燃料電池能源 (FCEL) 2009 Q4 法說會逐字稿

Good day and welcome to the FuelCell Energy reports fourth quarter 2009 conference call.

(Operator Instructions)

At this time, I would like to turn the call over to Lisa Lettieri, Investor Relations, Vice President.

Please go ahead, ma'am.

Thank you, operator.

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

Delivering remarks today will be our Daniel Brdar, Chairman and CEO, and Joseph Mahler, Senior Vice President and CFO.

Our earnings press release is posted on our website at www.fuelcellenergy.com, and a replay of this call will be posted two hours after it's conclusions.

The telephones 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 products.

Listeners are directed to read the Company's cautionary statement on forward-looking information and other risk factors in it's 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 us this morning.

Worldwide demand for clean energy is growing; and as policy makers seek out better and more effective energy solutions that will drive global economies in the 21st century.

As the world's leading provider of ultra-clean, highly efficient fuel cells, FuelCell Energy's fourth quarter and 2009 accomplishments position us well to capitalize on global demand and grow our Company.

FuelCell Energy has the first mover opportunity to capture global demand for fuel cell power.

We offer the only commercial megawatt fuel cells for ultra-clean base load distributed generation.

In 2009 we began producing our new lower cost, megawatt products, resulting in better product margins.

This is an important milestone in our cost reduction program, which has cut product costs by more than half over the last several years.

In addition, we concluded a key licensing agreement with our partner, POSCO Power.

The agreement will expand the total capacity production of our products, contribute to further cost reduction, and support the continued expansion of our fastest growing market, South Korea.

I'll get into what we've accomplished with our products, and the market opportunities that will take us to profitability in further detail after Joe Mahler, our Chief Financial Officer reviews the financials.

Joe?

Thank you, Dan, and good morning, everyone.

We reported total revenues for the fourth quarter of 2009 $20.4 million compared to $26.2 million in the same period last year.

Product sales and revenues in the fourth quarter were $16.7 million, compared to $23.3 million in the prior quarter.

Lower product revenues resulted from decreased US market activity, due to difficult credit markets that were offset by sales to POSCO Power.

Research and development contract revenue was $3.7 million, compared to $2.8 million in the prior quarter.

Higher research and development contract revenue is attributable to the increased activity on the Company's solid oxide fuel development contract with the US Department of Energy.

The product cost and revenue ratio was 1.4 to 1, compared to 1.54 to 1 in the fourth quarter of 2008.

The cost to revenue ratio improved due to lower product costs, that resulted in higher product margins compared to the final year.

FuelCell energy began producing it's new lower cost megawatt products in the latter half of 2009.

The cost ratio was impacted by higher costs to complete the commissioning the first multi-megawatt power plant in South Korea.

Net loss to common shareholders for the fourth quarter of 2009 includes 33% year-over-year to $16.2 million or $0.21 per basic and diluted share, from a net loss to common shareholders of $24.3 million or $0.35 for basic and diluted share in the fourth quarter of 2008.

Net losses declined primarily due to the sales of higher margin products.

Turning to full-year operating results for the year ended October 31, FuelCell Energy's revenues were $88 million, compared to a $100 million reported in 2008.

Product sales and revenues were $73.8 million in 2009, compared to $82.7 million in 2008.

While sales dollars are down, which is what you might expect in a tough environment, the actual megawatts of products sold in a the year increased.

As planned, sales to POSCO transitioned from full power plants to modules, reducing the sales dollar per megawatt.

FuelCell Energy's product backlog, including long-term service agreements was$ 90.7 million, compared to last year's $87.6 million reflecting continued strong orders from South Korea.

Research and development contract revenues were $14.2 million compared to $18 million.

Research and development contract backlog was $14.2 million as of October 31, compared to $4.8 million on October 31, 2008.

The product cost to revenue ratio grew 10% to 1.45 in 2009, compared to 1.62 in 2008.

Net loss to common shareholders was $72 million, or a $1 per basic and diluted share compared to a net loss to common shareholders of $96.6 million or $1.4 million for basic and diluted share compared to the prior year.

We ended fiscal 2009 with total cash and investments of $64.8 million.

