Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to the FuelCell Energy’s Second Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there’ll be a question-and-answer session. [Operator Instructions] Tom Gelston, Senior Vice President, Finance and Investor Relations, you may begin your conference.

Good morning everyone, and thank you for joining us on the call today. As a reminder, this call is being recorded. This morning FuelCell Energy released our financial results for the second quarter of fiscal year 2022, and our earnings press release and our quarterly report on Form 10-Q are available in the Investor section of our website at www.fuelcellenergy.com. Consistent with our practice, in addition to this call and our earnings press release, we have posted a slide presentation on our website. This webcast is being recorded and will be available for replay on our website, approximately 2 hours after we conclude the call. Before we begin, please note that some of the information that you will hear or be provided with today, will consist of forward-looking statements with the meaning of the Securities Exchange Act of 1934. Such statements express our expectations, beliefs and intentions regarding the future and include without limitation: statements with respect to our anticipated financial results, our plans and expectations regarding the continuing development, commercialization, and financing of our fuel cell technology and our business plans and strategies. Our actual future results could differ materially from those described in or implied by such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the Safe Harbor statement, in the slide presentation and in our filings with the Securities and Exchange Commission, particularly the risk factor section of our most recently filed annual report on form 10-K and any subsequently filed quarterly reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures and we refer you to our website and to our earnings press release and the appendix of the slide presentation for the reconciliation of those measures to GAAP financial measures. Our earnings press release and a copy of today’s webcast presentation are available on our website at www.fuelcellenergy.com under Investors. For our call today, I’m joined by Jason Few, FuelCell Energy’s President and Chief Executive Officer; and Mike Bishop, our Executive Vice President, Chief Financial Officer and Treasurer. Following our prepared remarks, we will be available to take your questions and be joined by other members of our leadership team. I will now hand the call over to Jason for opening remarks. Jason?

Thank you, Tom and good morning, everyone. Thank you for joining us on our call today. In the second quarter we made continued progress in executing our Powerhouse Business Strategy. Before I get into the results for the quarter, I always like to provide a brief overview of the company. As shown on Slide 3, in summary, what we do is decarbonize power and produce hydrogen. We do this as a leader in manufacturing stationary FuelCell platforms that leverage our proprietary technologies. We operate across three continents, and as we previously stated, we are focused on targeting new opportunities in new markets across the globe. In fact, just this week, we announced a collaboration opportunity in North Africa. Our manufacturing locations are currently located in the United States, Canada and Germany, which we believe positions FuelCell Energy for local content requirements and efficient distribution, which is increasingly important, given global supply chain constraints and clogged shipping ways. We have 95 platforms in commercial operation, which we believe demonstrate the commercial feasibility of our products. In fiscal year 2021, our revenue of nearly $70 million came from three revenue categories, service and licenses, Advanced Technologies and Generation, all of which represent diversified sources of recurring revenue under multi-year contracts. Over the past two fiscal years, we have had no revenue from product sales. However, product sales returned to our revenue mix in the first quarter of this year with an initial order for 12 replacement modules to service POSCO Energy's existing installations in Korea, six of which were delivered in the first quarter of this year. We expect to deliver additional modules from the initial order in the third quarter of this year and pursuant to the terms of the settlement agreement with POSCO Energy, we expect Korea FuelCell to place…

Thank you, Jason. And thanks to those that have joined our call today. Now I'd like to spend a few minutes providing some details on our financial results for the second fiscal quarter of 2022 beginning on slide seven. In the second quarter of fiscal 2022, we reported revenues of 16.4 million compared to 14 million in the second quarter of fiscal ‘21, an increase of approximately 17%. Looking at revenues by category, consistent with our expectations there were no product revenues in the second quarter, as there were no modules delivered. We do expect product revenues in the third quarter as we expect to deliver additional modules from the 12 module order we received from a subsidiary of POSCO Energy in the first fiscal quarter of 2022. Additionally, pursuant to the terms of the settlement agreement with POSCO Energy, we expect a subsidiary of POSCO Energy to place a non-cancelable order by June 30th, 2022 for eight additional modules. We are targeting delivery of all 20 modules, of which six were delivered in the first quarter by the end of our fiscal year. Service agreements revenues increased 300% to 2.6 million from $700,000. The increase in revenues for the second quarter of fiscal 2022 is primarily due to the fact there was a refurbished module exchange and non-routine maintenance activities during the quarter. Generation revenues increased 46% to 9.1 million from 6.2 million, primarily due to the completion of the Long Island Power Authority or LIPA Yaphank Project during the three months ended January 31, 2022, and the higher operating output of the Generation fleet portfolio as a result of module replacements during the last six months of fiscal year 2021. Advanced Technologies contract revenues decreased 34% to 4.7 million from 7.1 million, compared to the second quarter of…

