Good morning. My name is Tracey and I will be your conference operator today. At this time, I would like to welcome everyone to the FuelCell Energy's Second Quarter 2017 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Kurt Goddard, you may begin your conference.

Good morning and welcome to the second quarter 2017 earnings call for FuelCell Energy. This morning, FuelCell Energy released financial results for the second quarter of 2017. The earnings release as well as a presentation that will be referenced during this earnings call is available on the Investor Relations section of the company website at www.fuelcellenergy.com. A replay of this call will be available approximately two hours after its conclusion on the company website. Before proceeding with the call, I would like to remind everyone that this call is being recorded and that the discussion today will contain forward-looking statements, including the company’s plans and expectations for the continuing development and commercialization of our FuelCell technology. I would like to direct listeners to read the company’s cautionary statement on forward-looking information and other risk factors in our filings with the U.S. Securities and Exchange Commission. Delivering remarks today will be Chip Bottone, President and Chief Executive Officer; and Mike Bishop, Senior Vice President and Chief Financial Officer. Now, I would like to turn the call over to Chip Bottone. Chip?

Thank you, Kurt. Good morning, everyone, and welcome. Please turn to Slide 4, highlights. We are pleased to add 10.2 MW of new contracts and commitments to our expanding list of customers. These include our first project with PSEG Long Island, CMEEC an electric energy cooperative in Connecticut and another university, Trinity College of Hartford, Connecticut. Our PPA based generation portfolio is continuing to grow. Including assets under construction and recently announced the portfolio is nearing 30 MW. This is significant milestone that Mike Bishop, our Chief Financial Officer will expand upon shortly. Our company has obtained marketing rights of the Asian market from POSCO Energy, our South Korean partner. Asia is home to almost 60% of global population and represents a sizable market opportunity for our entire solutions portfolio. We have already submitted proposals to the utility customers in South Korea. Additionally, under our memorandum of understanding we are in discussions with POSCO Energy regarding the existing installed fleet in South Korea and potentially supplying modules under existing service agreements. We are advancing our carbon capture solution with ExxonMobil, executing other contracts and responding to new interest. We are engaging utilities regarding our unique long duration energy storage solution and are encouraged by their interest and receptivity. A recently announced award for the U.S. Department of Energy is contributing to our efforts to commercialize those comparative cost effective solutions. We are pleased to have Connecticut House Bill 7036 passed just yesterday which provides a path to over 100 MW of fuel cell projects. We had numerous catalysts globally that we are advancing which I will discuss in more detail later along with our growth pathway after Mike reviews our financial results for the quarter. Mike?

Thank you, Chip. Good morning and thank you for joining our call today. Please turn to Slide 5 titled Financial Summary. FuelCell Energy reported total revenues for the second quarter of 2017 of $20.4 million compared to $20.6 million for the prior year period. This year-over-year change is a result of our transition to selectively retaining projects on balance sheet which generate continuous monthly electricity sales through power contracts of up to 20 years as opposed to selling power plants and recognizing product sales at one time. Also the prior year period included export sales that did not recur in the current period as our Asian partner POSCO Energy now manufactures locally under license and royalty agreements. Gross profit for the second quarter of 2017 totaled $400,000 compared to a gross loss of $200,000 incurred in the same period last year. Production volume is lower than last year as we controlled costs and managed inventory levels resulting in negative product margins for the second quarter. Gross profit from service, generation and advanced technology in aggregate offset the negative product margins leading to a nominal gross profit. Production levels will be increased as the backlog supports which is expected to lead to margin enhancements as existing production assets are currently underutilized. Operating expenses totaled $11.9 million for the second quarter 2017 compared to $12.6 million for the prior year period. Administrative and selling expenses are lower year-over-year. Research and development expenses include continued development of the high efficiency SureSource 4000 with the first commercial product expected to be operational in late summer. Net loss to common shareholders for the second quarter was $14 million or $0.33 per basic and diluted share compared to $16.2 million or $0.56 per basic and diluted share in the second quarter of 2016. Adjusted EBITDA loss…

