燃料電池能源 (FCEL) 2009 Q1 法說會逐字稿

Good day, and welcome to the FuelCell Energy first quarter 2009 results conference call.

Today's conference is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Miss Lisa Lettieri, Vice President of Investor Relations.

Please go ahead.

Thank you, Operator.

Good morning, everyone, and welcome to FuelCell Energy's first quarter results conference call.

Delivering remarks today will be R.

Daniel Brdar, Chairman and CEO, and Joseph G.

Mahler, Senior Vice President and CFO.

Our earnings press release is posted on our website at www.FuelCellEnergy.com, and a replay this call will be posted two hours after its conclusion.

The telephone numbers for the phone 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 this presentation contains forward-looking statements, including the Company's plans and expectations for the continuing development and commercialization of our fuel cell technology.

Listeners are directed to read the Company's cautionary statement on forward-looking information and other risk factors in its filings with the US Securities and Exchange Commission.

Now I'll turn the call over to Dan Brdar.

Dan?

Thank you, Lisa, and thank you, everyone, for joining the call this morning.

As you're aware, the world continues to be affected by a serious economic global recession.

Like most companies we're also affected by this situation, and are taking steps to manage through the downturn that we'll discuss later in this call.

That said, where there is crisis, there can be great opportunities, too.

That is for companies ready to pursue them.

We continue to take steps to position FuelCell Energy to capture the growing worldwide demand for clean energy.

Let's turn the call over to Joe Mahler, our Chief Financial Officer, so he can discuss the financial moves we've made, and I'll discuss what's going on in our markets before we take questions.

Joe?

Thank you, Dan, and good morning, everyone.

In the first quarter of 2009, product sales were almost double last year's quarter, and the cost ratio improved by 24%, and in was line with our expectations.

Total revenues were $21.7 million, a 45% increase over last year's first quarter.

Product sales and revenue increased 94% to $19 million from from $9.8 million in the year-ago quarter.

Revenues continued to improve, due to the increased production of megawatt class power plants compared to the prior year.

The Company's product sales as of January 31, 2009, including long-term service agreements, was $70.9 million compared to $84.7 million as of January 31, 2008, and $87.6 million as of October 31, 2008.

Research and development contract backlog was $23.1 million as of January 31st, compared to $13.2 million at January 31, 2008.

In January, the Department of Energy awarded the Company phase two of the megawatt class coal-based solid oxide fuel cell contract, a $32 million contract of which $21 million will be funded by the Department of Energy.

The contract extends through September 20, 2010.

Research and development contract revenue was $2.7 million in the first quarter compared to $5.3 million in the first quarter of 2008.

This was primarily due to the completion of several government programs in the second half of fiscal 2008 and the transition to the new DOE contract I just spoke about.

First quarter net loss to common shareholders was $20.7 million or $0.30 per basic and diluted share, compared to $19.7 million or $0.29 per basic and diluted share in the same period last year.

Net loss increased, as higher volumes of product sales and revenues resulted in increased operating losses, but at a slower rate as per-unit production costs have declined.

The product cost of revenue ratio improved by 24% to 1.52 compared to the 1.99 reported in the prior year, and comparable to the 1.54 in the fourth quarter.

The improved product margin is primarily attributable to increased production of lower-cost megawatt class power plants.

We expect this cost ratio trend to continue over the next several quarters, and then decline with the production of our first gross margin profitable products beginning in the third quarter.

By the end of our fiscal year we should have a cost ratio of 1.1 to 1.3, representing solid progress towards profitability.

The Company had high cash use in the first quarter that we expect to offset with lower cash use in the second quarter and the remainder of the year.

Accounts receivable increased to $30.4 million as of January 31, 2009, compared to $16.1 million at October 31, 2008, due to the delay of certain customer payments that were pushed into the second quarter.

We collected these receivables in February.

The Company is also experiencing delays in closing orders that we believe are related to the macroeconomic conditions, which affects our cash assumptions.

We continue to work these contracts with targeted closure dates in the second quarter.

The resulting cash use in the quarter was $36.1 million compared to $15.1 million in the first quarter of 2008.

Total cash and investments in US treasuries were $50.8 million as of January 31.

With the February collection of receivables and expected closure of orders in March and April, we expect to end Q2 with a cash balance at or above our current level.

