Good morning. My name is Adam and I will be your conference operator today. At this time, I would like to welcome everyone to the FuelCell Energy Fourth Quarter Fiscal 2018 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. And I would now like to turn the call over to Mr. Tom Gelston. Please go ahead.

Thank you, Adam, and good morning. Welcome to the fourth quarter and fiscal year 2018 earnings conference call for FuelCell Energy. This morning, FuelCell Energy released financial results for the fourth quarter of 2018. The earnings release as well as the presentation that will be referenced during this earnings call, are available on the Investor Relations section of the company's website at www.fuelcellenergy.com. A replay of this call will be available approximately two hours after its conclusion on the company's website. Before proceeding with the call, I would like to remind everybody that this call is being recorded and that the discussion today will contain forward-looking statements, including without limitation, statements with respect to the company's anticipated financial results and statements regarding the company's plans and expectations regarding the continued development, commercialization and financing of its fuel cell technology and its business plans. I would like to direct listeners to read the company's cautionary statements on the forward-looking information and other risk factors in our filings with the US Securities and Exchange Commission. Now, I'd like to turn the call over to Chip Bottone, President and Chief Executive Officer. Chip?

Thank you, Tom. Good morning, everyone, and welcome. Please turn to Slide 4, highlights. 2018 marked an important year for FuelCell Energy as tireless work to develop and win projects and drive policy initiatives have set the company up quite well to transition through successful execution on our strategy and drive towards sustainable profitability. First, I would like to highlight that we’ve exited fiscal year 2018 with record backlog and awards over $2 billion with over 83 megawatts new projects to be built. Generation revenue on our existing owned operating portfolio in a growing operations and service revenue stream as we continue to expand on our global leadership position and megawatts generated from our clean, reliable fuel cell plants. During the quarter, we entered into power purchase agreements with PPAs, for the two new contract awards in Connecticut comprised of 22.2 megawatts of fuel cell projects awarded by the Connecticut Department of Energy and Environmental Protection or DEEP, in June as part of competitive solicitation for Class 1 clean energy. In December, we executed the first of three PPAs with LIPA. This PPA stands from the selection of a 7.4 megawatt fuel cell project located in the Yaphank, New York by PSEG Long Island under a solicitation for 40 megawatts of fuel cell based power plant resources. The FuelCell Energy winning all 40 megawatts in a competitive process. Our team has been working diligently to complete development of these landmark projects. Development activities up to this point have included environmental reviews, electrical interconnection studies, permitting activities under New York SEQRA process, design engineering and planning. We plan to commence construction on all three projects in 2019. The execution of the 7.4 megawatt PPA combined with 22.2 megawatts from the Connecticut PPAs shifted approximately 30 megawatts from our awards classification into…

Thank you, Chip. Good morning, everyone, and thank you for joining our call today. Please turn to Slide 5, titled Financial Overview. FuelCell Energy reported total revenues for the fourth quarter of fiscal 2018 of $17.9 million compared to $47.9 million for the fourth quarter of fiscal 2017. Product sales totaled $9.4 million for the fourth quarter of fiscal 2018 compared to $39.9 million for the fourth quarter fiscal 2017. 2017 product sale included revenue associated with construction of the 20 megawatt plant for KOSPO in South Korea, which was completed in 2018 and has now been operating for over six months. 2018 product sales included the sale of the 1.4 megawatt fuel cell power plant project located at Trinity College to AEP Onsite Partners. This plant was sold just prior to achieving commercial operation in August and is another example of the quality of the revenue producing assets that we have in our portfolio. This transaction also highlights our strategy of having the optionality to either retain or sell assets as we manage the business to deliver on our strategy to grow our generation portfolio. The gross profit generated in the fourth quarter fiscal 2018 was $1.1 million and the gross margin was 6.4% compared to a gross profit of $3.2 million and a gross margin of 6.6% last year. Both periods were impacted by the under absorption of fixed overhead costs due to underleveraged production volumes. Manufacturing variances totaled approximately $2.7 million for the three months ended October 31, 2018 compared to $3.4 million in the prior year. At the end of the fiscal year, the company began to increase its annualized production rate from approximately 25 megawatts, and today, we are at run rate of approximately 35 megawatts on an annualized basis. Operating expenses for the fourth…

