FuelCell Energy, Inc. (FCEL)

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FuelCell Energy Inc. (FCEL)

F3Q2010 Earnings Call

September 2, 2010 10:00 AM ET


Kurt Goddard – Vice President, Investor Relations

R. Daniel Brdar – Chairman and CEO

Joseph G. Mahler – Senior Vice President and CFO


Sarah Martin – Lazard Capital

Mark Seagull – Canaccord Genuity

Walter Nasdeo – Ardour Capital

Pavel Molchanov – Raymond James

Amit Dayal – Rodman & Renshaw

Scott Reynolds – Stifel Nicolaus



Good day, ladies and gentlemen. And welcome to the FuelCell Energy Reports Third Quarter 2010 results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions)

I would now like to introduce your host for today's conference, Kurt Goddard, Vice President of Investor Relations.

Kurt Goddard

Good morning and welcome to the third quarter earning call for FuelCell Energy. Delivering remarks today will be R. Daniel Brdar, Chairman and Chief Executive Officer; and Joseph G. Mahler, Senior Vice President and Chief Financial Officer.

The earnings 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 replay are listed in the press release.

Before proceeding with the call, I would like to remind everyone that this call is being recorded and that the discussion today will contain forward-looking statements including the company's plans and expectations for the continuing development and commercialization of our FuelCell 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 would like to call -- turn the call over to Dan Brdar. Dan?

R. Daniel Brdar

Thank you, Kurt and thank you for joining us this morning. Policy makers, power producers and energy consumers worldwide are turning to FuelCell because their unique attributes allow them to solve acute energy, environmental and business problems that other technologies cannot.

Our FuelCell technology helps South Korea achieve their low carbon green energy goals, allows agriculture and municipal customers to transform waste problems into renewable energy solutions and generates reliable secure power for commercial and government facilities.

We are the world's only manufacturer of commercial megawatt-class fuel cells for base load power generation. Our products provide energy solution because they use a variety of fuels like renewable biogas or plentiful natural gas to generate ultra clean base load electric power where it is needed. They do this more cleanly, quietly and efficiently than combustion-based technologies and they produce power continuously unlike wind and solar.

Beginning in 2012, South Korea's renewable portfolio standard mandates close to 6,000 megawatts of additional renewable energy over the next decade. POSCO Power, our partner in South Korea, is expanding their facilities and we expect to capture a large share of this market. In the U.S., the problem solving abilities of fuel cells, Government incentives and loosening credit markets contribute to expansion in key vertical markets and multiple orders.

We received three orders totaling 3.4 megawatts in the third quarter followed by three more orders in August totaling 2.6 megawatts for a total of 6 megawatts of products for commercial, government and utility projects.

These actions point to increase in order volume in the near term as projects in our growing sales pipeline move to closure and we are taking steps now to preserve for producing higher volumes of our products.

I’ll get into more detail about our results after, Joe Mahler, our Chief Financial Officer reviews the financials for the quarter. Joe?

Joseph G. Mahler

Thank you, Dan, and good morning, everyone. FuelCell Energy reported total revenues for the third quarter of 2010 of $18.9 million compared to $23 million in the same period last year. Product sales and revenue in the third quarter were $16.2 million compared to $18.7 million in the prior year quarter and $13 million for the second quarter of 2010.

Revenues increased over the second quarter on U.S. order flow. The company's product sales backlog including long-term service agreements totaled $79.8 million as of July 31, 2010 compared to $104.8 million as of July 31, 2009 and $75.5 million as of April 30, 2010. Orders received to date in the fourth quarter of 2010 will add $13.1 million to product revenue backlog.

Product margins measured on a dollar basis improved over the prior year quarter by $3.7 million driven by sales of higher margin megawatt-class modules. The product cost-to-revenue ratio of 1.24 to 1 in the third quarter compared to 1.4 in the third quarter of 2009 and 1.47 in the second quarter of 2010. This improvement in the cost profile reflects continuing success in reducing product and manufacturing costs while enhancing the technology.

Research and Development contract revenue was $2.7 million for the third quarter of 2010 compared to $4.3 million for the third quarter of 2009. The company's research and development backlog totaled $7.4 million as of July 31, 2010 compared to $15.3 million as of July 31, 2009 and $9.9 million as of April 30, 2010.

The company has a number of DOE research and development awards worth about $5 million in contract negotiations and is currently proposing Phase III of the solid oxide contract to DOE with an estimated total value of approximately $30 million.

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