Our 2009 budget targets cash use of $35 million to $45 million compared to the prior year total of $66.7 million.

This reduction in cash use is expected to be achieved through order flow matching the Company's 30-watt production rate, which is expected to generate a working capital benefit of approximately $10 million to $15 million compared to 2008 -- we believe we have good visibility to this order flow from Korea, Connecticut and California, which Dan will cover in more detail; lower capital spending by approximately $3 million to $4 million; companywide cost reductions saving approximately $6 million to $7 million; and other improvements in working capital and operating margin totaling $3 million to $6 million.

In February, we implemented companywide cost-saving measures, including a 6% work force reduction; the suspension of employer contributions to the 401k plan; the freezing of salaries except for production employees; and general reductions of other expenses companywide.

With these actions, and a gross margin profitable product going into production this year, our business plans call for continued reductions in cash use as we enter 2010.

Now let's turn the call back over to Dan.

Thank you, Joe.

The cash conservation actions that Joe discussed enable us to push ahead with this year's most important initiatives, while trimming expenses in other areas to address the fact that we're in a recession.

We're being conservative with our cash, and at the same time we're managing the business to meet demand for alternative energy power production.

As I said at the beginning of the call, the demand for our products is stronger than ever.

Let's go over a few of the near-term opportunities we believe will result in orders during 2009 sufficient to support our current 30-megawatt per year run rate.

One of our key markets, our largest market right now, is South Korea, a leader in proposing clean energy projects as a way to stimulate economic growth and create new, high-quality jobs.

In fact, the Government of South Korea made fuel cell deployment a top priority, because they recognized stationary fuel cell's ability to put 24/7 ultraclean fuel-efficient power where it's needed, with a minimum of disruption to the surrounding neighborhood.

Our manufacturing and distribution partner in Korea, POSCO Power, completed its 50-megawatt capacity balance of plant manufacturing facility last fall, a significant investment that demonstrates its commitment to stationary fuel cells.

The facility is now operational, and POSCO is in the process of building their first units that will incorporate a fuel cell module from FuelCell Energy.

We're also working together to establish the Korean service operation, to train POSCO's personnel to manufacture and service the balance of plant equipment.

As a result of the continuing strong demand from Korea, we're currently in discussions with POSCO regarding their fuel cell module requirements for 2010 delivery.

In Connecticut, the state implemented Project 150, designed to get the first 150 megawatts of clean, renewable energy under contract as part of the state's Renewable Portfolio Standard or RPS.

We're negotiating contracts from the round two solicitation for the Milford 9-megawatt DFC-ERG, and the 7.2 megawatts of hospital power plants.

These orders, when final, will be for six DFC 3000 power plants, the 2.8-megawatt showcase of our product line.

These will be the first domestic installations for the DFC 3000 power plant.

We already have DFC 3000s in South Korea, and are looking forward to getting started on the Connecticut projects.

For round three of Connecticut's RPS program, the Department of Public Utility Control issued a draft decision in January approving 6.6 megawatts of projects based on FuelCell Energy power plants.

Yesterday, the DPUC issued a revised decision significantly increasing the total projects to 27 megawatts, all based on FuelCell Energy's DFC 3000 power plant.

The 27 megawatts of approved projects now include the following five selections.

A 3.4-megawatt DFC-ERG power plant for a natural gas pressure letdown station in Bloomfield, Connecticut; a 14-megawatt DFC fuel cell power plant with an organic ranking cycle in Bridgeport, Connecticut; a 3.2-megawatt DFC-ERG power plant for a natural gas letdown station in Trumbull, Connecticut; a 3.2-megawatt DFC-ERG power plant for a natural gas letdown station in Glastonbury, Connecticut; and a 3.2-megawatt direct fuel cell turbine for a substation in Danbury, Connecticut.

Four of five projects are based on FuelCell Energy's high-energy cycles, the direct fuel cell ERG and direct fuel cell turbine.

At approximately 60% electrical efficiency, they're one of most efficient ways to generate electricity equal to or greater than large-scale gas turbine combined cycle power plants.

The DFC-ERG and DFC/Turbine can offer up to twice the electrical efficiency of other distributed generation solutions that are typically only 30% to 40% efficient.