Cash increased in the fourth quarter by $11.8 million, and POSCO Power paid an up-front licensing fee of $10 million, and invested $25 million in FuelCell energy common stack.

Excluding these transactions, net cash use was $23 million compared to $17.5 million in the prior quarter.

Cash use in the 2009 quarter was impacted by longer than anticipated commissioning for the units in South Korea, which delayed customer milestone payments.

Commissioning for the units was completed by the end of the fourth quarter.

Capital spending for the 2009 fourth quarter was approximately a $0.5 million, and depreciation expense was $2 million .

During the fiscal year 2009, the Company's cash use was impacted by the credit crisis in the US, as well as the working capital impact of the long commissioning cycle in Korea.

The Company did respond to these issues by cutting costs early in the year, through a reduction in workforce and other cost reductions.

Also we raised $22.5 million of cash in June to a registered direct offering, and $35 million in October from the POSCO transactions.

With the POSCO commissioning issues behind us, and project financing activity showing some signs of improvement in the US, we expect cash use to be reduced to a more normalized range of $10 million to $12 million per quarter in fiscal 2010.

Contribution margin from additional order flow and production could drive better quarterly results towards the latter part of the year.

Capital spending will be similar.

In 2009 our animal maintenance and cost reduction CapEx requirements range approximately from $3 million to $4 million.

This past year, the credit crisis declared orders in the US for clean energy products.

We will continue to work the markets to close our immediate opportunities in Connecticut and California.

We are optimistic that 2010 will bring credit markets back to normalcy and enable the US

Thanks, Joe.

FuelCell Energy's past profitability based on two primary drivers, aggressively driving down our product costs, and increasing order flow in our key markets.

FuelCell Energy has a successful track record reducing product costs through value engineering, manufacturing improvements, and engineering and technology improvements to increase stacked power out put, light and system efficiency.

Since beginning our cost reduction program on our commercial megawatt class products, we achieved a 40% increase in power output, and a more than 50% reduction in unit cost.

The most recent design of our cost-reduced products went into production earlier this year, and we expect the products to be gross margin profitable.

This is an important milestone for us, because these products, together with increased manufacturing volume will move us to profitability.

As we increase our production volume, we anticipate being able to continue to reduce product costs.

Increased volume enables several areas of continued cost reduction, including an expanded global sourcing program, larger volume purchases, more competition among our suppliers, increased utilization of our factory capacity, and increased productivity and automation in our facilities and our supply chain.

In addition, increasing power output and stack life of our core cell technology continues to be the focus of our research and development efforts.

Increased orders from our target markets are key to our profitability.

In many regions around the world there's a growing adoption of clean, low carbon technologies.

Countries are also looking to green technologies as a way to turn around their economies.

This attention to clean energy technologies is driving policy in places like South Korea, Europe and, more recently, the US.

South Korea's low carbon green tech energy policy continues to be a driver for fuel cells in this part of Asia.

The South Korean government expects to spend more than 2% on the countries's gross national product, roughly $86 billion, to fulfill their national renewable portfolio standard.

This standard is expected to pass into law in the coming months and would require 4.3% of the country's electric power to be generated using clean energy technologies by 2015, roughly about 2800 megawatts, and fully 11% by 2030, over 7,000 megawatts.

Stationary fuel cells operating on natural gas are expected to be included in the program, and our product should be well positioned to contribute significantly to this goal.

The Korean government's proposed energy policy is an example of a strategy to meet both the country's domestic and energy objectives, and to create a green technology industrial base that will become the foundation for a global export market.

POSCO continues to advance its plans to build out the stationary fuel cell market in South Korea.

During quarter, we concluded a new long-term licensing and manufacturing agreement enabling POSCO Power to assemble, test, and condition fuel cell stack modules using components manufactured and supplied by FuelCell Energy.

POSCO power will combine the stack modules with balance of plant equipment manufactured in South Korea to produce fuel cell power plants for sale in that country.

As part of the new license, POSCO paid an up-front fee of $10 million, and will pay an ongoing royalty of 4.1%.

The license is consistent with FuelCell Energy's strategy of locating certain power plant production activities close to the end user market, while ramping up cell production in our facilities.

