燃料電池能源 (FCEL) 2010 Q4 法說會逐字稿

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 listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to your host, Mr. Kurt Goddard, Vice President of Investor Relations. Please go ahead.

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 discussions 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?

Thank you for joining us this morning. Ultra-clean, highly efficient, and reliable, our fuel cell 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 US 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 is now the largest in the 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 detail about these and other results after Joe Mahler, our Chief Financial Officer, reviews the financials for the quarter.

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 of revenue ratio was 1.21 to 1 in the fourth quarter compared to 1.39 to 1 in the fourth quarter in 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 $34 million proposal to the Department of Energy for phase three of the Solid Oxide Fuel Cell Development Program and expects a decision in early 2011.

Total cash and investments in US Treasuries were $54.6 million as of October 31, 2010. Net cash use 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 in line with our expectations. Capital spending for the fourth quarter was $0.5 million and depreciation expense was $1.9 million.

Turning to full year operating results, FuelCell Energy reported revenue was $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 the year and the sales mix transitioning to fuel cell modules from complete power plants. Net loss to common shareholders for the year ended 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 sizeable orders during the fourth quarter which demonstrates very positive movement in the US market with most of the orders coming from customers located in California. I would like to highlight that the financing use of these orders included publicly issued tax-free bonds, both equity and debt investments by external investors and commercial banks' financing. The availability of financing utilized for the orders in California is encouraging from a market perspective.

Here in Connecticut, we continue active discussions with multiple parties regarding financing for the 43.5 megawatts of Connecticut projects. We are also encouraged there appears to be movement to extend the ITC Tax Grant Program. Looking ahead to 2011, we continue to continue improvement in operating margins and cash use. During the fourth quarter of 2010, we increased production levels in response of order volume to 35 megawatts on an annual basis. With additional order flow, we'd expect to increase that further. FuelCell Energy has reduced product cost to the point that our products are gross margin positive, sales volume can drive us to profitability. Dan?

Thank you Joe. FuelCell Energy strategy is focused on driving down our product cost while expanding in our key geographic and vertical markets to grow volume. The combination of these two activities drives our path to profitability. The orders received in 2010 were primarily from the US, specifically California, which we believe represents a re-engagement of domestic market. On several of these projects, we saw a variety of financing structures used including traditional, financing, bonds, grants and tax credit as well as new distribution partners with their own sources of capital. The improved availability of capital was instrumental in the ability to close those orders and appears to be driving a steady increase in our domestic sales pipeline.

In the US market, our efforts during the first half of 2010 were concentrated on progressing orders in our pipeline which produced good order flow in the second half the year. As I said previously our pipeline is the largest in the Company's history. During the fourth quarter, we received seven orders totaling 12.7 megawatts of fuel cell power plants, a more than a threefold increase over the third quarter. For the year, we received US orders totaling 16.1 megawatts, most of it in California including our first direct utility purchases in the US. Our fourth quarter orders included two 2.8 megawatt, DFC3000 which will be our first installations of this product in the US

In addition to these orders, there were additional domestic megawatt class projects in negotiation which we expect to reach closure in the near term. Our recent order flow in sales pipeline indicates the growing recognition of the need for baseload renewable power and the need to use our newly found, abundant and affordable supply of domestic natural gas as cleanly and efficiently as possible.

BioFuels Energy, a new partner, that develops renewable energy projects, utilizing waste from municipal wastewater treatment facilities ordered three power plants totaling 4.5 megawatts for what is our first directive biogas project. One of which is biogas generated in one location and then transported via pipeline to another location. This is a model we anticipated being replicated elsewhere, due to the benefits of clean and efficient renewable power baseload delivered in an economically compelling manner.

Financing for the project includes renewable energy bonds authorized by the California Pollution Control Authority, commercial bank financing from US bank corp as well as state and federal grants. We received two orders from UTS Bioenergy, another partner specializing in renewable biogas projects. In one of these, our 2.8 megawatt DFC3000 will be installed at a wastewater treatment plant, operated by Inland Empire Utilities Agency, a municipal water district in California.