Thank you, Mike. Please turn to Slide 6, Activity. First, we felt it would be helpful to discuss the overall marketplace. In general, the quantity of our opportunities have never been greater, the breadth of our solutions have never been broader, and the performance of our fleet has never been best. Starting in the US, we continue to see strong interest and support from the states with existing exposure to the benefits of stationary fuel cell power and from others interested in taking advantage of fuel cell products and solutions. Our offerings provide energy security, sustainability benefits and operating savings to our customers. Other stakeholders in our projects should benefit from financing returns and economic development. Our focus is on identifying the market segments that can derive maximum sustainable value and then applying our execution expertise. Customers look to us for broad range of solutions including non-wires alternatives and through the utility-scale micro-grids. Over the past number of months we have seen states undertake comprehensive energy policy reviews. The stationary fuel cell is now gaining a primary suit at the table, in the discussion on long-term policy alongside solar and wind. As an example of the recognition for our industry, our Jennifer Arasimowicz was asked to serve on the Connecticut Governor-Elect Transition Team for energy policy. With regard to South Korea, we continue to have the leading presence, solution and reputation in the market. South Korea remains one of the most supportive markets in the world for stationary fuel cell technology. Our technological solution is preferred technology for utility-scale power, especially for combining with power utility-scale projects. With over 160 megawatts of our carbon fuel cell plants currently operating, customers have expressed a strong preference for our technology and its ability to deliver solutions that meet their respective needs. During…

[Operator Instructions]. And our first question does come from Colin Rusch of Oppenheimer. Colin, your line's open.

Thanks so much, guys. Could you talk a little bit about your decision-making process in terms of keeping assets on the balance sheet, potentially selling the rights to some projects at NTP and then potentially liquidating projects on the balance sheet, just a forecast for the company going forward?

Good morning, Colin. This is Mike. Sure I'll take that question. So as you saw in the quarter, we sold an asset and recognized revenue and margin related to the Trinity College project, 1.4 megawatt project, that project was sold to AEP, a great relationship with AEP and look to continue to further that relationship in the future. As we said in the past and it was included in our deck the company is really targeting building out at least 60 megawatts of projects on balance sheet given that the cash flow profiles of those projects will lead the company to EBITDA positive. So as you look at the build-out that we have in the deck and in the appendix you'll see that, that we’re getting to that 60 megawatt range next year. As we look at -- but we have more than that, that we have under construction right now with 83 megawatts and then we're also bringing the Bridgeport project back into the fold, so close to a 100 megawatts right there. So the company wants to manage the amount of capital being deployed into new project development as well as managing the corporate balance sheet. So, we will recycle cash here and there for strategic reasons to partner with folks like AEP and bring cash back on the balance sheet. But the overall goal as I stated is to get to that 60 megawatt level to lead to sustainable cash flows.

So it’s just about opportunistically maintaining the flexibility of balance sheet and what you guys are up to. That's fantastic.

That's right.

And then can you kind of give us some -- an update on what's going on in Asia in terms of the product sales. Certainly it seems like there's some robust opportunities there but would love to see what you're expecting as you go into the calendar '19 here in terms of being able to monetize some of those relationships that you've in place for a while?

This is Chip, I will take that question. As I said in my remarks we continue to be connected to that marketplace through the activities and the good work we're doing with certain customers. And it is a marketplace that has got a lot of potential, that's true, given I think the proper approach and being able to consistently deliver and have your plans perform which we have done. Beyond that what I would say is that at this point our all options for us to deal with that are on the table and kind of more of to follow-on that more specific things we are going to do there.

Our next question from Carter Driscoll of B. Riley FBR. Carter, your line is open.

So strategically, I mean, I understand the conversion, the monetization and bringing as many economical province on balance sheet to reach EBITDA breakeven and then obviously net profitability over time. Are you deemphasizing project sales simply because of the lumpy nature of the execution, the timeframe to do so and really the poor economics although that you get the revenue upfront? Or is -- and is it a bit of a settled strategy Chip to do so while you still have the capabilities to provide equipment sales? Is that a fair characterization or am I overemphasizing one aspect of the portfolio versus the other?