POSCO will expand their new facility in Pohang, that was commissioned last year for balance of plant production to accommodate the production of fuel cell modules.

The expanded facility is expected to be operational late next year.

In addition, POSCO power closed on its previously announced purchase of $25 million of the FuelCell Energy common stock, further demonstrating its commitment to working closely with us.

Localizing fuel cell module assembly and conditioning has important benefits for both parties.

It allows POSCO Power more domestic content supporting their work with the South Korean government to pass enabling legislation.

It also drives increased demand for cell components from FuelCell Energy's factory here in Connecticut.

As a result of the new license, we can continue to produce -- reduce product costs for the Asian market, as a result of lower shipping costs, import duties and taxes.

It also effectively expands our collective production capacity, since POSCO's new facilities will relieve one of the primary construction constraints at FuelCell Energy's existing production lines.

Our first 23 megawatts of megawatt class plants were successfully commissioned in the South Korea.

As we described in last quarter's conference call, the simultaneous startup of several megawatt units presented challenges, in both insulation and electrical balance of plant equipment issues that led to delays.

These first of a kind challenges are now behind us, and the world's largest installed fleet of multi-megawatt class fuel cells is in operation.

We continue to work closely with POSCO, and their customers, and installers, to ensure that future project installations go as smoothly as they do here in the US.

POSCO Power has proven to be an excellent partner for South Korea, and we'll continue to build our business together to capture the growing opportunity in Korea and other parts of Asia.

In North America we're in the midst of a period where the benefits of stationary fuel cells are becoming more widely recognized.

This is helped by growing focus on energy efficiency as a cost-effective way of reducing carbon emissions, and extend the useful life of available fuel resources.

In addition, natural gals is becoming part of the policy debate due to significantly expanded production in the US.

We now have greater than a hundred-year supply of natural gas in our current rate of consumption, our cleanest domestic fuel.

Using this abundant, clean domestic resource in our fuel cells makes sound energy and environmental policy, since our products have the highest electrical efficiency in their size range, and produce virtually no NOx, SOx or particulate matter.

Additionally, Congress is seeking solutions to address environmental problems that could result in an energy bill beneficial for fuel cells.

Their actions could result in a national renewable energy standard, a Federal RPS, and longer term the implementation of cap and trade policies.

And now the Environmental Protection Agency has signalled their intent to issue new carbon dioxide regulations.

This heightened attention to the need for clean energy solutions could prove beneficial to our Company, given our product's near zero emissions and high efficiency.

California has always been on the leading edge of clean technology adoption, and is currently our second biggest market after South Korea.

Our sales pipeline in came continue to grow, and we're working to close orders as evidenced by the recent Tulare wastewater treatment plant order for a fourth unit.

Work closure from our California project opportunities were significantly impacted during the year, as our partners and end user customers dealt with the lack of available financing for all types of power generation products.

We're beginning to see the return of traditional project financing in some parts of the power generation market, but it's a slow process.

In addition, many of our potential customers are municipal wastewater treatment facilities.

Many municipalities are going through a review of their capital budget plans in the light of reduced tax revenues.

Our products are expected to fare well in these reviews due to strong financial incentives, from programs like California's Self-Generation Incentive Program.

In support of these opportunities, California, again demonstrated it's commitment to reducing greenhouse gases, and encouraging clean distributed generation by extending it's Self-Generation Incentive Program to 2015.

Under this program, qualifying fuel cell projects of up to 3 megawatts are eligible for incentives up to $4500 per kilowatt, when operating on biogas, and up to $2500 per kilowatt on natural gas.

Currently there is about $200 million in the program, and ongoing funding is expected to be roughly $83 million annually.

The planned capital projects, like wastewater treatment plants now have the certainty they need in the SGIP knowing it will be available for several more years.

California also enacted two new feed-in tariffs, one for combined heat and power applications of which our fuel cell projects would qualify.

The second was a renewable feed-in tariff signed by Governor Schwarzenegger in October.

Once the feed-in tariff rates are set, they will enable power producers to export excess electricity back into the grid.

The feed-in tariffs could make it more economically attractive to generate power using fuel cells, and lead to wider deployment.