In the second UTS Bioenergy project, a 1.4 megawatt DFC1500 will be installed at the San Jose/Santa Clara Water Pollution Control Plant in San Jose, California. Both projects will be fueled with renewable biogas from the wastewater treatment process and will operate in highly efficient combined heat and power configuration. UTS Bioenergy will own the direct fuel cell power plants and sell the electricity to the hosting Water Authority under a 20 year power purchase agreement.

Eastern Municipal Water District, an existing customer in California, ordered two additional 300 kilowatt DFC300 power plant for a new water reclamation facility they're building following the District's purchase of three DFC300s in 2007 for a different facility. This Order Demonstrates this customer's satisfaction with our products. Our products make it possible for end users like Eastern Municipal Water District to meet their renewable energy goals and comply with strict clean air [emission] requirements by using distributed electricity, generated cleanly and reliably from renewable biogas. Produced at their facilities, these end users reduce reliance on the transmission grid and benefit from stable, economically attractive long term power cost.

The Rancho California Water District ordered 1.4 megawatt DFC1500 fueled by natural gas to power a pump station. District's decision was based on an extensive analysis of the alternatives to their existing natural gas-fired internal combustion engines. They chose our DFC1500 because it meant virtually no pollutants and offers the most attractive economics based on lifecycle costs, fuel savings, and financial incentives. Utility grid applications powered by natural gas are expected to be a growing market in California.

Our first utility order was received earlier in 2010 with two different power plants owned by Pacific Gas and Electric to be located on university campuses at California State University East Bay and San Francisco State University. The utility will own the units and export their power to the transmission and distribution system. California State University East Bay will utilize the waste heat from the fuel cell to heat a swimming pool and the wastewater for a landscape irrigation. San Francisco State will utilize the waste heat for facility management.

The California Air Resources Board, recently certified our natural gas fueled 2.8 megawatt DFC3000 to meet its stringent distributed generation emission standards. The DFC3000 is the only multi-megawatt fuel cell to achieve the certification. Our DFC1500 and DFC300 are already certified, affirming the ultra-clean emissions profile of all fuel cell energy products. The California Air Quality Management Districts oversee the toughest clean air standards in the nation. In California, already a strong proponent of clean energy, policy makers and regulators are very supportive of fuel cells. As renewable technologies like wind and solar are deployed more widely, the need for clean baseload technology that complement these intermittent sources becomes more acute, particularly baseload power that utilizes renewable biogas.

California continues to take steps toward the adoption of a feed-in tariff. The California legislature passed bills and the governor signed into law two feed-in tariff programs to designed to increase the adoption of clean, efficient energy. Once the feed-in tariffs are fully implemented by the California Public Utility Commission, they could enable FuelCell customers to sell excess electricity to the grid. The CPUC is currently working to set pricing for these tariffs and we expect a final ruling in 2011.

Korea continue to be our largest market. Earlier this year, the South Korean National Assembly passed a far-reaching renewable portfolio standard which specifically includes fuel cells operating on biogas and natural gas. The RPS requires 350 megawatts of additional renewable energy per year through 2016 and 700 megawatts per year through 2022, a cumulative target of nearly 6,000 megawatts. High efficiency fuel cells are an excellent green energy solution for South Korea due to the high cost of imported fuel and poor wind and solar profiles of the Korean peninsula.

Based on our recent meetings with POSCO Power management, an announcement from the South Korea's Ministry of Knowledge Economy appears imminent, regarding the specifics of how the RPS will be structured, including pricing, and utility penalties for non-compliance. Because fuel cells produce electricity electrochemically, they emit virtually no harmful pollutants unlike combustion-based generation. Our fuel cells transform costly imported fuels into electricity up to twice as efficiently as conventional distributed technologies resulting in cost savings and lower greenhouse gas emissions compared to less efficient alternatives.

When operating combined heat and power configurations, the byproduct heat can be used for commercial or industrial processes with system efficiencies reaching up to 90%. The South Korean government desires clean distributed generation power sources to supply their growing power needs while minimizing additional investment and congestion of the transmission grid. Fuel cells address these needs and are designated as an economic driver to their ultra-clean emissions, high efficiency and reliable distributed generation capabilities which will help the country achieve its RPS and electricity generation goals.