The fifth project, the 14-megawatt Bridgeport fuel cell park, will be the first multi-megawatt commercial combination of fuel cells with an organic ranking cycle, also a high-efficiency solution.

The electrical efficiency of these projects compares very favorably to the average US central station fossil fuel combustion plant at 33% efficiency.

Because of this high efficiency, customers will use less fuel to make a kilowatt hour of electricity, and significantly reduce their greenhouse gas emissions, all very important attributes these days.

In total, these projects represent a potential of $84 million in product revenue once they are under contract.

Following the final decision by the Public Utility Commission, currently scheduled for early April, our project partners are ready to enter negotiations on the contracts and get the orders closed, so they can earn the revenue and the tax benefits these projects provide.

The projects selected in round two and three represent a potential of 43 megawatts of orders just for Connecticut.

In California, wastewater treatment facilities continue to be a strong market for us.

These customers produce their own biogas as a waste product from their facilities.

The biogas is often flared, burned in a boiler to produce steam, or used to run combustion-based engines to produce electricity, all of which produce high levels of harmful pollutants.

With the advent of stringent NOx and SOx regulations, our fuel cells are becoming the preferred solution for these facilities.

DFC fuel cells don't burn like combustion -- conventional combustion technologies such as engines and turbines.

As a result, our fuel cells produce negligible levels of NOx, SOx and particulate matter.

This allows them to be exempt from environmental permitting in most locations.

They're also much more efficient than engines and turbines, allowing them to produce more kilowatt hours of electricity with the same amount of fuel.

Additionally, the high temperature heat byproduct from our fuel cells is sent back to the wastewater treatment facilities and aerobic digesters to help process the waste, resulting in a combined heat and power efficiency of up to 80%.

As a result of these advantages and the successful operation of units at multiple wastewater treatment sites, we have now several megawatt class orders in the last stages of negotiations.

While municipalities have been moving very slowly in the current economic crisis, revisiting their capital plans and slowing their spending, we're seeing the fuel cell projects in our sales pipeline come through this process as good investments for the local wastewater treatment entities.

We now have projects in California going to their respective City Councils or County Boards for approval.

We would expect these to result in orders in the near term.

Given all of the activity in our key markets, we do expect to close enough orders in fiscal 2009 to maintain our 30-megawatt run rate.

At the same time, these megawatt class orders will be gross margin profitable, an important milestone for our Company that means we'll use significantly less cash to operate our business going forward.

As you may recall, last quarter we announced that we achieved our 20% cost reduction goals by releasing a new design for our megawatt class products.

This was achieved through an increase in the power output from 300 kilowatts to 350 kilowatts per stack, along with better component and raw material pricing from increased volume and global sourcing.

We are firmly on track to have these designs in production in the July timeframe, and realize the cost reductions from the new designs.

As we continue to increase volumes, we will lower per-unit costs even more from favorable component and raw material pricing, and more efficient manufacturing.

Due to the increasing focus on efficiency and greenhouse gas emissions, both in the US and around the world, our engineering efforts this year are focused on the design of our high-efficiency, multi-megawatt DFC 3000 turbine.

This product is based on our sub-megawatt demonstration and multi-megawatt design work, both conducted under programs sponsored by the US Department of Energy.

The DFC 3000 turbine will incorporate all of the cost reductions achieved last year in the DFC 3000.

The first installation is expected to occur in Connecticut, as a result of the round three selections.

The product is very well suited for high fuel cost markets such as Asia, and utility-scale applications around the world.

With the passage of the American Recovery and Reinvestment Act last month, there are now billions of dollars to support the deployment of fuel cell projects in the US.

The changes to the Federal Investment Tax Credit alone will enhance developers' ability to complete more projects and complete them more quickly.

The bill also puts an emphasis on shovel-ready projects that can go into operation within the next year or two.

Fuel cell projects are definitely shovel-ready; orders we take in 2009 can be installed and operational in 2010.

A third provision of the bill establishes a new accelerated depreciation schedule for clean-energy projects that will significantly shorten pay-back periods for fuel cell projects.

In addition, there is about $10 billion being allocated to specific programs that fuel cell project developers can apply for, much of which will be allocated by the Department of Energy and the Department of Defense, organizations we have worked with throughout our 40-year history.