Thank you, Mike. Please turn to Slide 7, titled Market Updates. We are executing on a number of large catalysts that I'd like to use as a guide for the discussion. First, the U.S. adoption and deployment of distributed generation using our solutions is happening. We are adding new utility customers, highlighting the value of clean, affordable and competitive and predictable power that solves grid challenges and enables utilities to retain their large customers. In April we announced a grid resiliency project with PSEG Long Island in New York. This is our first project for PSEG. I feel so proud that we will be supplying predictable power to PSEG electrical substation under the Clean Renewable Energy Feed-In Tariff II through a multiyear power purchase agreement. Our plant will be installed at a facility owned by one of PSEG's commercial customers which will utilize the heat in return for hosting the plant. This project demonstrates the benefits and competitiveness of predictable distributed power generation while cleanly enhancing grid reliability and resiliency. The term reliable refers to power that is delivered round the clock and resilient refers to power delivered during storms or other potential disruptions. Separately, we submitted proposals which are currently pending under PSEG 40 MW fuel-cell only RFP. PSEG recently provided an update on their website that three different clean energy RFPs included a fuel cell RFP are moving forward. Recent board meetings have indicated support and review teams have completed their work and we expect decisions will come no later than the end of July. Given our competitiveness and preferred site selections we are optimistic about our chances. Installation of our SureSource 4000 with its world-leading electrical efficiency is continuing to progress on schedule at Triangle Street in Danbury Connecticut. Suitable for installation in urban and residential areas…

[Operator Instructions] Your first question comes from the line of Eric Stine with Craig-Hallum. Your line is open.

Good morning everyone.

Good morning.

Just wanted to start with POSCO, I just want to make sure I’m clear on this. So, I know you are targeting the MOU to be finalized later this year, but I mean, it sounds like you are good to go in terms of going after that market negotiating things. I mean is this something that – you referenced the multi megawatt power plant or you expect to have definitive agreements, is that something that is dependent on the MOU being signed or are you free to go after that market and sign some of these before that happens?

Eric, this is Chip let me answer that. We are moving forward as FuelCell Energy Korea to sign contracts in the country with utility companies. The MOU that we signed sets out our ability to do that and we have immediately taken action and found a lot of enthusiasm and support to do that. So I would expect in the next few weeks you’ll hear from us with announcement of our first multi megawatt very sizable project that I referenced in my notes.

Got it, and then so then the MOU is simply for, I mean is it stack replacements for their existing fleet?

Yes, there’s a couple elements in that MOU, one was it gave us the right to go after the market which I just talked about. The second thing…

Yes.

…is to work together on how do we and they support their long-term fleet of almost 200 megawatts of customers which are all utility customers frankly. So it was just something we wanted to put out to clarify to the market what our intentions were so everybody understood what was going on.

Yes, okay good. Maybe just turn into Bills 7036 you mentioned the two aspects and the second being DEEP and the RFP, I mean any thoughts on timing of that RFP? Has there been any indication there? And then you mentioned that the first part is fuel cell only, the second part of the RFP that you’re looking for is that also fuel cell only or I know it excludes solar and wind, offshore wind, but are there any other technologies in that second bucket?

Sure, so let me first say that 7036 is a very big deal, something that we said we’re working on for quite some time consistently and we brought that to bear. The first portion of it was the utility procurement allowance that allows for utilities to procure basically generation assets. That particular aspect as I mentioned Eric is fuel cells only. So that’s good for us that right in our wheelhouse. We have been having active discussion with the utilities. They were completely supportive of that legislation. So those things I believe will move fairly quickly here because many of the projects we could tee up for that. We’ve said all along that we spent a fairly good amount of time and effort in developing projects for the inevitability of these things to happen, some of which we’ve developed for the last RFP, but some even in addition to that. So that should move pretty quickly we’re well positioned to take advantage of that. The RFP itself again there is some obviously – it takes effect on passage here we expect the Governor to sign that bill here any day now, but that should move quickly as well. The details of that are, it excludes solar and on onshore wind and the reason for that is because if you look at what’s in the statute and what’s actually in the bill it wants to address resiliency and onsite assets and again the utility industry is very supportive of that particular legislation as well. And that’s a big number, that could be anywhere in its own of 250 megawatts in total. Now there is opportunity for offshore wind and some other biomass things to participate in these RFPs, but as we know from the past, those are generally more expensive assets and longer to set up. So we feel really good about utilizing that vehicle that I just mentioned to push forward on again many of the projects, large projects we developed in the past.

Okay thanks for the details.

Yes.

Your next question comes from the line of Carter Driscoll with FBR. Your line is now open.

Hey guys this is Nate on for Carter, thanks for taking my questions.

Good morning, Nate.

Good morning. Can you just remind us again for the [indiscernible] award how many bids you submitted and the range and size and how quickly and in what form could you secure funding if you won multiple bids?