So I mean, I'll start and Mike can fill in here as well. I think if you really kind of do a deep dive on our business model, there is a little bit of the answer there. But I mean at the end of the day what we're really looking for is that whether it's a product sale or whether we're putting our Generation portfolio, it is a transaction where the customer that makes real sense, right? And that's what we’re really after. If we needed -- if we put in our portfolio and build them, then sell it, for us what we don’t sell and refinance it, it doesn’t really make a difference. We do that -- frankly the investment world out there at the utility level is also changing where there is a lot of interest in certain utility companies to own these assets as well. So we are kind of looking at what's the best thing to do and I mean some people have an approach one way but if you look at our business model which you can look at the margins are best when we put these things on our balance sheet frankly we are trying as Mike said we're pretty thoughtful about filling this. But I wouldn’t -- we're going after all the different potential people in the market as if there's a real opportunity then there is real value in what we do, whether it's operating saving, sustainability goes or whatever, we're going to do that. The model that we utilize to secure those awards varies based on the circumstances, and we deal with how do we actually execute that again in a thoughtful kind of the way. So we're dealing with a lot of different inputs here and making -- we think is an optimal decision. But no, we are aggressively in the marketplace. Our pipeline is as big as it’s ever been, as I mentioned in my remarks. It's all about repeat customers and being able to deliver on what you say. So that's what we are really going after.

Could you -- maybe with a little more specificity, compare and contrast the instrument you had with NRG and Generate? One thing to note with Generate is they do have kind of a guaranteed return upfront. Could you talk about was that a partial tradeoff for the size and the flexibility aspect that you have gotten from Generate? Maybe just if you could highlight the two and then the advantages that you cited earlier with a little more detail will be helpful?

This is Mike, I'll take that one. First and foremost, the company is really excited to be working with Generate Capital. Generate has had deep roots in the renewable sector. Obviously, great financing partnerships that they have, we are very strategically aligned with Generate. So the ability to work with them was quite important for us. They see things very similar -- similarly to how we do. As far as the facility, certainly the size of the facility was important to us as you look out at the build-out of our portfolio. We will certainly be able to use up to the $100 million and then potentially more depending on the timing of when we need capital for our projects. So the sizing was important compared to what we had in the past. There is flexibility in the timing of lending into the projects. Obviously we are completely vertically integrated where the manufacturer, the developer and the EPC is still having flexibility and access to capital during off days of the project is really important to us. And then to your point Carter, what -- Generate and FuelCell want to participate in these projects for a long period of time. So there is a fixed interest rate which Generate earns as a part of the construction facility and then there is optionality where they can participate in our projects for a long period of time and earn a guaranteed return through 10% participation in our projects. So we thought that was important as well. It aligns interest as we are out in the marketplace sourcing permanent capital for our projects, and again, want to leverage their relationships but bringing low cost debt financing as well as tax equity financing for our projects. So we think interests are completely aligned in this facility and looking forward to working with their team.

So it sounds very positive. So just let me understand, so they have the optionality in any project for which their provide the construction financing participate up to 10% of their option at some predetermined level, is that -- I mean I guess…?

It’s really a FuelCell option. We have the option at COD to sell a project or bring in permanent financing with Generate persistence for -- to keep the project on balance sheet for a long period of time. And they will have a sponsor equity interest in that project.

So that could actually provide somewhat of an anchor investor from COD financing beyond, is that …?

Absolutely, absolutely, yes.

Alright, maybe just couple of quick ones for me. But this facility would not be used for an operating facility like health and finance and Bridgeport acquisition, correct?

This facility in and of itself is geared towards construction financing. I would say we’re -- again we want to grow the relationship with Generate. As far as the Bridgeport financing specifically we’re working with the Connecticut Green Bank and sourcing term debt for that project and expect that project to close here in the near term and early 2019.

Okay. Maybe you could just talk at a high level about the rates you’re seeing with obviously term structure of the yield curve shifting early -- moving around the whole lot. Could you kind bracket what you’re seeing at least for that type of facility?

Yes. So obviously facilities, operating assets, we’re getting a good bid for projects in kind of the mid-single, I’m not going to quote exactly. But you will certainly see the rates come down compared to what we’re seeing for construction and development level financing.

Has the NRG facility been officially terminated?

No, so the NRG facility was always had a maturity in 2019. We have high debt maturity date now to the COD of the project that we have, that they’ve lent into which is in the spring in March. So once that project is at COD, we will bring in permanent financing, payoff that loan and then that facility essentially expires. Again, good relationship with NRG. This facility works over the course of the relationship. Given the size of the projects that we are doing now and the relationship with Generate, it make sense to put this new facility in place.