In fact, two of our most recent announcements were about contracts awarded to us by these agencies.

The $30.2 million solid oxide fuel cell research contract was awarded by the US Department of Energy, and an order for a FuelCell power plant at the Marine base at Twentynine Palms came through the Department of Defense.

In closing, we're on track to close several megawatt and multi-megawatt orders in 2009, all of which are expected to be gross margin profitable.

Our cash use of an estimated $35 million to $45 million will enable us to capitalize on these opportunities, while we continue to reduce costs.

We are, very simply, managing the business to meet demand in a challenging economy, and we expect to see solid results for fiscal 2009.

Operator, at this point I'd like to open up the call to questions from our listeners.

Thank you.

(Operator Instructions)

We'll go first to Sanjay Shrestha with Lazard Capital Markets.

Great.

Good morning, congratulations on this new -- or rather I should say additional new, the contract win here.

A quick question on that.

So what exactly changed their decision?

Is this sort of like the early signs of benefit that we're going to start to see from the stimulus package?

Because this is arguably a bit of that shovel-ready project, or can you talk about that a bit more?

Yes, your reaction is right on target.

The State of Connecticut and others are looking at stimulus activity, look at the potential to bring stimulus dollars to the state, and one of the best opportunities to do that is to get some projects going that can be delivered near term.

It creates job benefits --

Yes.

Creates job benefits for creating -- developing the equipment, also.

The other piece of it also is I think the -- the Public Utility Commission looked at the legislative requirements, and realized that with the timeframe to do another round of solicitation they probably were not going to be able to get the 150 megawatts under contract by October.

So that combined with the stimulus, I think, drove them to say let's increase the awards in this round and just skip round four altogether.

Got it.

So then from the -- so in terms of actually, you know, some 40-plus megawatts of order hitting the backlog, we've still got to go through all the financing process and -- you know, all sort of the formalities before they hit the backlog.

So the likelihood of them actually hitting the backlog is at least a quarter or two away; is that still fair or --

Of the 43 megawatts, 27 is in this current round.

There's about 16 that's in round two, and those are actually pretty far along in the negotiation process.

So we would expect to see the first 16 near term, and then the -- the 27 that were announced yesterday will probably take another quarter or two to get wrapped up.

Okay.

That's great.

Now, in terms of the cash flow situation here, guys, so obviously sounds like for the next three quarters cash burn is going to be down pretty dramatically, I think it's a working capital benefit, cost reduction.

Can you guys sort of walk us through that a bit more, just so that there is a level of comfort there, given the environment we're in?

Yes, Sanjay, this is Joseph Mahler.

Yes, sir?

The cash flow, what we've done is we want to maintain our 30-megawatt production rate.

Okay.

If we can get order flow to marry up to that 30-megawatt run rate, we believe that we can get to this target of $35 million to $45 million.

We've done -- like you said, we've done the work -- some working capital adjustments, we've done some cost reduction, we've cut the 401k plan, we think the combination of that -- so it really narrows it down to a very simple thing.

We just need to keep putting order flow into the system, and then we should be able to manage our cash pretty well, and we have very good visibility into what that order flow is.

I mean, I just want to kind of make sure that I'm reading this right.

So you already burned $30 million, so really we're talking about another $5 million to $15 million, kind of sort of talking about that whole taking costs out, benefit finally materializing and the capacity utilization, and sort of the path to profitability being a lot more clear for you than it has ever been.

So it's basically all the things you've kind of finally coming to benefit?

Exactly.

So all those things, we've effected all of those things, they are all happening, and what we need now is, and similar to this announcement from Connecticut, is let's get the stimulus moving a little bit, let's get confidence in the marketplaces, and we think the order flow comes.

Okay.

Okay.

Very helpful.

Thanks a lot, guys.

We'll go next to John Quealy with Canaccord Adams.

Good morning.

Thanks, guys.

This is actually Chip Moore for John.

Could you maybe talk about the visibility of cash receipts, maybe give us a sense of the number of contracts that were delayed this quarter, and then just kind of walk us through the -- the milestone payment process?

Yes.

The contracts that we would put into that category that we were expecting would include several contracts coming out of California that are very far along.