Thanks Mike. On Slide 12, I want to reiterate the highlights of our Powerhouse Business Strategy, which is our guiding strategy for our journey toward long term growth. The first tenant is growth. We want to pursue growth in markets and customer segments where we see significant opportunities for our technology. The second is scale to achieve growth we plan to scale our existing platform by investing in, extending and deepening our leadership and total human capital across the organization. And third, innovate. We believe that our continued focus on innovation will enable our participation in the growth of the hydrogen economy and carbon capture markets. Two opportunities where we believe the combined cumulative market through 2030 is greater than $1.5 trillion, and we expect will help us deliver on our purpose. Our Powerhouse Business Strategy has evolved over the past couple of years to focus on growth. The energy transition is happening at an accelerated pace, and we believe our technologies will play an important role in helping society achieve our global sustainability goals. We are moving forward with investments in capacity, capability, and global talent, which we believe will enhance our ability to capture more of the market opportunity over the coming years, and deliver enhanced shareholder returns over the long run. On Slide 13, we have provided more detail on how we are working to achieve growth by pursuing global opportunities. I am proud of the progress we are making as an organization and how we are growing our sales team and capabilities with the goal of achieving the long-term targets shared at our recent Investor Day. Part of this is optimizing our business by which we mean capitalizing on our core technology strengths in key product markets. Just one example is the module cells to Korea…

[Operator Instructions] Our first question comes from Colin Rusch from Oppenheimer & Company.

Can we get an update on your plans to monetize the carbon capture technology beyond the development agreement. I'm just curious how things are emerging in a little bit more concrete way as you continue to make a lot of progress there?

Sure, Colin. As we announced, we extended the agreement with Exxon through the balance of this year. And one of the things that's different than what we've talked about previously is that this agreement also -- the extension includes developing a joint marketing and commercialization plan around the technology. And so that work is being done to really think about the customer segments and geographies that we can go after kind of as Phase 1, if you will, of the technology to demonstrate the capability for us to effectively capture carbon against industrial applications as our first target. And so that will cut across. When we talk about industrial applications, that really thinks about -- like boiler applications for example, like the project we're doing in Canada, where we're capturing carbon from a process upgrade boiler where it might be a refining or petrochemical kind of application or boilers that are used in other manufacturing processes. So that's the focus of that effort. And we'll really look to try to likely demonstrate the technology against a couple of different geographies as well as against a couple of different kind of market segment types. And that -- and we'll look to include as part of that kind of a full-on solution set. So not just the carbon capture, but what's the infrastructure to actually move CO2 to a point of sequestration, for an example, what's the subsurface kind of worker technology that we're going to use to actually execute against the sequestration. So it will be a full wholesome plan around how we're going to commercialize the technology and move it forward.

That's super helpful. And then now that you've got some additional sales resources working on PGR. Can you talk a little bit about the competitive dynamics and where you guys are competing well, where you might need to make some changes in terms of growing that business on the product side and really driving some [Indiscernible]?

