contract assets recognized at the beginning of the period. Contract liabilities as of October 31, 2022 and 2021 were $25.4 million and $36.7 million, respectively. The contract liabilities relate to the advance billings to customers for services that will be recognized over time and in some instances for deferred revenue relating to license performance obligations that will be recognized at a future point in time. The Company discontinued revenue recognition of the deferred license revenue related to the License Agreements in July 2020 given the then pending arbitrations. As of October 31, 2021, $22.2 million related to the License Agreements is included within Long-term deferred revenue on the accompanying Consolidated Balance Sheets. During the first quarter of fiscal year 2022, $22.2 million related to the POSCO Energy License Agreements was reclassified from deferred revenue to customer deposits within Long-term deferred revenue and customer deposits on the accompanying Consolidated Balance Sheets. The net change in contract liabilities represents customer billings offset by revenue recognized. Contract modification ​ As a result of the settlement reached with POSCO Energy Co., Ltd. (“POSCO Energy”) (see Note 18. “Commitments and Contingencies” for further background), the Company evaluated the License Agreements with POSCO Energy as well as all of the terms of the settlement agreement with POSCO Energy, which was effective December 20, 2021 (the “Settlement Agreement”). As part of this analysis, the Company considered the accounting surrounding the execution of the Settlement Agreement, reviewed all elements related to the License Agreements with POSCO Energy and the Settlement Agreement and considered any potential contingencies in the License Agreements and whether any proceeds were related to the litigation settlement. ​ Under the terms of the Settlement Agreement, the Company agreed that the License Agreements are not terminated, but instead are deemed to be amended such that POSCO Energy and its subsidiary, Korea Fuel Cell Co., Ltd. (“KFC”, and with POSCO Energy, collectively, “PE Group”), only have the right (i) to provide maintenance and repair services to PE Group’s existing customers on existing molten carbonate power generation and thermal projects under long-term service agreements currently in force as well as long-term service agreements that have expired and are pending renewal as of the settlement date (collectively, “Existing LTSAs”), (ii) to supply replacement modules purchased from the Company only for their existing customers for existing molten carbonate power generation and thermal projects under Existing LTSAs and (iii) to own, operate and maintain all facilities and factories solely for the purposes set forth in (i) and (ii) above (collectively, the “Right to Service License”) and further agreed to sell modules with a service warranty pursuant to a module sales agreement to be negotiated by the parties after execution of the Settlement Agreement. As such, the Company has considered the execution of the Settlement Agreement to be a contract modification as it results in a change in both the scope and price of a contract with a customer. Therefore, the Company accounted for such modification under the contract modification guidance included within ASC 606 (Revenue from Contracts with Customers). Further, the Company noted that none of the parties to the Settlement Agreement specifically acknowledged any payment of damages or reimbursement of any costs related to the matters settled under the Settlement Agreement, which supports the conclusion that the overall settlement is a form of contract modification. Additionally, the transaction price allocated to the modified contract did not exceed the stand-alone selling prices (“SSP”) of the performance obligations under the modified contract (i.e., there is no indication of a premium that would indicate that a portion of the transaction price relates to something other than the promised goods or services). ​ The Company has identified two performance obligations in the Settlement Agreement which includes the sale of 20 modules and an option to purchase an additional 14 modules. The Company assessed the SSP of the modules utilizing a cost-plus margin approach to arrive at $3.0 million per module which will be recognized upon transfer of control of such modules to KFC via title transfer consistent with the Company’s established revenue recognition policies. The Company is also providing a performance guarantee for up to seven years with each module to cover any annual output penalty that would need to be paid by PE Group to a customer. The Company determined that this performance guarantee represents variable consideration and estimated a value of $0.65 million per module, which resulted in accrual of $13.1 million for the year ended October 31, 2022 upon the sale of twenty modules during the year ended October 31, 2022. This variable consideration will be recognized as revenue if and when it is determined that there are no amounts due under the performance guarantee. In its analysis at the time of execution of the Settlement Agreement, the Company determined that it was probable that KFC would exercise its option to purchase an additional 14 modules (with a performance guarantee) beyond the firm order of 20 modules, to which it is contractually committed. Given that the license rights for which the Company was previously recognizing revenue are no longer in place and the Company