The California Public Utility Commission is currently working to set pricing for these tariffs, and we look forward to their ruling.

In April, Connecticut's Department of Public Utility Control approved 27.3 megawatts of projects under the state's standard for a total of 43.5 megawatt of projects approved today.

Though economic conditions have made it difficult to obtain financing for all kind of capital projects, we're working with our project developers on private and public funding.

And parallel to our efforts to secure traditional project financing, we're submitting applications for the $6 billion DOE Loan Guarantee Program, and expect to be notified in early 2010.

Canada is another developing market for our products.

This past assignment, the Ontario government ruled that gas distribution companies such as our partner, Enbridge, may own or operate power plants that generate both electricity and heat including fuel cells, operating on natural gas up to 10 megawatts per facility.

This is an essential step toward the deployment of the DFC-ERG for pipeline applications in the province.

The Ontario government is also expected to establish a revised feed-in tariff, to encourage the installation of clean energy generation that would include stationary fuel cells.

Turning to Europe, our license with our partner MTU Onsite Energy will end later this month.

Europe has been a leader in its commitment and aggressive adoption of new clean energy technologies, and it's largely untapped market for our products.

While countries such as Spain and Germany have installed a large capacity of intermittent generations like wind and solar, they're lacking the ultra-clean base load solutions that our products provide.

We're currently in discussions with potential partners.

Due to the diverse nature of the European market, and the difficulty of any one company to be successful in such a diverse region, we expect to end up with more than one partner, to pursue the various vertical and geographic market opportunities.

We've arrived at an important juncture in our Company's evolution.

To date, our focus was capturing geographic markets.

The Korean market uses fuel cells and grid support.

The California market has been using fuel cells for on-site distributed generation, and Connecticut is using fuel cells to satisfy its renewable portfolio standard requirements.

As a result of numerous successful installations, our products are beginning to attract vertical markets.

With low cost fuel and renewable status, fuel cells operating on biogas are attracting world-wide interest.

Our DFC-ERG is attracting global interest, as it can improve the pipeline let-down process.

The wastewater treatment market which utilizes renewable fuel has immediate global potential.

We established a solid reputation in California at these facilities, with approximately 40% of our installations running on biogas produced by the wastewater process.

The repeat order from Tulare wastewater speaks to our customer satisfaction with our product's able to provide a superior solution.

Our products reduced emissions, carbon dioxide and costs.The heat from our power plants is used in the anaerobic digester, so in addition saving on electricity costs, customers save on fuel costs.

This type of combined heat and power application can yield up to 90% efficiencies.

Our DFC-ERG system, developed with our partner Enbridge is specifically designed for natural gas pressure letdown stations.

Natural gas is piped under high pressure over long distances, and the pressure must be reduced at letdown stations before it can be distributed locally.

Consequently almost every pressure letdown station worldwide potential candidate for our DFC-ERG, in which our fuel cell is coupled with a turbo expander.

The resulting electrical efficiency is typically 60%, nearly twice the US grid, and higher than other distributed generation options.

Our first DFC-ERG power plant went into operation in Toronto last year, and four DFC-ERG power plants were approved by the Canadian Department of Public Utility Control.

The market has been estimated at 250 to 350 megawatts in just the Northeastern US, Northern California and Toronto.

Our long standing relationship with the US government is also generating new business.

During the fourth quarter, we received an award from the Department of Energy for $1.9 million for development of a micro channel high temperature recuperator.

We also received an award from the Department of Defense for $1.5 million for our electro chemical hydrogen separator or EHS.

This award contributes to our hydrogen co-production product, which integrates an EHS system with a fuel cell power plant.

In January, we announced that the Department of Energy awarded FuelCell Energy a $30.2 million contract for Phase II of the ten-year program dedicated to developing fuel-based power plants megawatt class, coal-based solid oxide and fuel cell power plants.

During 2009 we met all of our interim program milestones for technical performance and costs.

FuelCell Energy's unique value proposition is both compelling and timely.

Our fuel cells are a large-scale ultra-clean and highly efficient continuous power generation technology.

They use readily available fuels such as natural gas and biogas.

Our fuel cells do what solar, wind and other technologies and other intermittent technologies cannot do.