Yes, sure. So when we look at our business and if I just kind of break the world into 2 and I say the U.S. and rest of the world, we see about 40% of our opportunity really across the U.S. and about 60% across markets, inclusive of the EU, Mid East, Africa, LatAm, Asia, as an example. And then when you look at the particular applications, we see utility opportunities across all those markets. We see food and beverage, when you think about our opportunity to deliver CO2 from a utilization standpoint, so not just sequestration. I mean if you look at just today in the Financial Times, for example, it was reported that CF Industries is shutting down one of its fertilizer plants in Cheshire, that's going to have an impact on not only fertilizer and food supply, but on CO2 for meat processing, we think those kind of applications represent great opportunities for us. And we're seeing that across the globe in terms of opportunities that we look at. In the U.S., we see more folks around microgrid, good resilience and reliability, and we think that we compete quite effectively there, and we have a number of demonstrated applications. And we also see biofuels as an opportunity that's going to continue to be strong for us given some of the uniqueness of our capabilities and particularly on the carbonate side. And then when we look to international markets, and we talk about markets like -- for example, like Korea, we definitely see district heating and cooling as a big opportunity because that's a big part of the market there. And then we see strong interest in distributed hydrogen and distributed hydrogen for multiple ways of producing hydrogen. So even outside of the U.S. kind of hub concept that's coming out of the infrastructure package, we see distributed hydrogen demand being produced from fuel. And so we think as we demonstrate the Toyota project, we're seeing strong port interest as a ship to shore resource as well as distributed hydrogen for goods movement at a port level, and we're seeing that not only in the U.S. but other parts of the world. And then, of course, a lot of strong interest in electrolysis and that's the project we just announced or a MAU in North Africa, that's all around leveraging our technology around electrolysis and then being able to leverage great sun coverage in North Africa and pipelines to move that hydrogen back into Italy and the EU markets as an example.

Our next question comes from Laurence Alexander from Jefferies.

This is actually [Kevin Astock] (ph) on for Laurence Alexander. So my first question is sort of broad and has to do with green and blue hydrogen. I guess a bit of the Toyota project. I guess I'm just curious to hear how long you think it would take to build out further green hydrogen capacity. And I guess that's something you thought you might be interested in? And my second question has to do with gross margins. Basically, when do you expect them to turn positive? And any commentary there would be helpful.

Yes. So when we think about green hydrogen or blue hydrogen or pink hydrogen, you kind of pick a color, we really try to think about it more from a carbon intensity standpoint because we think that's really a better way to think about hydrogen and the hydrogen that's going to be delivered for particular applications or use cases. In the case of the Toyota project, because we're leveraging RNG, we're delivering green hydrogen, we're delivering carbon-neutral power and water on that project. And we think that those kind of projects are going to continue to be real opportunities for us, both domestically and internationally. And so we think there's an opportunity to maybe move those projects forward more rapidly versus some of the pure green electrolysis hydrogen projects because one of the things that's still a bit of a challenge you have there is infrastructure for moving that hydrogen without putting it in a tube trailer and putting it on a truck and moving it. And so there's work that still needs to be done there, but we think our ability to do distributed hydrogen even leveraging fuel and deliver green hydrogen in that application will be a strong opportunity for us. And yes, we are very interested in more of those opportunities and expanding that both domestically and internationally. And maybe I'll let Mike talk a little bit about the margin profile.

Sure. Thanks, Jason. So from a margin perspective, maybe I'll just walk through line items on our P&L and give you my perspective there. So this quarter, consistent with our expectations, we did not have any product revenue. Recall last quarter, we had $18 million of product revenue from a subsidiary of POSCO Energy. That generated about 18% margins. We do expect the balance of that order. That was a $60 million order. We expect the balance of that to be delivered by the end of our fiscal year. So you'll see additional revenue and margin coming from that line item. Service revenue this quarter, about $2.6 million that was negative margin. Service is variable. As the fleet expands, we do expect positive margins from service generation, you'll typically see margins negative to flat. What's coming through Generation is really 2 things. We have depreciation. And then we've also been expensing project costs related to the Toyota project in that line item. So how the company thinks about Generation is really on an EBITDA basis. Typically, we're targeting EBITDA margins in the 40% to 50%. And if you back out those 2 line items that I just mentioned, that brings you -- EBITDA margins around 42% for the quarter. And then finally, Advanced Technologies, you've consistently seen positive margins from Advanced Technologies, that Advanced Technologies is a combination of our work with EMTEC or ExxonMobil. And this quarter, you saw margins in the range of 25% coming through Advanced Technologies.

Our next question comes from Noel Parks from Tuohy Brothers.

I have a couple of things. One is that there was a mention earlier about module exchanges in the Generation portfolio. And how much visibility do you have into the timing of those?