Best case scenario, how many operating assets would you have by year end, calendar year end?

In construction finance or on the operating Generation portfolio?

Generating actual electricity revenue?

Yes. If you look at the chart that we have included in the deck, Carter, certainly as the Bridgeport project closes that will bring another 14 megawatts on and we have 11.2 today, so you’ve 26. And then on top of that there is another 20 or so that are in various stages of development and construction that could be operating on balance sheet. So you’re in the 40 plus range by the end of the calendar year.

And maybe just last one from me, Chip, maybe a little bit more detail on ExxonMobil. I mean there is just such a potentially big call option on the shares. I realize the timeframe is wrong, but I would have thought that you would at least have constructed the first full demo plan by this period of time. Correct me if I’m getting that time frame too aggressively there? And then just remind us again what amount of time you expect would have to be operational to get the data you think you could actually turn it into a bigger commercial relationship?

Yes, so first of all, no, the expectation of building a plant is still consistent with what we have, give or take a quarter or so, that's not changed. But what I would say is that that's really not what we're trying to showcase here. And what I mean by that is that these are capital-intensive plants, right? And the reason we're teaming up with somebody that has the skills and bandwidth that Exxon has, is that people make decisions not necessarily in this business on seeing anything running but do they believe that it can affordably and reliably deliver what they want which is the CO2 reduction and you have to do something with the CO2. So it's not at all Carter diminished and we have all that data and we’ve been doing testing in different forms, in different sizes. So no, it's not at all diminished the opportunity. And frankly for us the revenue that we get from those projects even under those studies and things is really, really good. So I'm not at all -- and I wanted to kind of pull back my -- there is a tremendous amount of enthusiasm out there and the opportunity in the marketplace and to work with Exxon is very real. And I think that they've been pretty public about their interest in what we're doing and the size of the opportunity is immense and we're just doing the right things with the right people I think in the right order.

And your next question comes from Jeff Osborne of Cowen & Company. Jeff your line is now open.

Excellent. Good morning, guys. A couple of questions on my end. I was wondering you mentioned OpEx for the year would be flat to potentially down. Is there a way that we could reflect on 2018 and think about what the additional professional costs and development costs were due to the litany of LIPA and DEEP projects that you were doing? Was that a couple of million dollars that wouldn’t repeat itself, I'm just trying to get a sense of what the moving pieces are as you ramp up your production capacity and staffing to execute on the commercial success that you’ve had relative to the historical expense profile that we saw over the past 12 to 18 months?

Hi Jeff, this is Mike, I'll take that. And yes as I said in my remarks, we fully expect to operate at or below those levels in fiscal 2019 and we'll certainly push towards that. I think the way you characterize that is correct. There was spending on the SG&A side around that activity and some of was structural whereby working on policy initiatives at the different states and internationally as well to put certain programs in place that you're now seeing the benefits for. So I’d characterize some of that as one-time. And additionally on the R&D side a fair amount of activity in finalizing the SureSource 4000 and our seven year design stack that came to fruition in the year. So we would expect some of that to tail off as well.

Got it, that's helpful. And speaking of the 4000 I think the Triangle Street project was the first that you’ve got. Is that operational now? I know you cite as one that would be seen in the books here. But from my memory, that was supposed to be up and running by now. It sounds like there might have been some delays there?

Hey, Jeff. This is Chip. Yes. So the Triangle Street project was both a, frankly the first one we built as well as -- these hard assets, so we can actually finance them and so on and so forth. So the unit is -- we took the opportunity, we ran the unit and it produced the efficiency and everything else than we expected. But we took the opportunity to make some improvements/adjusted to this since we can. It's right in our backyard here. But currently it's under heat up and everything else and after we made some of those adjustments to this, the overall system and then it should be running here shortly, yes.

Good to hear. Two other questions. I think one really quick and one maybe a bit more detailed on that. The quicker one, can you just in broad strokes Mike talk about this service revenue profile for what we saw in '18 versus '19, in particular with replacement units? I know Bridgeport probably would have been a big chunk of replacements in '19 and now that you are about to own it, you won't see that revenue stream for that asset. But is it safe to say that its service should be flat this year or down or up, I'm just trying to get a sense of the level of activity relative to what you folks installed several years ago that would be up for a replacement over the next four quarters?