These would be municipal wastewater contracts.

We believe we are very close on -- on those contracts, and we would expect those to close.

The other ones are the 16 megawatts in round two.

We see those contracts continuing to work to closure.

We have not seen anybody pulling back.

The message is clear to us that people want to move, these customers want to move to fuel cells.

We do see a little bit of hedging in the economy.

People are looking at their capital requirements two and three times over.

So I think a little bit of momentum just will relieve -- kind of relieves this bottleneck, and we'll see these orders come through.

So I think, you know, there's 16 megawatts in -- in Connecticut that we're focused on, and there's probably three to five in California right now that we're focused on immediately.

And then following that, you would have the round three work we're going to do, obviously the news that came out today.

And then you have backing all of that up, you have the Korean order which, timewise, we got our last -- we got our 2009 order from the Koreans last April, and we would expect a similar timeframe for their 2010 order, and we see all indications being positive coming out of Korea right now.

Okay.

That's helpful.

And I guess kind of related, maybe just talk about -- you talked about the stimulus spending.

But maybe talk about if you're seeing any impact from that yet on RSP activity, et cetera?

Yes, we are actually.

One of the things that we went through here in the last couple of weeks is we were working with some folks in the Administration who were looking for a list of shovel-ready projects.

So we have several that are pretty far along that we put, in because what people that are handing out the stimulus dollars are looking for is, they need to get the money out, and they want to be able to show an immediate impact of what they're doing.

So they are actually -- I think the stimulus laws are really going to play a role in helping take some of the uncertainty out of some of the customers that we see, in terms of delaying their spending.

Then we're also seeing in terms of just direct order flow from the Government to us, the recently announced orders for the solid oxide program and the order that we announced for Twentynine Palms.

And we think there will be more orders, particularly on the DOD side, that we'll see hopefully in the near term here as a result of stimulus dollars.

Okay.

Great.

Thanks.

We'll go next to Rob Stone with Cowen and Company.

Good morning, Rob.

I wonder if you could just take a shot -- it sounds like there are a lot of things potentially coming, do you think you could finish the year with backlog back up to prior levels, or how are you feeling about order intake versus shipments this year?

Yes, I think we could definitely finish with backlog back up to prior levels, and we would hope to do better than that.

Okay.

And Joe, I wonder if you could just go through -- I didn't quite catch it.

You described the trend in -- in cost to revenue reduction, and I thought you said it would stay level for several quarters and then improve from Q3.

But there's only two more quarters to get to Q3.

So if you could just walk through the sequence on that one more time, please?

Good -- good catch, Rob.

What happens is that the gross margin in profitable units really start in production late in the third quarter.

So the impact that you'll see coming through the financial statements really occurs in the fourth quarter.

But the actual production begins in the third quarter.

So you could see a little bit of transition in the third quarter, but you should see the real impact in the fourth quarter.

Okay.

So in terms of the -- of the shipment mix on the full fiscal year of megawatt class versus sub-megawatt class, would you care to take a swing at that?

Well, let me -- let me tell you more of what's in our backlog, and the -- the primary units that are in backlog right now are -- the two megawatt plants is the biggest amount.

There's about 12 megawatts of those that are in our backlog.

There's about a little over 2.5 megawatts of -- 2.4 megawatts of one megawatt plants, and then the remainder are fuel cell modules.

So that's really the mix at this point.

So is it -- it's not so much a shift from sub-megawatt to multi as it is the introduction of the new design -- the higher capacity stack?

Exactly.

So once we work off our inventory of the older megawatt design, and you move to the -- push the new design through production, it becomes pretty straightforward.

What do you see this term of an impact on pricing from the steep fall in natural gas prices?

Is that helping your -- your customer returns analysis any, and how are prices trending?

I think what it does, first and foremost, is it relieves some of the uncertainty of customers making decisions, because it's pretty clear, I think, to most people that are looking at it that we're going to see relatively lower fuel prices compared to recent history for quite a while.

So what I think was scaring people more than anything else at one point in time was volatility.

Now with just the -- the current economic conditions, it looks like fuel prices are going to remain depressed.

That just raises the comfort level of customers that are looking about moving forward.

We would hope over time to be able to start to capture some of that in price, as we start to see customers confident that they can lock up a long-term supply fuel.

