FuelCell Energy, Inc. (FCEL)
F2Q10 (Qtr End 04/30/10) Earnings Call
June 8, 2010 10:00 am ET
Kurt Goddard – VP, IR
R. Daniel Brdar – Chairman, President and CEO
Joseph G. Mahler – SVP, CFO, Secretary, Treasurer, and Corporate Strategy
Sarah [ph] – Lazard Capital
John Quealy – Canaccord
Colin Rush – ThinkEquity
Walter Nasdeo – Ardour Capital
Scott Reynolds – Thomas Weisel
Peter Wright [ph] – Tradition [ph]
Previous Statements by FCEL
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Good day, ladies and gentlemen, and thank you for standing by. Welcome to the FuelCell Energy reports second quarter 2010 results. 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) As a reminder, this conference is being recorded. I would like to introduce your host for today, Mr. Kurt Goddard, Vice President of Investor Relations. Sir, please go ahead.
Good morning and welcome to the second 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 the press release.
Before proceeding with the call, 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 US Securities and Exchange Commission.
Now I’d like to turn the call over to Dan Brdar. Dan?
R. Daniel Brdar
Thank you. And thanks, everyone, for joining us this morning. As policymakers and power producers around the world seek solutions to their critical energy and environmental challenges, clean and efficient energy generation has become a worldwide priority. Throughout our target markets, awareness and understanding of the unique benefits of fuel cells and ultra-clean distributed generation is growing because our fuel cells solve critical energy problems that no other technology can.
Our stationary fuel cells use a variety of fuels such as biogas or natural gas to generate ultra-clean base load electric power where it is needed. They do this more cleanly, quietly, and efficiently than conventional combustion-based technologies, and they produce power continuously unlike wind and solar. Recent decisions by policymakers and regulators also confirm the global need for clean, reliable base load distributed generation.
During the quarter, two examples of these policy and regulatory initiatives were acted upon. In March, the South Korean government enacted a historic National Renewable Portfolio Standard, which includes fuel cells operating on natural gas. Here in the US, the California Public Utility Commission approved the first utility rate-based fuel cell power plant. In May, the first of the utility projects moved to closure and Pacific Gas and Electric ordered two 1.4 megawatt units for combined heat and power projects at California State Universities.
As the only manufacturer of commercial megawatt class fuel cells for base load power generation, energy producers and consumers are turning to our products to solve their energy challenges. This is driving significant activity in our sales pipeline and in our markets. I’ll get into more detail 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 second quarter of 2010 of $16.6 million compared to $22.9 million in the same period last year. Product sales and revenues in the first quarter were $13.0 million compared to $19.3 million in the prior year quarter, reflecting a shift toward stack modules sold to POSCO Power, our manufacturing and distribution partner in South Korea, compared to complete power plants sold in the prior year. The company's product sales backlog, including long-term service agreements, totaled $75.5 million as of April 30, 2010 compared to $59.2 million as of April 30, 2009, and $84.1 million as of January 31, 2010. Please note that these backlog figures do not include the recently executed contract with Pacific Gas and Electric Company that totaled approximately $12.6 million.
Product margins improved over the prior quarter by $3.2 million driven by sales of lower cost megawatt class modules. The product cost to revenue ratio was 1.47:1 in the second quarter compared to 1.48:1 in the second quarter of 2009. The ratio was negatively impacted by a charge of approximately $1.8 million related to the fuel cell stack module enclosure and also lower sales compared to the prior year period.
In our efforts to reduce weight and cost, the newest module enclosure design did not meet our requirements. Adjusted for this item, the cost ratio would have been 1.33, more in line with our expectations. Dan will cover this issue in more detail. No additional charges are expected.
Research and development contract revenue was $3.6 million, which was comparable to the prior year quarter. The company’s research and development backlog totaled $9.9 million as of April 30, 2010 compared to $19.5 million as of April 30, 2009, and $11.9 million as of January 31, 2010.