POSCO Power built a balance of plant facility in 2008 which is now operational, providing Korean built balance of plant equipment for their customers. Currently, they are constructing an adjacent facility and are able to build fuel cell modules using components produced and supplied by FuelCell Energy. This facility is on schedule for completion and will begin operation early next year. Demonstrating their long term commitment to FuelCell technology and to our partnership, POSCO's building an initial capacity of 100 megawatts.

Our team is working side by side with POSCO both in South Korea and in Connecticut to provide expertise and training in the fuel cell module stacking and conditioning process and to ensure their new facility is a success. We received our last order from POSCO Power in June 2009 for 30 megawatts which will be completed around fiscal mid-year 2011. In the meantime POSCO's efforts were focused on developing and growing the market for fuel cell and building the capacity to meet expected demand. Due to the healthy market signals they are now receiving from the Korean markets and the lead time for several key materials, we are now in detail discussions with them on their next multi-megawatt order.

Building on our successful relationship with POSCO Power, we will jointly develop a small skill direct fuel cell power plant for the Asian commercial building market. Our partner will fund the $5.8 million program in stages, initially funding $2.9 million for development of our smaller scale fuel cell module. POSCO estimates that the market for this product is substantial. They believe in the long term, it represents a market opportunity comparable in size to the RPS Program as it will be driven by government mandates for new and renewable energy use in buildings.

In response to our recent domestic order flow, we increased our production run rate to 35 megawatts per year. Following completion of negotiations for additional domestic megawatt class orders and our next multi-megawatt order from POSCO Power, we expect a further production ramp this fiscal year. We will provide additional details on the production run rate and progress in our production ramp in future calls.

The continued growth in our backlog and our production run rate is a key part of our ongoing product cost reduction strategy. To date, our cost reduction program has successfully reduced the unit cost of our megawatt class products by more than 60%. As volume increases, further cost reduction will be achieved through expanded global sourcing, higher volume purchasing, more competition amongst suppliers and increased capacity utilization in our facilities. In Europe, the first of our new partner agreements is near completion. The agreement is with a European-based company for the sale and service of direct fuel cell power plants in Europe, Africa and the Middle East. Europe is a collection of diverse countries and we expect to work with two or three different companies in order to capitalize on the renewable energy opportunities available in the region.

Research and development programs are building on the versatility of our fuel cell power plants and contributing to the development of potentially UN markets. Our power plants can provide three value streams including clean energy, high quality useable heat, and hydrogen. This hydrogen can be used for vehicle refueling or industrial purposes. We already have a demonstration program for vehicle refueling with our DFC-H2 hydrogen co-production that will provide hydrogen for vehicle fueling stations located next to a highway in Los Angeles along with clean electricity and useable heat to a wastewater treatment facility.

The plant, installed at Orange County Sanitation District, is currently operating on natural gas and will switch to renewable biogas early next year. The unit will co-produce renewable hydrogen for vehicles in the Los Angeles area. We received a $2.8 million contract from the Department of Energy to demonstrate hydrogen production for metal processing application. The power plant will produce clean electricity, heat and hydrogen to demonstrate the ability to reduce the cost of purchasing, transporting and then storing industrial hydrogen while providing clean electricity and useable high quality heat.

The potential market for this technology includes more than 600 metal treating and annealing companies in North America alone. The second deal we contract, valued at $2 million will fund the further development and demonstration of hydrogen compression and storage which will potentially expand applications for hydrogen such as power generation and vehicle refueling. Another deal we contract, we are working toward a long range goal of developing megawatt class, solid oxide, fuel cell power plants filled with coal-derived synthesis gas, thereby reducing greenhouse gas emissions from coal up to 90%. We successfully met or succeeded the technical and cost targets established by DOE for the first two phases of the program and are currently in discussions with DOE for the third phase.