But for now, it's really just relieving some of the concerns that customers were having in terms of just placing orders.

Okay.

And final question, if I may.

With respect to shovel-ready, the notion of shovel-ready and round three approvals and then orders, do you think that round three business could actually be booked and shipped before the end of fiscal '10?

Is that the thought on shovel-ready, or does some of it carry over until later?

Our hope would be to have it booked and shipped and installed in 2010.

Great.

Thanks very much.

We'll go next to Brian Gamble with Simmons & Company.

Good morning, guys.

Good morning.

Book, shipped, and installed in 2010 would be impressive.

I hope that comes to fruition.

I know that depends on a lot of other counterparties beside yourself, but I hope that they can continue to appreciate the timing of this, and continue to move down that path.

Joe, real quick on the cash levels.

Could you give us a -- an indication of what the cash burn would have been this quarter if the orders that you had expected to come through came through?

I know you went through what they were, but could you quantify that?

They -- cash would have been in that range, $15 million to $20 million range that we hit on a quarterly basis would have been -- would have been right there.

Okay.

So then if you take that --

Other than the delay in the payment, we had a large milestone payment, that delay literally came in the next day after the quarter.

And then other than the delay of what we think -- you know, in this contract closure process, it would have looked like a very normal quarter.

Okay.

Just trying to get to a normalized quarterly run rate for the last three.

So if you did, you know, 18 for Q1 and you're talking about your range to the full year, that kind of gets you to a -- almost a single-digit type of number going forward on a normalized basis?

Yes, that's exactly right.

Okay.

Then finally, let's see, I had one other question.

The April time period for the final decision, I guess just with, you know, an original draft and then a revised draft, and then a -- a finalized date that's not too far away, what is your kind of, I guess, hope that that actually sticks in April versus getting pushed into, you know, early summer?

Well, my hope is they would actually hit a date for a change.

They're getting pretty late in the process.

I mean, the hearings that surrounded these projects have already happened.

So it seems unlikely that there's going to be a long delay in this.

I wouldn't be surprised if they missed the date by a week or two, because what happens is the docket at the DPUC gets full, and they just don't always get to every item.

But they to actually want to get this thing wrapped up, and move on to the next round of what they're going to do in the RPS program.

nd they do have to have these things done, and they're supposedly under contract based on the directive from the legislation for October, so they don't have a lot of time to push this stuff out.

Then the -- just to clarify, I think the release actually said it was supposed to be done by October 1 of 2008.

Was that a misprint?

It's actually '09, as you're speaking?

It's -- the original was October of '08, and they're just getting a lot of pressure to get things done from the legislature.

Okay.

Perfect.

Thanks, guys.

You're welcome.

We'll take our next question from Walter Nasdeo with Ardour Capital.

Thank you, good morning.

If I could, I'd like to get clarity on POSCO and the assembly plant, and when it's up and running, and the implications for both revenue recognition and -- and margin improvement as they start assembling everything over there?

Well, the only thing they're assembling is the balance of plant equipment; so that facility is now operational.

They're putting together their first units, and the way we did this was, we basically bought the parts and sent them to them, and they're going to assemble that balance of plant in their new facility, and they will eventually transition to buying that equipment themselves.

And then what they would get from us is the completed fuel cell module from our factory in Torrington.

So the order that we will get from POSCO, and part of the order that we have now, is for just those fuel cell modules, which looks very much like our traditional orders.

We get a down payment, we get progress payments, and then a payment at shipment.

So it's all really -- in terms of how it looks coming through our books, it's not going to look a lot different, because the been of plant scope really just transitions to POSCO, and the module represents about 2/3 of the cost of the power plant.

Okay.

And that will be up and running by the end of this year, then?

It's already up and running.

But I mean at full capacity?

Full capacity, it's a function of how quickly they close orders, how comfortable they are getting the thing ramped up and to what level.

Okay.

What's going on in Europe?

In Europe, we are in discussions with our partner, MTU, looking at where we're going to go.

As many of you people know, our arrangement with them ends in December of this year, so we're looking at what our options are to try and develop that market a lot more aggressively than it has been, because we think it's a market that is just really ripe for deployment of fuel cells.