This is Mike. I'll take that one. So the way to think about our Generation portfolio, these are typically 20-year assets. These are assets held by the company on balance sheet. And the reason why the company has retained a Generation portfolio is to benefit from the long-term recurring cash flows. And you've seen revenues from our Generation portfolio increased in recent quarters as projects have come online, for example, the LIPA Yaphank project came online in the first quarter, and that's why you're seeing higher revenues coming through. So what -- the way that we kind of think about this is will -- as we continue to build out the fleet, you'll see higher revenues coming through from this portfolio.

Okay. And the module exchanges that -- those are sort of predictable economics –

I'm sorry. Just to follow on to the module exchanges. The -- so over the course of the power purchase agreement, you -- we will replace modules and the way our technology works is the current life cycle of modules that we're deploying today is around 7 years. So we have visibility to be able to plan out those module exchanges. And when they occur, that will lead to higher revenue because the module essentially degrades about 10% over its life. So you're seeing slight reductions in revenue over time. And then when the new module comes online, that's what leads to the revenue increase. Sorry, I wasn't clear in my first answer there.

No problem at all. And I just wanted to touch on the Toyota project. You've mentioned a couple of times about the booking of cost for that. And just looking ahead of it, is there a shift in how the costs get represented upon or approaching final commissioning that we'll see in the future?

So the Toyota project, we -- the way to think about that project, we have not yet secured a renewable natural gas contract for that project. So as a result, we're not able to fully estimate the project economics. So what we've been doing from an accounting perspective and going back several quarters, which has been disclosed, we're capitalizing recoverable costs, which is essentially the power plant and expensing site work and what we're calling nonrecoverable costs. As we get closer to commissioning, the company is working on securing that renewable natural gas source, economics will become clearer, and there might be an opportunity to capitalize additional costs going forward, but that really is dependent on the future economics of the project. The project, we do expect to be cash flow positive as -- or EBITDA positive in the range that I talked about for our other projects. But as I mentioned, we are expensing part of the capital cost of that project.

Great. And I just wonder sort of as a general topic. We have been hearing more, I guess, over the past 6 months or 1 year. About hydrogen hub projects, many of them sort of independently financed, there is also potential support from the infrastructure bill in the mix. And I just wonder, as you see those developing across different regions, just where those trends might fit in with what you foresee for hydrogen adoption overall and whether those would have an influence on your own business?

Yes. Noel, this is Jason Few. Look, we think the hydrogen hubs are an exciting opportunity. If you look at the infrastructure package that was actually signed by President Biden, there's about $9.5 billion allocated toward hydrogen-related items, everything from these hydrogen hubs, which is roughly about $8 billion. And then you've got another $1.5 billion between infrastructure and additional R&D kind of allocated out of that total $1 trillion-plus infrastructure package. The original intent or what was described by the DOE was to do 4 hydrogen hubs around the country, kind of conventional wisdom right now is that's probably going to be at least 8%. And what you've seen are a number of states and/or entities kind of pair up to actually be in a position to submit programs or proposals to the DOE to win those hydrogen hub opportunities. So as an example, we are participating in a number of those. But just to give an example, in Connecticut, we're part of one that includes Connecticut, New Jersey, New York and Massachusetts as an example. And so if you consider that, the Northeast corridor, the plan is to put together a program that will be compelling for the DOE to want to support that project, and there will be funding from the DOE, there'll be funding from the companies in the States to try to make those projects successful in demonstrating hydrogen production and utilization. And one of the things as you think about the DOE, what they've indicated that they want to do is show hydrogen production from a multitude of sources. So just to give you a perspective for our company, we can demonstrate, as we're doing with Toyota, the ability to produce hydrogen utilizing fuel. So that might be one way that the DOE is interested in showing distributed hydrogen being produced via fuel, perhaps for transportation application or some other use for that hydrogen. They also want to be able to show hydrogen production from renewable energy like wind and solar. So that's where technology that we're working to commercialize like our electrolysis platform could be utilized to demonstrate converting renewable energy and water into hydrogen and then using that hydrogen potentially for power production or using that hydrogen as a potential replacement fuel for manufacturing steel or using it in gas blending applications to bring down the carbon intensity in that gas. So a number of different ways we think these hubs are going to come together. We're participating in a number of those. The DOE's RFP, if you will, has not come out yet, so everyone is waiting on that. And that really will kick off the process in earnest.

[Operator Instructions] Our next question comes from Eric Stine from Craig-Hallum.

