FuelCell Energy, Inc. (FCEL)

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FuelCell Energy, Inc. (FCEL)

F3Q09 Earnings Call

September 9, 2009 10:00 am ET


Lisa Lettieri – Vice President of Investor Relations

R. Daniel Brdar – Chairman and Chief Executive Officer

Joseph G. Mahler – Senior Vice President and Chief Financial Officer


[Julie Kutu] – Simmons and Company

Sanjay Shrestha - Lazard Capital Markets

John Roy - Janney Montgomery Scott LLC

John Quealy - Canaccord Adams

Stuart Bush - RBC Capital Markets

[Megan Marlew – Ardour Capital]

Jeff Osborne - Thomas Weisel Partners

[Mike Jilland] for William Nasgovitz - Heartland Advisors

Sam Dubinsky - Oppenheimer & Co.



Good day and welcome to the FuelCell third quarter 2009 results conference call. Today’s conference is being recorded.

At this time for opening remarks and introductions I’d like to turn the call over to Lisa Lettieri, Vice President of Investor Relations. Please go ahead ma’am.

Lisa Lettieri

Thank you, Matt. Good morning everyone and welcome to FuelCell Energy’s third quarter results conference call. Delivering remarks today will be R. Daniel Brdar, Chairman and CEO, and Joseph G. Mahler, Senior Vice President and CFO.

Our earnings press release is posted on our website at fuelcellenergy.com and a replay of this call will be posted two hours after its conclusion. The telephone numbers for the phone replay are listed in the press release.

Before proceeding with the call, I’d like to remind everyone that this call is being recorded and that this presentation contains forward-looking statements including the company’s plans and expectations for the continuing development and commercialization of our FuelCell technology. Listeners are directed to read the company’s cautionary statement on forward-looking information and other risk factors in its filings with the U.S. Securities and Exchange Commission.

Now I’ll turn the call over to Dan Brdar. Dan?

R. Daniel Brdar

Thank you, Lisa and thank you everyone for joining us this morning. As the economy recovers the demand for clean, efficient energy will grow as policy makers look for new ways to create the energy and jobs that drive the global economy. As the world’s leading producer of ultra-clean, highly efficient fuel cells for base load power generation, FuelCell Energy is in the right places with the right products at the right time to capitalize on this growing demand.

During the third quarter our latest cost reduced megawatt class products went into production as planned, an important milestone for the company. Early in the third quarter we announced our second large sale to POSCO Power in South Korea for 30.8 megawatts of modules and components. The order was valued at $58 million and was the largest megawatt order in our history. This order, the licensing agreement we are negotiating to enable POSCO to assemble FuelCell modules and South Korea’s pending RPS legislation, are significant developments that bode well for our growth in that marketplace.

In the U.S., Sonoma County in California ordered a 1.4 megawatt DFC 1500 power plant. The adoption of our products is growing in California among wastewater treatment facilities, utilities and food and beverage processors. While the economic downturn has affected every industry including ours, we see signs of recovery. The availability of the Federal Loan Guarantee Program and the Investment Tax Credit Grants will help projects in our pipeline move forward in California and Connecticut. Public policy and environmental legislation in all our key markets strongly favors our products.

Our products meet the need for green energy and green jobs. Like solar and wind power, they’re environmentally friendly. But unlike solar and wind, they’re not intermittent. Fuel cells provide ultra-clean power around the clock, and do so in a way that’s economical, reliable and with reduced greenhouse gas emissions, a unique value proposition that makes fuel cells an excellent solution for customers throughout our growing global marketplace. I’ll discuss the markets in more detail in a moment, but first let me turn the call over to Joe Mahler, our Chief Financial Officer, to review the financials for the quarter. Joe?

Joseph G. Mahler

Thank you, Dan and good morning everyone. FuelCell Energy reported revenues for the third quarter of $23 million compared to $27.9 million in the same period a year ago. Product sales and revenue were $18.7 million compared to $23.2 million in the third quarter of 2008. Lower product revenues reflect delayed activity in the U.S. due to difficult credit markets and delays in capital spending.

Research and development contract revenue was $4.3 million compared to $4.7 million in 2008. The company’s product backlog, including long-term service agreements as of July 31 was $104.8 million compared to the $107 million reported as of July 31, 2008. Research and development contract backlog totaled $15.3 million compared to $5.5 million.

For the third quarter of fiscal 2009, net loss to common shareholders was $15.7 million or $0.21 per basic and diluted loss per share compared to a net loss of $26.8 million or $0.39 per basic and diluted share in the same period of the previous year.

The product cost to revenue ratio was 1.4 in the third quarter, which compares favorably with 1.68 in the same period a year ago and 1.48 in the second quarter. The contribution from the cost reduced modules resulted in higher product margins compared to last year, and mitigating this benefit in the quarter were higher costs related to commissioning multi-megawatt power plants in Korea.

Total cash and investments totaled $53 million as of July 31. During the third quarter FuelCell Energy sold 6.7 million shares at $3.59 per share in a registered direct offering, raising approximately $22.5 million of cash. We are targeting closing the POSCO transaction in this quarter, which would add $25 million to cash.

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