I suspect that in time what we're probably going to do is look to bring on some other partners over there to help stimulate some competition, and we've certainly had pretty significant companies with European exposure that agree with us that there's an opportunity waiting to be exploited.

Got you.

Okay.

And then just briefly, I know we've beaten up Connecticut quite a bit here.

But just for my own clarification, the 27.3, these are all FuelCell Energy projects?

Those megawatts are all allocated to you guys?

Yes.

Okay.

And we've gone through this with Connecticut, you know, a number of times, where you've been awarded something and then, you know, modifications had to come in because somebody else had hurt feelings and whatnot.

Are we pretty confident that this is not going to recur again?

Well, if you remember in the earlier rounds where awards got scaled back, what got scaled back was a recommendation from the Clean Energy Fund by the Public Utility Commission.

This is the Public Utility Commission themselves revising the award upward for us.

So this seems likely to -- to actually go to fruition as it was announced yesterday.

Very good.

I appreciate your help on that.

Thank you.

Sure.

We'll go next to John Roy with Janney.

Hey, a quick question.

How much capital would it take to go to the next level of production?

I know you're running at 30, and could you give us maybe a couple steps ahead because it looks like, you know, in 2010 you're going to need more numbers here than 30?

Yes, it's actually -- we're currently operating at -- at 50 megawatts capacity.

Right.

But run rate is at 30 megawatts.

Right.

Capacity is at 50 megawatts.

There's a two-step move we can make.

One step would be to go to 70 megawatts of capacity; it takes reasonably low capital, somewhere in the $4 million to $7 million range.

And then the next move would be approximately 150 megawatts, and to get to that level would be somewhere $35 million to $45 million, including that $4 million to $7 million.

So that's the steps that we are -- we have planned for and that we are just awaiting -- you know, awaiting order flow to make that decision.

Right.

And you're running at 30 now.

So to run it at 50, is it just more shifts, or what would it take to go from 30 --

More variable costs, bring more people in, and operating the shifts.

So obviously -- not a lot of capital to do that, obviously?

No, there's no capital to do it.

Yes, right, no capital.

Now would this approval of the round three or -- I should say increase in the round three, significant increase, do you think that's going to push the round two guys to kind of get off their butts and sign something?

We're actually seeing the round two stuff pretty far along.

So while it always helps to have stuff pressuring in terms of when you might get your unit, a couple of the projects are actually very far along in the process to get wrapped up and turn into an order here.

So if it gives them that last little push, that's a good thing.

And then once you get that, theoretically it would move into backlog?

Correct.

Okay, great.

Thank you.

You're welcome.

(Operator Instructions)

We'll go next to Jeff Osborne with Thomas Weisel Partners.

Yes, great.

Good morning, guys, and congratulations on the results.

Just a couple of questions.

I was wondering if you could address -- I think in round there was a Clearview biomass facility that was being debated about whether to move forward with that, or if they're possibly re-tendering that process?

As far as I know, that project hasn't been officially canceled, but it seems to be having a lot of issues in terms of getting financing completed, and particularly in the current environment that's certainly gotten worse.

I think that's part of what has motivated the PUC to increase the awards in this round, because they're seeing that there's a real likelihood off some attrition on some of the biomass activities.

But as far as I know, nothing been formally announced about that project dropping out.

Okay.

And then I believe a couple quarters ago there was a 3.1 or thereabout megawatt facility with [Lindey] in California that was pulled out of the backlog.

You mentioned the pipeline of three to five.

Is-- is part of that pipeline the older Lindey facility?

No.

That project is in -- in the works with getting reassigned to someone else.

But when we talked about the three to five, it does not include those Lindey activities.

I got you.

And then could just mention -- Joe, you gave the one megawatt and above two backlog.

Could you just comment on what the total megawatts are in backlog currently?

And also what was shipped?

25.3 megawatts in backlog.

In the quarter, we actually shipped 7.2 megawatts.

Very good.

Thanks much.

You're welcome.

Very good.

And due to time constraints, that does conclude our question-and-answer session.

I'd like to turn things back to our speakers for closing remarks.

Thank you, everyone, for joining us on today's call.

On behalf of the management team, we look forward to speaking with you again next quarter.

Thanks again.

Thank you, everyone.

That does conclude today's conference call.