Good day, ladies and gentlemen, and welcome to the FuelCell Energy Reports Second Quarter 2012 Results. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to your host, Kurt Goddard, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to the second quarter 2012 earnings call for FuelCell Energy. Delivering remarks today will be Chip Bottone, President and Chief Executive Officer; and Mike Bishop, Senior Vice President and Chief Financial Officer. The earnings release as well as an accompanying slide presentation is posted on our website at www.fuelcellenergy.com, and a replay of this call will be posted 2 hours after its conclusion. The telephone numbers for the replay are listed in our press release. Once again, for those of you listening to this call via the dial-in phone number rather than via the Internet, management will be referencing a Q2 2012 slide presentation that is available on the Investor Relations section of our website. Before proceeding with the call, I would like to remind everyone that this call is being recorded and that the discussions today will contain forward-looking statements, including the company's plans and expectations for the continuing development and commercialization of our Fuel Cell 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. Now, I'd like to turn the call over to Chip Bottone. Chip?

Thank you, Kurt. Good morning, everyone, and welcome. I ask you to please turn to Slide 4 of the presentation entitled Second Quarter 2012 Highlights. We continue executing on our path to profitability and global strategy for growth, making measurable progress on major strategic initiatives on 3 continents. Cost reduction efforts and streamlining certain aspects of our business over the past year allowed us to break even at the gross profit level this quarter despite lower revenue year-over-year the gross margin improvement of $2.3 million on adjusted basis. This enhances our confidence in gaining profitability. Our business model transformation is progressing to diversify our revenue streams, internal [ph] costs and reduce the capital intensity of our business while expanding our global footprint. Continued execution of our strategic initiatives will provide expanding order growth from the growing demand in Asia, market development actions in Europe as well as resurgence of the U.S. domestic market. Our cash position is strong, nearly $100 million in the lower burn rate, which is both critical and comforting to prospective customers and project investors, particularly for multi-megawatt projects that will be operating for 1 or 2 decades. I will discuss our strategy and results in more detail after Mike Bishop, our Chief Financial Officer, 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 entitled Financial Highlights. FuelCell Energy reported total revenues for the second quarter of 2012 of $24.2 million compared to $28.6 million in the same period last year. Product sales and revenues for the second quarter totaled $22.1 million compared to $26.7 million reported in the prior year. Research and development contract revenue was $2 million for the second quarter of 2012 compared to $1.9 million for the prior year. Although sales were lower year-over-year, we generated a gross profit from product sales and research and development contracts in the quarter of $0.2 million. Gross profit for product sales and revenues improved by $2.3 million compared to the second quarter of 2012 excluding a nonrecurring charge incurred in 2011. All subsequent references to 2011 financial results will exclude nonrecurring charges. Improvements in margin are primarily attributable to lower product costs achieved from manufacturing and supply chain efficiencies and improved service margins. These cost reduction efforts have enabled gross profit in the second quarter despite a decrease in year-over-year revenue compared to a $2.1 million loss at the gross profit level in the prior year. Total operating expenses were $8 million for the second quarter of 2012 compared to $9 million in the prior year. Our continued focus on cost control drove this expense reduction of approximately 11%. Net loss to common shareholders for the second quarter decreased to $9.1 million, or $0.06 per basic and diluted share, compared to $12 million, or $0.10 per basic and diluted share, in the second quarter of 2011. This improvement is due to lower product costs and reduced operating expenses. Turning to year-to-date results, for the 6 months ended April 30, 2012, the company reported revenue of…

