FCEL

FuelCell Energy, Inc. (FCEL)

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FuelCell Energy (FCEL)

Q4 2011 Earnings Call

December 13, 2011 10:00 am ET

Executives

Kurt Goddard - Vice President of Investor Relations

Michael Bishop - Chief Financial Officer, Senior Vice President, Treasurer and Corporate Secretary

Arthur A. Chip Bottone - Chief Executive Officer, President, Director, Chairman of Executive Committee and Member of Government Affairs Committee

Analysts

Jeff Osborne - Stifel, Nicolaus & Co., Inc., Research Division

Mark Sigal - Canaccord Genuity, Research Division

Sanjay Shrestha - Lazard Capital Markets LLC, Research Division

Walter Nasdeo - Ardour Capital Investments, LLC, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the FuelCell Energy Fourth Quarter and Fiscal Year Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. 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 Fourth Quarter 2011 Earnings Call for FuelCell Energy. Delivering our remarks today will be Chip Bottone, President and Chief Executive Officer; and Mike Bishop, 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 2 hours after its conclusion. The telephone numbers for the replay are listed in our press release.

Before proceeding with the call this morning, I'd 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'd like to turn the call over to Chip Bottone. Chip?

Arthur A. Chip Bottone

Thank you, Kurt. Good morning, everyone, and welcome. Fiscal year 2011 was a year of growth for our company. We had record revenues and generated gross profits during the third and fourth quarters, the first since commercializing our products. We successfully managed a significant production increase and are executing on our backlog. Credit for these achievements goes to our talented team of associates and their dedication to our vision, which is to provide ultra-clean, efficient distributed generation baseload power for less than the cost of grid-delivered electricity.

I'll review our business and update you on our execution of our strategic initiatives in greater detail after Mike Bishop, our Chief Financial Officer, reviews our financial results for the quarter. Mike?

Michael Bishop

Thank you, Chip. Good morning, and thank you for joining our call today. FuelCell Energy recorded total revenues for the fourth quarter of 2011 of $34.7 million compared to $19.7 million in the same period last year. Product sales and revenues for the fourth quarter were $33.3 million compared to $17.2 million reported in the prior year. This is a 94% increase in quarterly product revenue and a record for the company. The company's product sales and service backlog totaled $210 million as of October 31, 2011, compared to $154 million at the end of the prior year. The components of this backlog include product orders of $132 million, service agreement backlog of $78 million. We plan to deliver product backlog through October 2013.

We generated gross profit from product sales in the fourth quarter of 2011. This is our second consecutive quarterly gross profit resulting from increased production volume and lower product costs. Margins for product sales and revenues improved by $4.3 million compared to the fourth quarter of 2010, and the product cost-to-revenue ratio improved to 0.98:1. Research and development contract revenue was $1.4 million for the fourth quarter of 2011 compared to $2.5 million in the prior year. The company's research and development backlog totaled $15.8 million as of October 31, 2011 and increased compared to the $9.7 million reported in the prior year.

Net loss to common shareholders for the fourth quarter decreased to $7.9 million or $0.06 per basic and diluted share compared to $12.9 million or $0.11 per basic and diluted share in the fourth quarter of 2010. This improvement is due to increased revenues and improved product margins.

Turning to the full year, my discussion of results will exclude the charges related to the repair and upgrade program, and the reevaluation of the Series I preferred shares recorded during fiscal 2011. Please note there is a non-GAAP reconciliation included at the end of the earnings release, which illustrates financial results, excluding these items.

For the fiscal year, the company reported total revenue of $122.6 million, up 76% compared to total revenue of $69.8 million in 2010. Product sales and revenues were $115.1 million compared to $59.2 million in the prior year, and R&D contract revenue was $7.5 million compared to $10.6 million in fiscal '10. Margins for product sales and revenues improved by $14.9 million compared to the prior-year period, and the product cost of revenue ratio improved to 1.03:1 on cost reductions including better labor efficiency and improved overhead absorption from higher production rates.

Net loss to common shareholders for the fiscal year was $40.6 million or $0.33 per basic and diluted share, compared to $58.9 million or $0.63 per basic and diluted share for fiscal 2010. Total liquidity was $64.4 million at October 31, 2011, including cash and investments in U.S. Treasuries of $63.4 million and revolver availability of $1 million. Net cash, cash equivalents and investments generated in the fourth quarter of 2011 was $13.9 million. Cash flows from operations totaled $9.5 million, reflecting strong milestone payments from contracts and backlogs. We used $2.2 million of cash on capital expenditures in the quarter and generated $6.6 million through financing activities.

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