FCEL

FuelCell Energy, Inc. (FCEL)

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FuelCell Energy, Inc. (FCEL)

F1Q10 (Qtr End 01/31/10) Earnings Call

March 11, 2010 10:00 am ET

Executives

Dan Brdar – Chairman, President and CEO

Joe Mahler – SVP, CFO, Secretary, Treasurer, and Corporate Strategy

Analysts

Burt Chao – Simmons & Company

Sanjay Shrestha – Lazard Capital Markets

Meghan Moreland – Ardour Capital

Mark Sigal – Canaccord Adams

John Roy – Janney Montgomery Scott

Presentation

Operator

Good morning, everyone and welcome to FuelCell Energy's first quarter results conference call. Delivering remarks today will be R. Daniel Brdar, Chairman and CEO and Joseph G. Mahler, Senior Vice President and CFO. The 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, we'll turn the call over to Dan Brdar.

Dan Brdar

Thank you for joining us this morning. Clean energy is increasingly driving today's global economy. The recent increase press coverage of fuel cells highlights the growing recognition that clean, highly efficient base load power generation is a critical part of the solution. Around the world, policy makers and power producers are seeking clean, efficient distributed power to reduce pollution, enhance their energy independence and create green jobs.

As the world's leading manufacturer of ultra-clean, highly-efficient fuel cells, FuelCell Energy has a unique first mover opportunity to capitalize on that demand. FuelCell Energy is the only manufacturer of commercial megawatt class fuel cells for base load generation.

Our stationary fuel cells are proving themselves in diverse markets around the globe from Asia to North America, where they've generated hundreds of millions of kilowatt hours of electricity. Driven to find solutions that are available today, not tomorrow, power producers, businesses and governments are looking to fuel cells to address their clean energy needs.

At the same time, our products are suddenly becoming more economical to manufacture. Our cost produced megawatt class fuel cells are now in production. These fuel cells are as versatile as ever operating on a variety of fuels, biogas as well as natural gas with the highest available electrical efficiency in their size category and with high operating availability.

With momentum in our key markets and a robust growing project pipeline, policy initiatives and rebounding credit markets will help convert this pipeline into orders. I'll say more about our company and markets after Joe Mahler, our Chief Financial Officer reviews the financials for the quarter. Joe.

Joe Mahler

Thank you, Dan, and good morning, everyone. FuelCell energy reported total revenues for the first quarter of 2010 of $14.6 million compared to $21.7 million in the same period last year. Product sales and revenues in the first quarter were 12.8 million compared to 19 million in the prior year quarter.

Overall product revenue was driven by the product's mixed changing from complete power plants in the prior year to primarily stacked modules in the current period. The company's product sales backlog including long-term service agreements totaled $84.1 million as of January 31, 2010 compared to $70.9 million as of January 31, 2009 and $90.7 million as of October 31, 2009.

Product margins improved over the prior quarter by $4.7 million driven by sales of lower cost megawatt class modules. The product cost and revenue ratio improved 7% to 141 to 1 in the first quarter compared to 152 to 1 in the first quarter of 2009. The ratio was negatively impacted by commissioning related cost in South Korea and lower sales.

Research and development contract revenue was 1.8 million compared to 2.7 million in the prior year quarter. Research and development revenue declined due to completion of the company's Vision 21 and Ship Service Fuel Cell contracts with the U.S. department of energy and the navy.

The company's research and development backlog totaled $11.9 million as of January 31 compared to $23.1 million as of January 31, 2009 and 14.2 million as of October 31, 2009. The air products contract we announced this morning will add to that backlog.

Net loss to common shareholders for the first quarter of 2010 of 15.4 million or $0.18 per basic and diluted shared improved 26% compared to the prior year quarter net loss to common shareholders of $20.7 million or $0.30 per basic and diluted share in the first quarter of 2009. This improvement was due to sales of higher margin products and companywide cost reductions.

Total cash in investments and U.S. treasures were $57.6 million as of January 31, 2010. Net cash used for the first fiscal quarter was $7.2 million compared to $23.2 million in the fourth quarter of 2009. Net cash has improved over the prior quarter from increased customer milestone payment as FuelCell Energy completed commissioning of a number of power plants in South Korea.

We continue to see cash use in the 10 million to 12 million range, plus or minus working capital timing per quarter. Capital spending for 2010 first quarter was approximately 600,000 and depreciation expense for the period was $1.9 million. Before I close, let me spend a couple of minutes discussing the results of the quarter focusing on sales margins and cost ratio.

Read the rest of this transcript for free on seekingalpha.com