And FuelCell Energy is the only Company today with commercially available megawatt class fuel cells that fill this critical clean energy need.

In summary, while 2009 was a challenging year for everyone due to the global economy, we ended our fiscal year with a solid balance sheet, a new licensing agreement with our South Korean partner, new cost-reduced products in production, strong order backlog, and a strong, domestic and international sales pipeline.

As we enter 2010, we are solidly positioned to capture an unique position in the global energy marketplace, and continue on our path to profitability.

Operator, at this time we would like to take some questions from our audience.

Thank you.

(Operator Instructions)

And it appears our first question comes from Burt Chao with Simmons & Company.

Good morning.

Thank you for taking the questions.

Good morning.

First question is just basically on backlog currently, and kind of looking backwards, and then forwards.

Could you detail kind of what shipments were, kind of the movement in backlog, whether it was shipments to POSCO, or shipments to kind of outside of POSCO customers?

And kind of just give color on how the backlog moved in the quarter?

Yes, we started the quarter 44 megawatts of backlog, and we shipped a unit -- it was actually to a California customer.

It was a 300 kilowatts.

So we actually ended the backlog at the end of October with 44 megawatts.

When we were going through the commissioning with the Koreans, one of the impacts of that, was that we delayed impacts to Koreans until all the commissioning issues were settled.

So there's actually a little bit of a logjam of shipments there, that are moving in the first quarter of 2010 at this point.

Okay, so those would be primarily to the Poh- the Korean customers at that point?

Yes.

And we have -- and we have resumed all shipments to POSCO.

And yes, congratulations on finalizing that agreement.

POSCO is obviously a very important partner with you guys.

Going forward, however, you mentioned all these other markets, kind of looking midterm to maybe even longer term.

How to you see the backlog developing or the shipments developing?

Do you anticipate POSCO being the vast majority for awhile?

Or do you anticipate that couldn't of smoothing out to them, maybe that not taking as much as you grow to these new markets?

Well, I think, as you look at what's already in backlog, for 2010 POSCO will remain a pretty significant amount of what we're going to be shipping.

But as we start to open up the European market, and as we see the US market come back to order flow, we're going to see that balance.

Then I think we'll continue to see the Korean market probably go more quickly than the other markets, because they're looking at this national energy policy that looks like it's going to drive a lot of volume.

So they will continue to be a significant part of our business, but we expect to see the percentage of what we ship to them come down over time.

Okay.

Great.

And the cost of revenue ratio, obviously it is flat quarter-over-quarter, but down very attractively year-over-year.

Looking forward, kind of maybe for 2010 guidance, what do you expect that to be when you exit the year?

It's not dissimilar from what I said in previous calls.

We see the product is on target for cost reductions, so we're looking to get 10% to 15% margins.

So we would expect to be below 1 on product cost, and we still have the -- the trailing -- these other costs that come through, trailing service costs.

Right.

In 2009, we had additional commissioning costs in Korea, and those range somewhere from 20 to 30 points .

Okay.

So if you add that -- let's say you started at 0.9 or 1, you're basically at 120, 130, something that that range.

Okay.

120, 130.

Okay, wonderful.

Congrats again on that agreement.

Thanks for taking the questions.

Thank you.

Our next question comes from Megan Moreland with Ardour Capital.

Could you give a little more detail on the issues with the commissioning?

It's news to me that there were issues.

Is just exactly what happened, and how it -- it sounds like it perhaps this reverse at the end of 4Q, and maybe going forward in 2010, that would not be an issue.

Just some more color there.

Yes.

We talk about it a little bit last quarter.

But it really comes down to two things.

One is, if you think about installing a megawatt -- multi-megawatt power plants.

This is a product that's new for POSCO Power, it's new for the companies that would be installing it for the marketplace for Korea.

We saw some problems for the installations.

There were things they hadn't done correctly, in terms of how units were installed.

And we had components in our electrical balance of plant that are readily supplied components for power generation equipment that had, basically some infant mortality issues.

So the economy nation of those two things delayed us getting those units completely commissioned and accepted by the customer.

We've worked through all of those things now, both the installation challenges that POSCO and their customers had, and the electrical balance plant equipment problems.