Thank you, Mike. Please turn to Slide 8, Asian Strategy. Our flexible business model allows us to fully leverage our partners' financial and other resources leading to the development of certain markets such as Asia with minimum capital investment from us. Our ultra-clean, highly efficient and reliable fuel cell power plants have a competitive price point for the market, and we have a strong track record on the service side operating these plans for our customers and reducing the risk. We are creating sustainable jobs in the U.S. and abroad and are tied to local demand. Strategy attracts the support of governments that are seeking the benefits of ultra-clean distributed baseload power generation while simultaneously creating sustainable local jobs. Our partnership with POSCO Energy in South Korea is an excellent example of the strength of our business model. There are a number of demand drivers in South Korea. The Renewable Portfolio Standard that took effect on January 1, 2012 is compelling utility purchases and supports demand such as a 60-megawatt FuelCell park being developed by POSCO. Export opportunities exist such as the previously announced showcase installation in Southeast Asia and a significant opportunity in Japan to augment or replace nearly 23,000 megawatts of nuclear power. A very interesting recent development is the announcement by Seoul City to install 230 megawatts of fuel cell power plants. On the nuclear power incident in Japan after 2011 earthquake and tsunami, we're seeing countries such as Germany, Japan and now, South Korea, a growing desire to replace nuclear capacity with safe resources of continuous baseload power. A lot of planning has gone in to the Seoul City program, which appears to benefit from a broad support with the city government. Plans for the program are quite specific regarding location and timing of power plant…

[Operator Instructions] The first question comes from Sanjay Shrestha with Lazard Capital Markets.

A couple of questions, guys. So, Chip, when you said stay tuned on some of these incremental order opportunities, can you kind of go into some more detail as to this really the U.S. and Europe, the 20- to 40-megawatt bridge to get you guys to that megawatt number, right? What sort of a visibility do we have and what kind of timing are we talking about in terms of some of the incremental order to materialize here in the U.S. market at least?

Yes, Sanjay, this is Chip. If you kind of look at the quarter, I know the revenue was down from prior quarter. But if you think about it, it was one plant and some service, there's some other things you can think about it. So timing does play a little bit of a factor in what we're doing here. But I will tell you that we are under discussions and I want to make sure that we set these projects up properly because we live with these things for 20 years. So we've got about -- right now, we're sitting on about 200 megawatts of activity in North America, give or take 40 or 50 in ESA [ph] and frankly, it's over 300 megawatts in Asia. So if you look at that, I can’t get in specifics obviously because we're under negotiations with certain people are under NDA [ph] provisions. But I would -- the first thing you're going to see is as activity come out of the U.S. and then we're going to see -- shortly thereafter in this quarter, you'll see activity come out of Asia and then at the latter part of the year, you'll see some stuff come out of Europe. So I think we can fill up what we need to relative to our backlog and then again, because of some of the inventory we built up frankly and the fact that we are ramping back up the production levels that we had prior to, what I would call, an adjustment, which I think was prudent, we will be able to turn those into revenue pretty quickly. So I can't really give you any more than that but, I mean, I'm trying to dimensionalize where it would come from. I think it's a pretty broad swap, some in the West, some in the East and the U.S. and certainly out of Korea, which is why we put out that press release last week on the activity there.

So kind of a follow-up on that, right? So when you talk about this opportunity in the U.S. market, you talked about the timing of the bidding and the bid being sort of like the release on that sounds like it's July, August sort of a timeframe, so would it be unfair for us to assume that we should expect some incremental project when either the Connecticut or California during this either fiscal or the calendar year?

Yes, yes, for sure.

So now what are the...

You were going to get your answer anyway, weren't you, Sanjay?

So now, guys, you sort of -- obviously the burn has been higher than the previously expected here in this quarter and obviously Q1 was a pretty big one, but you guys are staying with your full year cash burn guidance of $17 million to $20 million, right? Now that would imply you're actually going to be neutral to even having some cash come in the door because of the working capital benefit. So a 2-part question on that. One, what is your level of confidence on the shipment in the second half revenue ramp and talk about it more from a visibility standpoint, if you could, what's already in the bag. And two, sort of the level of confidence on that cash burn number, given the first half hasn't played out to be necessarily lumpiness on your side and it's kind of going against you, can you give us give us a level of comfort on that?