So Nate, I’ll answer the first part of that what we did and maybe I’ll just have Mike answer the second part which is the financing of it. So the RFP itself was to procure 40 megawatts of fuel cells. What we actually did was we obviously had work with [indiscernible] on what they were trying to achieve which was to put assets at what they considered to be the most important substation. So they ranked all these different substations and they told everybody that. So we actually bid well over 40 megawatts of projects of different sizes anywhere from 19 megawatts I think the smallest one we bid was like 7. And it’s kind of a menu if you will for them to figure out which project under which terms they want to – fits the site the best. So we would expect that they’re going to pick 40 megawatts or thereabouts and we feel really good about what we put in and the questions we've gotten and so on and so forth. So we expect that to move – come to conclusion no later than July which is what they have in their RFP or have had in their RFP could be sooner. Relative to financing, let me turn it over to Mike.

Sure. Good morning Nate. Yes, to answer that question, these projects are projects of size. They put out good cash flow an 18 MW project revenues at around $18 million a year with a very strong EBITDA profile. We’ve had active discussions with the finance community, both current partners and potential other financiers on these projects and are confident if we get awarded that there will be a good market for financing for these projects.

Okay great, thank you for that. And then just in terms of monetizing projects, how do you think about product sales versus generation revenues, it's dependent on the project size where you would like to keep bigger projects off the balance sheet and what would be the project size threshold there, just any color on that would be very helpful?

Sure Nate, this is Mike again. Yes as I said in my remarks, if you look at Europe and Asia in particular those projects are projects of size and will be product sales. The modeling in Korea is utility ownership, so we would sell those and that would be top line revenue, similar in North America as we just talked about the life of those are sizable projects that we would expect to sell. When you look at projects of the profile that we currently have in our generation portfolio, those are projects anywhere in the range of 1.4 MW up to 7.4 MW on-site projects that we would likely retain. So that is kind of the range, on-site projects in the range of 1 to 7 MW likely retained on balance sheet where we bring in debt financing as we’ve done in the past. Anything above that typically is product sales.

Okay great, thanks I will take the rest of mine offline. Thanks guys.

Thanks Nate.

Thank you, Nate.

Your next question comes from the line of Jeff Osborne with Cowen and Company. Your line is now open.

Hey, good morning guys. Couple of quick ones, can you talk about Chip any programs with PSEG above and beyond the 40 MW feed-in tariff that are still active for bids from you folks?

Sure, good morning Jeff, yes so we have - the projects - the first one that I've mentioned that we already have came from another program that they had, so we got something out of that and then of course you have the 14 MW RFP. We are working with them on a number of other projects, not just PSE&G but I think your question was PSE&G Long Island specifically, but broader than that because of the State’s energy policy development that they created here. So I can’t say too much Jeff, we do have other projects that we’re working with the folks of PSE&G on, yes.

And do you think without specifics could any of those have a decision in calendar 2017?

Yes, yes I would expect those to have a decision in calendar 2017, yes.

Perfect and then two for Mike, Mike can you just talk about what roughly the production levels would need to be to be breakeven on the gross margin line? I heard you gave the EBITDA, but just the margins were a little less than anticipated in our model with the under utilization, so I just want to think about how to model that?

Yes sure Jeff, so from a product sales perspective very, very low product sales this quarter. What is currently in backlog is a combination of EPC projects that we are finishing up on and some spare parts. If you look at kind of the negative margin there about $2.5 million or so of I would say under capacity that we need to cover. So that will come as I said earlier likely from Korea sales or larger product sales in the U.S. We can get there at a production value in the range that we’re at today at 25 MW. Right now that has been going into inventory and servicing and the fleet, but there is more beyond just module there is a complete power plant as well as EPC. So, we can certainly cover that in the value range of 25 MW.

Okay, got it. And then the last question I had was on the generation revenue and again thanks for breaking that out as it becomes more meaningful. But you know one A suggestion and B, just a clarification. The suggestion would be, if you're highlighting the uptime of these systems is there a way similar to the geothermal industry that you could report megawatt hours or gigawatt hours of generation, for the fleet that would be helpful? Because the reason why I ask is that it looks like generation revenue was down about $0.5 million sequentially for the same size fleet at roughly 11.2 MW I just solar I'm used to the seasonality et cetera, but I was expecting that number to be a little bit more stable and have that type of variability. Did you have any outages at any of the facilities or some other variable I'm not thinking of?