We don't expect to see that going forward, because we all approached this under the context of we want to get these units operating as quickly as possible.

We want show how well the products work in support of this national standard that is coming.

And we use it as an opportunity for all of us collectively to figure out how to work better together, and to capture the lessons learned and flow it back to the installation manuals, and the way our product comes together.

Okay, so more an issue of this all culminating in the fourth quarter?

Yes, exactly.

The way worked out was we actually had a half dozen units that are basically a new product to that marketplace, that all stacked up on top of one another, in terms of the timing of when they were being commissioned.

And that's what really caused the delay.

If it was just one, we could of easily knocked it off, but the fact we had a half a dozen of them happening at the same time, it just stressed everybody's resources to get it done, and as quickly as we would have liked to.

But fortunately everybody is happy with the way things have turned out.

Shipments have resumed.

And we've actually already seen some customers come back for repeat orders.

And how many megawatts were shipped in the fourth quarter?

There were 0.3 megawatts that was actually shipped.

Then we have another 8 megawatts ready to ship to POSCO, but they asked us to hold it for about 30 days while we worked through the last of these commissioning issues.

So that was partial recognition on the P&L?

Yes.

We maintain recognition.

We didn't see any indication -- we're under percentage of completion, so we just maintained revenue recognition.

Okay.

And then, in terms of backlog, did you say that products backlog now remains at essentially 44 megawatt?

Is that what I heard?

43.7, to be exact.

Okay.

And just refresh me, as far as I know, none of the Connecticut projects are in backlog right now.

They will be added to backlog, once the financing is completed, is that correct?

That is correct.

That is correct.

And where do we stand there?

It's been quite a time since it was -- those were given final approval.

I know you said some of them are going to apply for the DOE Loan Guarantees.

I would think that -- we would have seen some financing coming through at this point.

Or is it really -- is still so such a frozen market.?

It's really what we are seeing in the broader market, with just the inability for anybody doing power projects to get any meaningful amount of financing.

We're seeing it loosen up.

We have people that have engaged in terms of looking at the project portfolio.

We're making some good progress with them.

But we're really treating this as a parallel path.

If we can drive the traditional finance in the closure, great, but we're going to work the parallel path with the DOE loan program as well, and those two things can converge at the end.

But we really want to make sure we're pursuing all the opportunities, just because there tend still be a lot of risk aversion to doing any kind of capital projects right now.

And are there any time constraints on the projects?

If you don't get financing within a year or two they lose their approval, or is that open-ended?

There's one that's bid into the foreign capacity market.

They'll have to make adjustments to accommodate that.

But they're not really time-constrained to get them done.

We would all like to get them into backlog, so that we can actually show multi-megawatt opportunities operating here in the US, just like we have in Korea.

Okay.

Thank you.

Our next question comes from Sam Dubinsky with Oppenheimer.

Hi, guys.

This is Adam for Sam.

A couple quick questions.

Can you run through your pipeline outside of your backlog?

I know you've told us that before.

If you can run through that.

Yes.

What we're seeing is -- and just to make clear, again, is that these are not in our backlog at this point.

But there's 43 megawatts in Connecticut.

It has a value of a little over $200 million.

The contracts have signed power purchase agreements with the utility.

So they're in very good shape with that regard.

We're just walking through, as Dan just described, the project finance exercise.

We fully expect those to get financed.

In California, we are expanding our pipeline of possibilities.

I think last quarter, we were talking about somewhere above 15 to 20 megawatts of opportunities.

Now those are probably higher than 25 megawatts of opportunities at this point in time.

So we're seeing increased interests, certainly in the wastewater market.

We are seeing a real reluctance -- we still haven't seen a release from a financing standpoint.

We are seeing people just being cautious -- very cautious in terms of their capital budgets and capital financing.

But from a Company standpoint, we're very encouraged by the increased activity.

And we did -- we did take that order from Tulari the other day.

And I think that's a real positive, too, in the sense it's a repeat order in the California marketplace.

So I think things look good.

We just have to get through this financing, this little financing exercise.

Great.

Then one more.

If you could just update us on the metrics to turn GM positive, the run rate, maybe potential timing?