Sanjay, this is Mike. Sure. So your assessment is correct. We will -- we are projecting that we'll stay with our current operating cash guidance, and that is really going to come from working capital benefits in the second half of the year. We talked about reducing inventory, turning those power plants into cash as well as the order outlook. And also, the visibility that we have is -- the order outlook bringing in additional orders as well as the increased production around the POSCO kits. So we've -- we're increasing production in Q3 to 3 kits a month. We put out a release earlier in the quarter on accelerating the 70-megawatt order to 3 kits a month. So that increases cash flow there as well as the new 120-megawatt POSCO order. That's expected to close in the third quarter as well and that will drive incremental cash too. So we have strong confidence in meeting our prior cash guidance.

One final question for me. And then guys, maybe 2 parts. So when we talk Europe and sort of Japan, that's really more in the sort of like the long term beyond '12 type of an opportunity, correct?

Yes, I think for meaningful revenue, that will be correct, Sanjay. But I think it's a big opportunity. And part of what I'd like to just suggest is that we had to do many of the things that we said we were going to do, like make our plan for Europe work and all those things, but there's no question that those would be '13, '14 kind of things rather than near-term things. But I think the real -- and we're setting ourselves up to try to capture it as well.

Now with $90 million of cash, pro forma cash, that you guys have, how should we think about your incremental capital in the funding requirement? Are you comfortable that, that cash is enough to get you to the EBITDA breakeven?

Yes, Sanjay, this is Mike. We're comfortable that, that cash balance would get us to EBITDA breakeven. When we think about capital needs of the business going forward, it's really -- we are investing in the capacity expansion right now with the capital investments we're making this year. It's really maintenance capital into next year, probably in the same range, maybe a little bit more in CapEx spending next year. But certainly, no significant cash investments required to get the plant ready for the -- for that capacity output.

Our next question comes from Walter Nasdeo from Ardour Capital.

Sanjay has kind of hit on most of my kind of forward-looking revenue thoughts and questions. If we could -- maybe we can take a little bit of a peek into the backlog. And actually, if you could -- sorry, can you give me your current megawatt run rate right now as it stands, please?

Sure, Walter. We were at 56 megawatts coming into the second quarter. We reduced that in the second quarter to align it with current levels of backlog for the POSCO kits, which was 2 kits a month and we're are ramping back up to that 56 megawatts run rate here in the third quarter.

And that's what your expectation is to end the third quarter at?

We'll be at that run rate at the end of the third quarter. We won't be at it for the whole third quarter.

Now, how are you working -- basically, on a quarterly basis, how are you working through the backlog? What is the backlog that you're turning to revenue on a quarterly basis as opposed to new order coming in?

Sure. So what's in the backlog largely today, Walter, is the POSCO kits. So we're turning -- right now, we're turning those at 2 kits a month and that will increase to 3 kits a month beginning in July. And then on top of that will be incremental orders. We've built-up inventory, which would turn quickly into revenue as new orders close and then you have the service backlog on top of that, which is in the range of $3 million to $4 million a quarter right now.

You kind of touched on my next kind of question, which is the percentage of kits versus the full plants in backlog.

Today, Walter, it's largely kits.

And as you kind of work through it, Mike, what are you looking at as far as your gross margin of the backlog itself?

We -- Walter, we see margin expansion as we continue to ramp. We dipped down this quarter because of the lower production rate. But as we ramp, it will go up from here.

So we're looking -- we should look at a fairly significant Q3 over Q2 as far as revenue goes then?

We're forecasting increased revenue in Q3 over Q2. The level of increase will be dictated to some extent by the timing of order closure.

And then the POSCO 120-megawatt order is a Memorandum of Agreement, are you saying? So is it signed and sealed and there? Or is there still a little work that has to be done yet?

So with that, Walter, we initially signed a Memorandum of Understanding with POSCO back in early March when we announced these 3 initiatives with POSCO in conjunction with executing on the investment, which closed on April 30. We formalized those into binding MOAs and I'm saying MOAs because there's 2. There's the Memorandum of Understanding for the order as well as the license agreement. We've been in active discussions with POSCO on closing both of those, and the expectation is that they would close in the third quarter.

And then just kind of as a little aside to that, how is the development of the relationship with POSCO as far as looking to infiltrate other areas, other locations together to get your products? I mean, are you still working together on that? Or are you guys kind of working off on your own in Asia?

