FuelCell Energy, Inc. (FCEL)

F4Q2010 Earnings Conference Call

December 14, 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


Sanjay Shrestha – Lazard Capital Markets

Mark Seagull – Canaccord Genuity

Scott Reynolds – Stifel Nicolaus

Walter Nasdeo – Ardour Capital

Matthew Crews – Noble Financial



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Good day, ladies and gentlemen, and welcome to the FuelCell Energy Reports Fourth 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 be given at that time. (Operator Instructions)

I would now like to turn the conference over to your host, Mr. Kurt Goddard, Vice President of Investor Relations. Please go ahead.

Kurt Goddard

Good morning and welcome to the fourth quarter earnings 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 our press release.

Before proceeding with this 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 turn the call over to Dan Brdar. Dan?

R. Daniel Brdar

Thank you for joining us this morning. Ultra-clean, highly efficient and reliable, our FuelCell power plants are operating around the world in a number of diverse end markets ranging from utility grid support in South Korea to universities on both coasts of the U.S., to municipal water treatment plants in California.

While the year started slowly due to market pressure from the financial crisis, the fourth quarter ended strong with seven orders totaling 12.7-megawatts. Our pipeline of projects continues to grow as now the largest in company history, due to orders already in backlog, the number of projects currently in negotiation, changes in the broad macroeconomic drivers for our business, our success in product cost reduction and our ability to ramp production in response to these drivers. 2011 looks to be a year of returning to growth for FuelCell Energy.

I'll get into more details about these and other 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 fourth quarter of $19.7 million compared to $20.4 million in the same period last year. Product sales and revenue in the fourth quarter were $17.2 million compared to $16.7 million in the prior year quarter.

The company's product sales backlog including long-term service agreements totaled $154.3 million as of October 31, 2010 compared to $90.7 million as of October 31, 2009 which is the highest commercial backlog total in the history of the company.

Product margins improved over the prior year quarter by $2.8 million due to lower product and commissioning costs. The product cost-to-revenue ratio was 1.21 to 1 in the fourth quarter compared to 1.39, 1.39 to one in the fourth quarter of 2009 due to lower product costs.

Research and Development contract revenue was $2.5 million for the fourth quarter of 2010 compared to $3.7 million for the fourth quarter of 2009. The company's research and development backlog totaled $9.7 million as of October 31, 2010 compared to $14.2 million as of October 31, 2009.

The company recently submitted a $34 million proposal to the Department of Energy for Phase III of the solid oxide FuelCell Development program and expect a decision in early 2011.

Total cash and investments in U.S. treasuries were $54.6 million as of October 31, 2010. Net cash used for the fourth quarter was $13.3 million; total cash used in fiscal year 2010 was $42.4 million excluding proceeds of public offerings of common stock, which is inline with our expectations.

Capital spending for the fourth quarter was .5 million and depreciation expense was $1.9 million. Turning to full year operating results, FuelCell Energy reported revenue of $69.8 million compared to $88 million for the prior year. Product sales and revenues were $59.2 million compared to $73.8 million for the prior year due to slow order activity in the first half of the year and the sales mix transitioning to FuelCell modules from complete power plants.

Net loss to common shareholders for the year-end October 31, 2010 was $58.9 million compared to $71.9 million for the prior year. Margins for product sales and revenues improved by $14.4 million over the prior year primarily due to sales mix of higher margin products and lower overall product cost. The cost ratio for the year 2010 improved to 1.32 from 1.45 last year.

We closed a number of sizable orders during the fourth quarter, which demonstrates very positive movement in the U.S. market with most of the orders coming from customers located in California. I would like to highlight that the financing used for these orders included publicly issued tax re-bonds, both equity and debt investments by external investors and commercial bank financing. The availability of financing utilized for the orders in California is encouraging from a market perspective.

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