Yes.

I think it's the same -- pretty much the same metrics.

I think, in the 10-K, we articulate a range of 75 to 125 megawatts, which is really a product mix situation.

If you're shipping cells and modules to the Koreans, you're going to be at the higher end.

If you were shipping all power plants, you would be at the lower end.

We're seeing costs come out.

We're happy with the cost reduction.

It really comes down to a volume game, at this point in time.

I mean, the product is ready.

The product is working well.

The costs are in place.

If we can get the volume through the system, we can really move on that path.

Great.

Thanks.

(Operator Instructions)

It appears our next question is from John Quealy with Canaccord Adams.

Yes, hey folks.

This is actually Chip Moore for John.

Just going back to Connecticut, the 43.5 megawatts approved.

You mentioned potentially getting DOE decisions in 2010.

How should we be thinking about revenues next year, and into 2011?

If you can just broadly give us a ballpark, two-thirds, one-thirds, et cetera?

Yes.

I'm not sure about two-thirds, one-third.

It should be the backlog -- it should be somewhat ratable.

I mean we drive it through our production rate.

Our production rate right now is about 30 megawatts.

We'll be producing the same amount generally each quarter.

So without incremental -- if you took this year, and didn't throw a lot of incremental volume on it, it would be ratably during the -- pretty consistent through the four quarters.

Okay.

Maybe if you could give a similar analysis for POSCO backlog, just in terms of running through the P&L, how we should look at that?

Yes.

I mean, I think the POSCO -- POSCO probably runs 15 months, and so it's probably five quarters, maybe a little more.

I mean, most of the backlog today -- right now is POSCO.

So that's -- that's planned to run over a 5, 5.5 quarter -- 5.5 quarters.

So the -- the question is, when do -- when does the volume increase, and when do those orders come through.

And we'll have to deal with that, when they come in.

I mean, those things, we're on a nine month, to twelve month cycle to ship on new orders.

So you would expect that would be the cycle for that.

Okay.

All right, thanks.

And then I guess just lastly, you talk about Europe maybe signing multiple partners.

Any idea on timing their potential announcements?

Timing is tough to tell, because you're dealing with negotiations, but we're actually pretty well engaged with one player already.

We'd like to try and drive the first relationship to closure as early as we can in 2010.

And we'd expect to probably add another one or two after that as we get into the latter half of 2010.

Alright.

Thanks very much.

You're welcome.

(Operator Instructions)

Our next question is a follow-up question from Burt Chao with Simmons & Company.

Thanks for taking the follow-up.

I apologize if this has already been answered, but can you guys give us detail on your cash burn in the quarter, and what you expect it to be going forward?

Yes.

We -- as we said we've got -- POSCO invested $25 million, and gave us the licensing fee.

At the same time, we ran a $23 million cash use in the quarter, because as part of that commissioning exercise with POSCO, the -- some of the acceptance criteria was pushed out about 30 days.

So the working capital associated with those orders got pushed in -- really get pushed into the first quarter.

So what you have, is you have in the fourth quarter, you have higher cash use, because of that working capital move to the first quarter.

I mean, I would say that number is like a $10 million, $10 million to $12 million range taken out of the quarter.

So if you take that number, and you look at the 23, and you say that working capital got shifted out, and you bring it back down, you're back into the normal range that we have, which is that 10 -- I think in 2009 we talked about the $10 million to $14 million range.

Right, okay.

Yes, so going forward it should kind of return to normal?

Yes.

I think, yes, it should be in the 10 -- not including new volumes.

See what new volume would do, new volume would do is actually improve -- as the margins now are positive on our incremental sales, that will actually help.

If you look at it, with the existing backlog, and how that's playing out, we would still expect it to drop, because our costs would come down.

So you're in the lower range, 10 to 12 range, something like that.

Okay.

Wonderful.

Thanks again.

Okay.

And it appears that does conclude our question-and-answer session.

I would like to turn the conference back over to our speakers for any additional closing remarks.

Thanks.

I want to thank everybody for joining us today.

We look forward to updating you again on our progress next quarter.

Thank you.

That does conclude our conference for today.

Thank you for your participation.