So maybe just sticking with Toyota. Could you just go into a little more detail? I know you said you're almost done with construction, but there are a few more steps left and you need to get an extension on the PPA. I mean, do you anticipate any challenges on that? Or what are kind of the next things we should look for going forward?

Yes. Eric, this is Jason. And maybe, I'll just start, and then I'll turn it over to Mike to maybe -- Mike Lisowski to maybe talk about the project itself. We are making very solid progress in the project. And as we indicated, we're close to on the mechanical side. We believe that Toyota remains very committed to this project. And this is just part of the process in these projects to work through extensions or those types of things. I mean, if you think about this project and you go back to the very beginning, as you may recall, we were initially delayed as a result of some issues with the utility wanting to challenge the PUC. So we had to work through those issues, that really began the initial delay in this project. And so I think both Toyota and FuelCell have worked through extensions previously in this, and we think that we'll get through this as well, and we think that they remain very committed to the project. And in fact, I mean if you were to actually be at the Port of Long Beach right now, you would see a pretty impressive view of the platform that's there. And so I think they're excited as are we. Mike, I don't know if you want to talk about the projects more.

Yes. Thank you, Jason. And thank you, Eric, for the question. This is Mike Lisowski, Chief Operating Officer. I'm quite proud of the advancement and progress made on execution of this project. Just to unpack it a little bit, the design of the platform is complete, all of the engineered equipment and skids have been fabricated and built and have been delivered to the site, as Jason highlighted. The site civil construction is -- that element of execution is nearing completion and all of the mechanical equipment is being assembled and connected together. We've launched the electrical assembly portion of the work. And then the way to think about the remaining steps is we will, once complete through mechanical completion, we'll then engage and launch the commissioning process. And that's work that we'll thoughtfully work through bringing the plant up and commissioning the plant and bringing it to commercial operation, as indicated later this calendar year into the -- perhaps the beginning of next calendar year. But as Jason highlighted, the progress on the site is very visible, quite impressive, and we're continuing to march forward very collaboratively with Toyota on the project and looking ahead to commercial operation.

And in terms of -- I mean, I know there's a lot of activity going on in renewable natural gas. I mean also a lot of competition for those volumes, but I would -- is it safe to say that you're not all that worried about an RNG contract to feed the facility?

No. Look, we think that getting RNG is not going to be a challenge for the facility, just given the volumes that are there, the number of projects that are going on in California, we think that there's going to be continued development around RNG. And I mean, the other thing that you're seeing, which we think is a positive is you're seeing the major integrated is getting into the RNG space in a major way. And we believe that they're going to participate in this area at large volumes because that's what they do. And so we feel pretty good about that.

Yes, absolutely. Okay. Well, then maybe last for me. Just on the product side. I know you've -- you're certainly focused on that. You've got the agreement or the amended agreement with POSCO. But just curious, I mean you're clearly more positive, but anything you can maybe give in terms of detail around quoting levels or the pipeline. And I'm not sure if you're willing to make a prediction on timing of when you might see some product momentum outside of the replacement modules?

Yes. Here's what I would say about that and as you know, we don't give forecast on that. But what I would say is we think the sales cycle is a 12-month, 18-month kind of sales cycle, although we terminated our agreement, for example, with POSCO in --- I think it was June of 2021 or something like that. We -- 2020, we still had that overhang out there between the dispute that we had going, and now that, that's resolved, I would tell you the engagement level from prospective customers as well as existing is much stronger now that, that cloud has lifted. And so we feel really good about that. And then just in general, our focus in growing our sales team and having a focus in broader markets around the world, which tend to be more product purchase markets than PPA markets, as has been our traditional experience in the EU, we would expect that to continue, and we would certainly expect to see that in other parts of the world where we're expanding the business.

We have no further questions in queue. I'd like to turn the call back over to Jason Few for closing remarks.

Julianne, thank you very much. I appreciate that and really want to thank everyone for joining the call today. We will continue to execute on our Powerhouse Business Strategy with the goal of delivering growth and optimizing returns. The FuelCell Energy team is excited about our work to deliver on our purpose of enabling a world to be empowered clean energy. Thank you for joining, and have a great day, and we look forward to speaking to you again next quarter. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.