Yes, really good and insightful question, Jeff. And with bringing Bridgeport on to our balance sheet, you are correct, you will not see service revenue related to module replacements that's essentially a capital cost now on balance sheet. That gets replaced by the generation revenues that we will recognize. And assuming Bridgeport closes say at the end of January, we could see about $4 million a quarter of Generation revenues being generated by that asset alone. So you will see increase in Generation revenues and with the modules coming out of the service line, I think flattish compared to this year is fair. But you will see some increases obviously as projects come online, we do have the KOSPO project now and as we've always said there's variability in the service line depending on timing of module replacements because that's a revenue driver.

And then my last question and hopefully you can simplify this but in broad strokes if you look at your business it looks like you sell units between $6 million to $7 million a megawatt, your cost is similar in the $5 million to $6 million a megawatt. You've got construction in the 12 to 18 months timeframe. I'm trying to get a sense of how should we model the interest expense for Generate, is it safe to say that if my numbers are right you would use construction financing for call it 80% of the $5 million to $6 million over the course of 12 to 18 months in my illustrative example? Is there any kind of guidance that you can give on how you will utilize that facility for the DEEP and the LIPA projects? And then more importantly as it relates to the income statement how we should model interest expense associated with it?

So the rate in the agreement is fixed. So the question that you are asking is a good one. What is the total percentage of capital during construction that will be borrowed? And that’s all based on underlying cash flows for the individual projects. But as we said in the past we expect to borrow between 70% to 80% of the project value as we are building these. From an overall corporate cash perspective, as I mentioned in my remarks, we have already invested significantly into projects that are in construction. So you will see in 2019 and we have already started to recycling capital as we tapped construction financing. So the quick answer Jeff somewhere in the 70% to 80% that you mentioned I think is a fair estimate.

And then when you look that there is bars on your appendix do you -- does the Generate facility come in and call it the middle of 80% of the bar where at the start you are not going to use it in the first 10%, you wouldn’t use in the last 10%, I'm just trying to get a sense of timing when you would leverage that?

I think that’s fair. I mean we are trying to manage obviously corporate cash balance and not be overly leveraged here as well. Again we have invested ahead of pulling down construction financing for essentially the project, the first four projects here Triangle Street, Tulare, Bolthouse and Groton on the chart. So as we borrow against those, we are recycling capital. And then going forward you would expect to see us borrow 70% to 80% of the project value.

And then when would -- the last question I have as a follow up, when would the tax equity and/or other fixed investor come in? Is that at COD at the end of that bar or potentially tax equity comes in earlier? I'm just trying to get a sense of the timing of those events.

Yes, the tax equity would always come in at COD. And to kind of follow on to some of the Carter’s questions, what the company is doing as we obviously have these projects under contract, we are in various stages of development and construction. And we are running a process and now partnered obviously with Generate to solicit permanent debt and tax equity financing which will get -- and you will get term sheets and commitment letters in advance of COD but essentially have line of sight to your takeout financing at COD which would essentially close at COD. And then again the company does retain the optionality to sell assets at COD. We’ve demonstrated that obviously during 2018 with selling the Trinity project to AEP, selling our Tulare project to Clearway. So that optionality is there but that would also happen at commercial operations. So again soliciting financing and permanent takeout proposals during the course of the build-out of these assets.

And that was the final question. And with that, I'll turn the call back over to Chip Bottone for any last comments.

Well. Thank you, everybody, for following this and certainly the folks answering the questions for your good thoughtful questions. Just kind of in summary I think, we’ve answered a lot of questions in 2018 relative to our ability to compete, I think we’ve done a very nice job at that, financing these projects both in the construction and obviously in the long-term as Mike commented, we expect to get the takeout financing and reasonable terms and things like that. So tremendous amount of work and questions answered. I think it also validates our business model and we’ll have more dialogue with people on that but we do have a business model that gives us sustainable profitability and a lot of optionality, which in this changing world is a good thing. And then lastly, we do a lot of things on the execution front, everything from executing on some of those contracts or securing new customer commitments or working on carbon capture and hydrogen, securing pipeline of things to deploy the hydrogen throughout California in the broader world. So it is difficult, but I think accomplished a lot. So we appreciate all the questions and the people following us and the interest in the company. And I want to wish everybody a Happy New Year and look forward to talking to you on our Q1 call later in the 2019. Have a great day.

And this does conclude today's conference call. You may now disconnect.