now has a new revenue stream from the sale of modules, the $22.2 million of deferred license revenue was recharacterized as a customer deposit, of which $13.1 million was recorded as variable consideration within Long-term debt and other liabilities on the accompanying Consolidated Balance Sheets. The Company will monitor the variable consideration based on the performance of the modules and revise our estimates as necessary. Should KFC’s right to purchase the additional 14 modules expire without being exercised on December 31, 2022, it could result in the Company recognizing revenue for the amount equal to the value of the material right. ​ EMTEC Joint Development Agreement ​ Effective as of October 31, 2019, the Company entered into a Joint Development Agreement (as amended, the “EMTEC Joint Development Agreement”) with ExxonMobil Technology and Engineering Company (formerly known as ExxonMobil Research and Engineering Company) (“EMTEC”), pursuant to which the Company has engaged in exclusive research and development efforts with EMTEC to evaluate and develop new and/or improved carbonate fuel cells to reduce carbon dioxide emissions from industrial and power sources, in exchange for (i) payment by EMTEC of certain fees and costs (including research costs of up to $45.0 million) as well as certain milestone-based payments, and (ii) certain licenses. In Amendment No. 1 to the EMTEC Joint Development Agreement (“Amendment No. 1”), which was executed on October 29, 2021 and effective as of October 31, 2021, the Company and EMTEC agreed, among other things, to extend the term of the EMTEC Joint Development Agreement for an additional six months ending on April 30, 2022. Amendment No. 1 allowed for the continuation of research intended to enable incorporation of design improvements to Company fuel cell design in order to support a decision to use the improvements in a potential future demonstration of the technology for capturing carbon at ExxonMobil’s Rotterdam refinery in The Netherlands (such demonstration, the “Rotterdam Project”) and provided additional time to achieve the first milestone under the EMTEC Joint Development Agreement. In a related letter agreement between the Company and EMTEC dated as of October 28, 2021 and executed on October 29, 2021 (the “Letter Agreement”), the Company agreed to invest with EMTEC in the Rotterdam Project, should EMTEC move forward with the Rotterdam Project. In the Letter Agreement, the Company agreed that, if (i) the Company achieves the first milestone under the EMTEC Joint Development Agreement (which the Company achieved in the first quarter of fiscal year 2022, resulting in a $5.0 million payment to the Company which the Company received in the second quarter of fiscal year 2022) and (ii) EMTEC and the Company execute a contractual agreement to proceed with the Rotterdam Project (which has not occurred), then at EMTEC’s option, the Company will either make an investment in the amount of $5.0 million in the Rotterdam Project or discount EMTEC’s purchase of the Company’s fuel cell module and detailed engineering design, as agreed to by the parties, required for the Rotterdam Project by said amount. ​ On April 29, 2022, the Company and EMTEC entered into Amendment No. 2 (“Amendment No. 2”) to the EMTEC Joint Development Agreement which was effective as of April 30, 2022 and which increased the maximum amount of research costs to be reimbursed by EMTEC from $45.0 million to $50.0 million and extended the term an additional eight months, ending December 31, 2022 (unless terminated earlier). In Amendment No. 2, the Company and EMTEC also agreed to conduct a joint market study, with a target completion date on or before October 31, 2022, to (a) define application opportunities, commercialization strategies, and development requirements, (b) identify partners for potential pilot/demonstration projects and (c) assess fuel cell/stack/module manufacturing scale-up and cost reduction. As of October 31, 2022, the Company and EMTEC were still collaborating on the joint market study, which was completed in early fiscal year 2023. ​ During the fiscal year ended October 31, 2022, the Company achieved the first technical milestone under the EMTEC Joint Development Agreement and received payment of $5.0 million. The Company has not recognized revenue in connection with this milestone achievement as a result of its agreement, in the Letter Agreement described above, to either make a $5.0 million investment in the Rotterdam Project or discount EMTEC’s purchase of the Company’s fuel cell module and detailed engineering design for the Rotterdam Project by $5.0 million, should the Company enter into a contract with EMTEC to proceed with the Rotterdam Project. The Company will continue to evaluate revenue recognition of this milestone achievement as project negotiations with ExxonMobil (or a subsidiary thereof) evolve. ​ Remaining Performance Obligations ​ Remaining performance obligations are the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. As of October 31, 2022, the Company’s total remaining performance obligations for service agreements was $114.0 million, for Advanced Technologies contracts was $22.9 million and for product revenues was $9.1 million. Service revenue in periods in which there are no module exchanges is expected to be relatively consistent from period to period, whereas module exchanges will result in an increase in revenue when replacements occur.

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