Walter, this is Chip. No, we're working together. We had a meeting on that yesterday. I think the main focus -- I mean, there's so much going on right now in Korea, which is a good news story. But outside of there, the main focus areas were doing right now is how do we take advantage of the opportunity in Japan and how do we build on the pilot projects that they built in Southeast Asia. So we're not right now going to India or China for different reasons. But that's really the effort [ph] we're going right now with them.

Our next question comes from Jeff Osborne with Stifel, Nicolaus. Jeff Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Most of the questions have been answered, but I just want to get a better handle on the inventory builds. It sounds like you feel pretty confident that you'll be able to convert these into orders and obviously, help cash flow. But can you just give us a sense of where that -- what your level of confidence is? And particularly, which region of the U.S. you would expect that to be converted and perhaps touch on why they've been delayed thus far?

Hey, Jeff, this is Chip. Let me answer it this way. I mean, we built that inventory more than, I would say, half the projects that we are in negotiations with are financed and financed by way of tax equity as compared to prior forms of things. And so it's really critical that when we ink these deals that we could actually execute on a predictable timeframe and frankly, a fairly tight compressed timeframe. So we've built that inventory really with names on units, although it's flexible enough that we can put it to multiple units. We have more opportunities frankly than we have perhaps even supply for right now, Jeff. So the products being that they're basically the same are easily suited to fit that strategy. So that's why we did that before because we've watched our spending at multiple levels, okay? And we felt that we needed to build that inventory to close these projects. So we do have an opportunity to turn that inventory, as Mike said, into revenue and cash pretty quickly. Jeff Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Are these mostly California projects given the SGIP clarification last year?

It's both, California specifically and projects in the Northeast. There's 2 different -- not 2 different opportunities, but there's 2 different areas that we're working on with multiple opportunities within them. Jeff Osborne - Stifel, Nicolaus & Co., Inc., Research Division: And then maybe just going back to Japan. Can -- is POSCO a sufficient partner to focus on that market? Or do you need someone domestic that's Japanese given the nature of that country?

It's a great question. I mean, POSCO -- I mean, first of all, somebody understands the power business, okay? POSCO does that. Somebody has the strongest balance sheet. POSCO accomplishes that with the ability to execute these projects, which they've demonstrated they can at large megawatt scale projects, that's a good thing. We're talking about that very thing right now. There may be some relationship that would propel us to accelerate some things, which is a great question. As you know, we have relationships in the past in Japan, and we were just reviewing some of that strategy, frankly, yesterday. So I think we're going -- we've got enough of their capability that could get us started, whether or not that's long-term solution, I'm not so sure. We got to -- we're going to work with them on that. But they have assets in place in Japan and the presence, obviously, in amongst the things I just mentioned. So we could easily get going. The question is how big can it get and that's really why I think that question of yours is a very good question and we need to -- we're going to talk that through with those guys on how to best do that. Jeff Osborne - Stifel, Nicolaus & Co., Inc., Research Division: And just one last one. Maybe from Mike, but here we are with the 7 -- 7.5 weeks or so left in the quarter. If you received an order today for one of those units in inventory, is that sufficient enough time to have those installed for rev REC? Or should we just think about the improvement that you mentioned in revenue for the July quarter, more associated with just that July month of having an extra kit for POSCO?

Hi, Jeff, it's Mike. Yes, good question. It depends. To some extent, it'll depend on the contract terms and the timing and the customers' requirements. So just to clarify what our revenue recognition policy is. For kits, it's really, really ship and build, so the unit needs to be completed out of our factory and title transfer to POSCO. That's when it hits revenue recognition. For full power plants, we're on a percentage of completion accounting so it's really a function of cost incurred and allocating inventory to the projects. So back to my first point. It will really be dictated by contract terms and the customers' requirement.

I'm not showing any other questions in the queue. I'd Like to turn it back over for closing comments.

Thank you for participating in the earnings call with FuelCell Energy.

Thank you. See you again next quarter. Have a great day.

Thank you.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the conference. You may now disconnect, and have a good day.