Around the world, energy consumers and producers are turning to our products to solve their waste and energy challenges. Our products allow customers to economically transform waste into renewable electricity and allow businesses, municipalities and utilities to meet strict emission requirements while supporting customer clean energy goals. As a result of the activities I just described, we're ending fiscal 2010 with the largest product and service backlog in our history at $154 million. In addition, we've achieved the lowest commercial cost product ratio in our history as well at 1.21 with our megawatt class products being profitable on a unit basis.

Both of these key metrics are expected to continue trending in the right direction in 2011. We anticipate our sales backlog to continue to grow as domestic projects currently in negotiation are closed and announced in the coming weeks. Also, as we conclude the next multi-megawatt order with POSCO to provide module components for their new facility, it will add substantially to backlog as well. In response to this order flow, we anticipate an additional production ramp in 2011 beyond our current level of 35 megawatts per year.

With the South Korean government's pending announcement for their RPS, a potential extension in the US to the ITC grant, the announcement of our first European market partner, an expanding sales pipeline and continued reduction in product cost, 2011 looks to be a position as a return to growth in our business and a significant step forward in our path to profitability. Operator, at this time we'd be pleased to take questions from our listening audience.

(Operator Instructions) Our first question comes from Sanjay Shrestha of Lazard Capital Markets. Please go ahead.

Good morning guys. Congratulations on a great bookings quarter and the cost reductions. Few questions. How should we think about the Connecticut Project at this point in time? Where are we with the different type of financing arrangement for that and any sense you guys might have on what timing we could expect before that turns from prospect to backlog?

Hi Sanjay. It's Joe Mahler. I think we should think about it very positively. I think that the projects are good, the models are good. We're in very active discussions with financiers. Every once in a while, you hit a little bit of uncertainty. In this case, it's around the tax grant. We were actually moving out of the tax grant process into more tax equity scenario. Now it looks like the tax equity may be in place, so that would be a real positive for us in terms of getting movement. It has been a slow process. It's not going away and it should move forward.

Okay, okay. Now so with the Connecticut opportunity at some 44 megawatts, right? I think you guys commented on another multi-megawatt order from POSCO. With the record backlog here, how should we think about volume ramp during next year? Given the lead time, we should be hearing from POSCO in the near future shouldn't we?

Yes, we will. In fact, the POSCO management team was here last week. We had several, very productive days going through them briefing us on what's going on in their marketplace, what their own view is looking forward for the next two years, and what their demand is going to be. And part of the concern that they had was with the Connecticut Projects, with the significant uptick in order flow that they've seen from us here in the last several months, they want to make sure that we're are going to have the capacity that they need to respond to the market demand.

So it was a very productive discussion and really led immediately towards we have to collectively move pretty quickly towards closure to preserve the capacity that they are looking for. As we announced, both the coming POSCO order and the other things that we have in the queue that are near term for California, we'll be announcing the production ramp target that we're going to be going to and we will provide color around that in terms of longer term, what do we need to do beyond the existing capacity.

Got it. One point of clarification, if I mya. So this 35-megawatt capacity that we went to, is just to support the existing backlog and depending on how large the order opportunity from POSCO is so you guys plan to revisit with what capacity needs to be like.

You are correct.

One last question for me then, guys. How do we think about your cost to revenue ratio in your existing backlog. Very nice steady progress there with down to 1.2 to 1 now so in your existing backlog, what that number looks like?

I think that number continues to improve Sanjay. As you know, the units are profitable on an individual basis. We're still working off a little bit of that legacy service cost that will continue to exist in 2011 and into 2012 but we should be driving as much closer 1 to 1.

Okay. That's great. Thanks a lot guys.

Our next question comes from the John Quealy of Canaccord Genuity. Please go ahead.

Good morning guys. It's Mark Segal for John. First, a housekeeping one, if I may. What was the megawatt number shipped in the quarter and then a little further detail on the backlog, the composition there? Can you talk about the total megawatt number and break down there between full systems and components?

Megawatt shipped in the quarter was 7 megawatts. If you look at product mix outside of service, it's almost evenly split now between the domestic market and what we're sending to POSCO. It's become much more to balance between those two.