Sure, fair point Jeff and I appreciate the idea there. Yes, in the quarter we did have some planned downtime. We were implementing a micro-grid at one of the facilities, so we did take an outage which impacted revenue. There is some variability in the generation revenue with incentive type revenue, but I think as we laid out at the beginning of the year we expect for this fleet the 11.2 megawatts to generate annual revenue in the range of $7 million to $8 million. I'd say Q2 lower end of that range and potentially higher later in the year and certainly as these other assets come online continue to increase generation revenue.

Perfect, thanks for the clarification. I appreciate it.

Sure.

Your next question comes from the line of Colin Rusch with Oppenheimer. Your line is now open.

Thanks so much guys. Can you talk a little bit about the discussions with POSCO at this point in terms of with sharing around warranties and wrap, wrapping projects as you start building things out under this new arrangement, is that on the table or should we be thinking about that risk coming to you guys?

Yes Colin, this is Chip. Let me let me take that. So we're deploying our business model that we use here for that and what I mean by that is, obviously you have EPC contracts and then you have the service agreements. Okay? So the same service agreements we have here, the same terms would apply there. So think if it as no different than here. So as far as POSCO is involved in these things, clearly some of these customers, not the particular one I was referring to, but they got 200 megawatts of customers already and so they have units running. So, we work with them where we have a customer that might have existing assets there and figure out what we do with both the new opportunity as well as the existing installed base. But we always come up with our own terms and have a direct responsibility by ourselves. Operate the plants, we'll take any - the service agreements are directly with us and we put those as Mike said in the backlog for service, things like that.

That's helpful and then thinking about the existing portfolio of assets, as you had more operational history and I see you've got good credits on the other side for the off take, is there an opportunity to refinance those assets and free up a bit of cash on the balance sheet?

Sure, good morning Colin this is Mike. Yes that’s always an opportunity. These assets generate great cash flows, had gotten the interest of different financing partners, but it's also important for the company to get to EBITDA positive and retain the cash that we can from the projects. So, I’d say as the portfolio grows we will look at refinancing opportunities and bringing in other financing partners into it and continue to grow it that way.

Excellent and then one final one from me. So you talked a lot about the opportunity with utility type or distribution companies, but the economics for micro-grids and in systems as distribute generation replacing utility generate electricity, it looks pretty meaningful to me and potentially has a different sales cycle. Could you talk a little bit about how you're building the sales team and what you're seeing in terms of that opportunity and the cycle time on those sales?

Yes, Colin this is Chip. Well just let me answer the sales team question. We have kind of a very collaborative, but we have different focuses. So one portion of our sales team focuses geographically and the second one focuses on development of things to support these big RFPs and stuff like that and then the third one we have national accounts. So once we get a Pfizer [ph] account or something like that then we obviously try to not just go nationally but internationally. Right? Because we can represent, our products are the same globally, our business models are same. We can execute. We have execution team in Europe. We have execution team in Asia. So we can truly represent ourselves as a global company. So, I think the question is, can we create value for these people and everybody, all these different customers have different ways evaluating either value they need to see or value that we can create for the end user. I think the case in point was this project we received for the municipal utility, I mean we were helping them out retain a customer. The pricing we put on the table for them for the project itself was very competitive with they were getting from frankly wholesale markets and then have to put new money into you. So we have a value proposition that is pretty strong whether it's in Korea or like I said in Connecticut or other places in the United States. So, it just varies and our guys are very good at figuring out. It’s not about us, it’s about them and they figure out what customers problems we're trying to solve or what are the other choices and how can we help them make a choice for us. So, I would say, Mike has a commercial finance guy as well that supports our team. We have application engineering that supports the sales team, so we have very collaborative team that goes out to try to make sure that we can A, figure out what value we can create and secondly how do we make sure we get the project done because the other thing that is on our calling card is when we do a project it gets done, it gets done to budget, it gets done to the timeframe that we commit to. So, I would say we have a talented group of people trying to figure all those questions out supported by a lot of people at the company including myself and Mike and Tony and others.

Perfect, thank you so much guys.

Thank you.

There are no further questions at this time. Mr. Chip Bottone, President and Chief Executive officer, I will turn the call over to you.

Thank you. Thank you everybody for joining today in the call. I hope what you saw here is that we are executing on very meaningful catalysts that we’ve been talking about for some time and we’re very excited and bullish about what we are going to be able to deliver here. So, with that, I just want to say thank you very much again and have a great day and we’ll see you on the quarter three call. Take care.

This concludes today’s conference call. You may now disconnect.