FuelCell Energy, Inc. (FCEL)

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FuelCell Energy, Inc. (FCEL)

F4Q09 Earnings Call

December 10, 2009; 10:00 am ET


Daniel Brdar - Chairman & Chief Executive Officer

Joseph Mahler - Senior Vice President & Chief Financial Officer

Lisa Lettieri - Vice President of Investor Relations


Burt Chao - Simmons & Co.

Meghan Moreland - Ardour Capital

Adam - Oppenheimer

Chip Moore - Canaccord Adams



Good day and welcome to the FuelCell Energy reports fourth quarter 2009 conference call. Today’s conference is being recorded. At this time I’d like to turn the conference over to Ms. Lisa Lettieri, Investor Relations Vice President. Please go ahead ma’am.

Lisa Lettieri

Thank you, Operator. Good morning everyone and welcome to FuelCell Energy’s fourth 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 www.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.

Daniel Brdar

Thank you, Lisa and thank you everyone for joining us this morning. Worldwide demand for clean energy is growing as policy makers seek out better and more effective energy solutions that will drive global economies in the 21 century. As the world leading provider of ultra-clean highly efficient fuel cells, FuelCell Energy’s fourth quarter and 2009 accomplishments, position us well to capitalize on global demand and grow our company.

FuelCell Energy has the first move our opportunity to capture global demand for fuel cell power. We offered the only commercial megawatt class fuel cells for ultra-clean based load distributed generation. In 2009, we began producing our new lower cost megawatt-class products resulting in better product margins. This is an important milestone in our ongoing cost reduction program, which is cut product cost by more than half over the last several years.

In addition, we concluded a key licensing agreement with our partner POSCO Power. The agreement will expand the total production capacity of our products, contribute the further cost reduction and support the continued expansion of our fastest growing market South Korea. I’ll get into what we were accomplish with our products and the market opportunities that will take us to profitability in further detail, after Joe Mahler, our Chief Financial Officer reviews the financials. Joe.

Joseph Mahler

Thank you, Dan and good morning everyone. We reported total revenues for the fourth quarter of 2009, $20.4 million compared to $26.2 million in the same period last year. Product sales and revenues in the fourth quarter were $16.7 million compared to $23.3 million in the prior year quarter. Lower product revenues resulted from decrease U.S. market activity due to difficult credit markets that were offset by sales to POSCO Power.

Research and development contract revenue was $3.7 million, compared to $2.8 million in the prior year quarter. Higher research and development contract revenue was attributable to increased activity on the company’s solid oxide fuel cell development contract with U.S. Department of Energy. The product cost-to-revenue ratio was 1.40-to-1 compared to 1.54-to-1 in the fourth quarter of 2008.

The cost-to-revenue ratio improved due to lower product cost that resulted in higher product margins compared to the prior year. FuelCell Energy began producing its new lower cost megawatt-class products in the latter half of 2009. The cost ratio was impacted by higher cost to complete the commissioning of the first multi-megawatt power plants in South Korea.

Net loss to common shareholders for the fourth quarter of 2009 improved 33% year-over-year to $16.2 million or $0.21 per basic and diluted share from a net loss to common shareholders of $24.3 million or $0.35 per basic and diluted share in the fourth quarter of 2008. Net losses declined primarily due to the sales of higher margin products.

Turing to full year operating results, for the year ended October 31, FuelCell Energy revenues were $88 million compared to $100 million reported in 2008. Product sales and revenues were $73.8 million in 2009, compared to $82.7 million in 2008. While sales dollars were down, which is what you might expect in a tough environment, the actual megawatts of product sold in the year increased.

As planned, sales to POSCO, transitioned from full powered plants to modules reducing the sales dollar per megawatt. FuelCell Energy’s product backlog including long term service agreements was $90.7 million compared to last year’s $87.6 million reflecting continued strong orders from South Korea.

Research and development contract revenues were $14.2 million, compared to $18 million research and development contract backlog was $14.2 million as of October 31, compared to $4.8 million on October 31, 2008. The product cost of revenue ratio improved 10% to 1.45 in the 2009 compared to 1.62 in 2008.

Net loss to common shareholders were $72 million, or $1 per basic and diluted share, compared to a net loss to common shareholders of $96.6 million, or $1.41 million per basic and diluted share, primarily due to lower product costs compared to the prior year.

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