Okay and then just on the existing backlog, do you have a megawatt number there and the split between systems and components?

33.5 megawatts would be the total and then the split would be modules and module kits would be about 17 megawatts of that.

Okay. Great. And then just a follow up on California, given the pick-up in order activity, just trying to get a sense of what the opportunity pipeline looks there. I know you guys have commented on it in the past and it certainly seems to be improving so can you give us a sense of magnitude of the scale of projects that you're looking at right now?

What's interesting is with the amount of natural gas that's comiNg to market, it's really given natural gas customers some visibility towards stable forward pricing. So even some of the projects that we've announced like the Rancho Water District are actually natural gas-fueled units. That combined with the pretty robust activity we continue to see on the wastewater treatment side is really making for nice mix in terms of the opportunities for us. If we look at 16 megawatts that we closed here in the last half of the year, most of that is California so it's not unreasonable to be thinking about California producing 20 plus megawatts a year going forward. The pipeline is clearly in place to support that.

That's great color. And then just lastly, how should we think about the cash burn going forward?

The cash burn, last year we were talking $10 million to $12 million and we ended up at $42 million so we were right on. As we move the production capability up, that should come down. For example as we move to say 50 megawatts, the cash flow should be something like $6 million to $8 million a quarter. You get to 70 megawatts, it should go down to $3 million to $4 million, $3 million to $5 million, so we can basically move the cash flow down. As orders come in, we'll also get incremental cash. In effect, we'll get some of the deposit, we'll get the profit at the front end so that will also put some early cash into play.

Okay and sense of capital layout to move let's just say, from 35 to 50 megawatts or whatever the next plan level of production might be?

It's minimal. We're really doing mostly maintenance capital at this point in time. Our projections are somewhere, to get to $50 million, would be somewhere $4 million to $5 million, somewhere in that. That's really mostly maintenance activities.

And that's included in the -- when we talk about the planned cash use for the quarter, it's included in those numbers.

Perfect, thanks a lot guys.

Our next question comes from Scott Reynolds of Stifel Nicolaus. Please go ahead.

Thanks for taking my question, guys. I might have missed this, but the long term service portion of the backlog, what's that number?

The long term service is $67 million.

Okay. And of the other part how should we think about that rolling off in the next 12 months?

Should be within the 12 months. So we basically can deliver in the nine to 12 month period.

All right. Sounds good. How should we think about OpEx on the next couple quarters? Seeing R&D down the last couple quarters, should we see that continuing?

No. It's basically within our range. I think for next year we're seeing a little bit of increase in both and admin and selling, we want to add some sell and capacity to that number. So that should increase a little bit and research and development is probably closer to what last quarter looked like --going forward basis so it's not a big changes in there.

All right, thanks.

Our next question comes from Walter Nasdeo of Ardour Capital. Please go ahead.

Thank you. Good morning. If we could just touch on the capacity question one more time. So you're going from 35 to 50 megawatts, which as I understand, 50 megawatts is your current capacity there.

Current capacity is 70 megawatts.

70 megawatts. So that's been increased. So then after we go from 70 megawatts and above that, that's -- and it will be more capital intensive on the expenditure side to increase that capacity. Am I correct?

You are correct.

Okay. Going from 35 to 50 megawatts, is that what your expectation is over the next coming quarters or is that next year's expectation?

That's our expectation for this fiscal year.

Very good. If I can just jump over to your hydrogen generation business, which I guess, is relatively new at least in the discussion. Can you give me some understanding of the process that's going to go on? I'm assuming it's from the internal generation and does that have any bearing on the efficiency of the system overall from the electricity side?

Sure. In terms of electricity efficiency, there's not much of a impact. Because if you look at how we're actually producing that hydrogen, we reform whatever fuel we're using whether it's biogas or natural gas within the fuel cell stack itself. We don't consume all of that hydrogen on the anode side of our product. There's literally some hydrogen left over. We've been using it in the process with a catalytic reaction to preheat fuel and water. In this process, what we would do is -- working with their products that hydrogen is contained in the anode gas would get separated and concentrated and be made available in a high purity stream for an industrial use or refueling.

