FCEL

FuelCell Energy, Inc. (FCEL)

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FuelCell Energy (FCEL)

Q1 2011 Earnings Call

March 10, 2011 10:00 am ET

Executives

Kurt Goddard - Vice President of Investor Relations

Arthur Bottone - Chief Executive Officer and President

Joseph Mahler - Chief Financial Officer, Principal Accounting Officer, Senior Vice President, Corporate Secretary and Treasurer

Analysts

Matthew Crews - Noble Financial Group, Inc.

Chip Moore - Canaccord Adams

Sanjay Shrestha - Lazard Capital Markets LLC

Walter Nasdeo - Ardour Capital

Presentation

Operator

Good day, ladies and gentlemen, and welcome to FuelCell Energy Reports the First Quarter 2011 Results Conference Call. [Operator Instructions] I would now like to introduce our first speaker today, Mr. Kurt Goddard, the Vice President of Investor Relations. Sir, please go ahead.

Kurt Goddard

Good morning, and welcome to the first quarter 2011 earnings call for FuelCell Energy. Delivering remarks today will be Chip Bottone, President and Chief Executive Officer; and Joseph 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 our 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 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 would like to turn the call over to Chip Bottone. Chip?

Arthur Bottone

Thank you, Kurt. Good morning, everyone and welcome. It's a pleasure to speak with you today. I was elected to succeed Dan Brdar as President and CEO of FuelCell Energy. Under Dan's leadership for the last 10 years, FuelCell Energy evolved from primarily an R&D business into the world's leading fuel cell company. Thanks to his leadership, we are well positioned to accelerate our growth and take full advantage of this important and expanding global market.

My background is very pertinent to FuelCell Energy. I spent 25 years in Ingersoll Rand, a $14 billion global diversified industrial company, in a variety of global business leadership roles including business unit President.

The last several years, I focused on energy businesses that were very well aligned with the business model, global markets and potential clients of FuelCell Energy. I was appointed Senior Vice President, Chief Commercial Officer of FuelCell Energy in February of 2010 and have been focused very intensely on accelerating profitable revenue growth.

I believe very strongly in FuelCell Energy's future and am thrilled to be leading this company as we progress to profitability.

FuelCell Energy's first quarter financial results showed strong increase in revenue, along with significantly improved product cost ratio. Current activity in our key markets points to further ramp up production during 2011.

I'll discuss our plans for growth and areas of focus after Joe Mahler, our Chief Financial Officer, reviews our financial results for the quarter. Joe?

Joseph Mahler

Thank you, Chip, and good morning, everyone. FuelCell Energy reported total revenues for the first quarter of 2011 of $28.1 million compared to $14.6 million in the same period last year. Product sales and revenues in the first quarter were $25.8 million, more than double the $12.8 million reported in the prior year.

The company's product sales backlog, including long-term service agreements, totaled $159.2 million as of January 31 compared to $84.1 million as of January 31, 2010 for an increase of 89%.

For the first quarter of 2011, product order backlog totaled $78.9 million and backlog for long-term service agreements totaled $80.3 million.

For the first quarter of 2010, product order backlog was $58.3 million and backlog for long-term service agreements totaled $25.8 million.

Service agreements are for terms of one to 20 years, revenue was recognized on a pro-rata basis over the life of the agreement once the power plant begins commercial operations.

The year-over-year growth in service revenue backlog reflects strong order volume in the second half of 2010 that was accompanied by customers entering into long-term service agreements with us.

Product margins improved over the prior year by $2.9 million. The product cost to revenue ratio was 1.09:1 in the first quarter compared to 1.41:1 in the first quarter of 2010. The improvement in product margins and the cost ratio is due to lower product, commissioning and warranty costs. Lower product costs reflect ongoing cost reduction efforts as the power plants are gross margin profitable on a unit basis.

First quarter 2010 costs included commissioning-related costs in Korea that did not reoccur in the first quarter of 2011.

Research and development contract revenue was $2.3 million for the first quarter of 2011 compared to $1.8 million for the first quarter of 2010. The company's research and development backlog totaled $7.9 million as of January 31, 2011, compared to $11.9 million as of January 31, 2010.

Total liquidity was $74.2 million at January 31, 2011, including total cash and investments in U.S. Treasuries of $70.2 million and revolver availability of $4 million. Net cash used for the first quarter was $3.2 million compared to net cash use of $7.2 million in the first quarter of 2010 excluding net proceeds of $17.8 million from the registered direct offering of common stock in January and revolver borrowings of $1 million during the first quarter. Capital spending for the first quarter was $300,000 and depreciation expense was $1.6 million.

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