So what you end up with is when you look at the total efficiency, where your electricity remains relatively constant, you look at the value of the hydrogen co-production stream and the value of the waste heat, you end up with a very high efficiency of combined energy that can be used starting from the biogas or natural gas that you're using as your fuel.

Interesting. What's an additional cost to package that together then?

We're in the demonstration phase with their products and as we work to actually make sure that the demonstration does what we need to do, we'll actually put forward what we think the commercial vision of this looks like. It would be just a little bit premature right now but based on the work that we have been doing under the DOE program and the targets that have been set for the value of hydrogen that we're producing, it looks to be a pretty economical and attractive way to produce distributed hydrogen for the marketplace.

Interesting. Speaking of demonstration units, is anything going on with the fuel cell turbine combination that you were working off of for a number of years?

It's really waiting for financing for the Connecticut Projects because the first megawatt-class version of that, is in one of the projects that was approved by the Connecticut Public Utility Commission. So as soon as those get further along in being able to get financed, we'll actually be doing that first megawatt scale. We had some discussions with POSCO last week around that also because there's certainly an interest for their marketplace in having a high efficiency product. One, because they've got high fuel cost but also because it really is a utility play in the Korean RPS. So we may explore some other alternatives, but right now our immediate path is to do it through the demonstration project in the Connecticut awards.

Okay, thank you very much.

You're welcome.

(Operator Instructions) Our next question comes from the Matthew Crews from Noble Financial. Please go ahead.

Thank you. Good morning. Thanks for taking my call. What was the LTSA revenue in the quarter?

It was around $2 million.

Okay. And just to be clear on the previous question, LTSA in the backlog was around $67 million. What was expected to burn-off in the next 12 months of that $67 million?

We would expect we have some units coming online, so we should be able to increase that over the $2 million quarterly number. So it probably grows to little bit over $3 million as you go during the year.

Of the product services total backlog that you gave, the $154 million, what are your expectations that are shippable in fiscal 2011?

Under a year, for the product side of that, it should be within our delivery plan. So it should be nine to 12 months for that.

That's good. Thank you. Lastly, just maybe some more details on the research on the smaller sized direct fuel cell. I'd be interested to assume that might be more in the 100 kilowatt to 150 kilowatt size range. Any more color there?

There's not a lot more we can say right now simply because POSCO has been waiting for some public announcements for the awards that they believe they're going to get under this program. But one of the things they went through in quite a bit of detail with us last week when they were here was, they view the RPS really as an early market opportunity. It really starts to drive volume for them. But as they look longer term, they really believe the building application is one that is every bit as important in terms of the volume and opportunity that's there because Korea in general is moving towards some requirements, both in government buildings and then eventually, in commercial buildings for the use of clean and renewable energy sources.

If you think about in heavily populated areas like Korea where most people live in apartment buildings, a lot of dense locations of office buildings, they think there's a tremendous market particularly as places like Seoul continue to grow and need to expand their infrastructure. So we were surprised that they viewed this building application as being every bit as important of an opportunity and every big of an opportunity as the RPS. So as a result, that's why they're actually going to spend their own money to fund the development of this. It's just really an interesting concept. It's one that we wouldn't have discovered on our own and based on the pretty detailed review they've done with us, it looks like they may have found a real winner in their marketplace that we certainly hadn't thought about.

Is that something that's applicable here in the States as well longer term?

Absolutely, it's a product that we're going to design that's going to be, just like all our other products, it's very standardized in terms of where it can be applied. So as we see volume coming from that Korean marketplace, as we look to other markets, like the US, like Europe, other in of Asia, it's a product that we can take there and address applications for buildings there as well.

Okay, thank you very much.

You're welcome.

I'm showing no further questions and would like to turn the call back over to management for any closing remarks.

We would just like to thank everybody for joining us and we look forward to updating you on our ramping plans and the additional orders that we're going to be adding to backlog in our future call. Thank you very much.

Ladies and gentlemen that does conclude today's conference. You may now disconnect and have a wonderful day.