燃料電池能源 (FCEL) 2011 Q2 法說會逐字稿

Good day, Ladies and Gentlemen, and welcome to the FuelCell Energy Report Second Quarter 2011 results conference. At this time all lines are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. (Operator Instructions) As a reminder this conference call is being recorded. I would now like to turn the conference over to your host today, Kurt Goddard, Vice President Investor Relations. Please begin.

Good morning and welcome to the Second Quarter 2011 earnings call for FuelCell Energy. Delivering remarks today will be Chip Bottone, President and Chief Executive Officer, and Joseph 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 2 hours after its conclusion. The telephone numbers for the replay are listed in the press release. Before proceeding with the call I would like to remind everyone that this call is being recorded and that the discussion today will contain forward-looking statements, including the Company's plans and expectations for the continuing development and commercialization of our 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 would like to turn the call over to Chip Bottone. Chip?

Thank you, Kurt. Good morning, everyone, and welcome. FuelCell Energy is entering an exciting phase as the pace of growth accelerates. Our FuelCell Power Plants providing solutions for our customers energy, environmental and business challenges worldwide. As energy demand grows, we are intensifying the globalization of our business and the penetration of our key markets. We are focused on driving top line revenue growth. Our products are performing well and are profitable, while product and services backlog is the highest in our Company's history. POSCO Power, our Korean partner, recently ordered 70 megawatts of fuel cell kits, equipment and services that we will deliver over a 2 year period.

Valued at $129 million, this order represents initial demand under South Korea's renewable portfolio standard. We increased our production levels during the second quarter to 56 megawatts annually and this large order from POSCO Power enables us to sustain these higher production levels. Service agreements executed with all of our customers are also contributing to revenue growth, as our install base grows and we move towards near-term profitability. I will discuss these and other results after Joe Mahler, our Chief Financial Officer, reviews our financial results for the quarter. Joe?

Thank you, Chip, and good morning, everyone. FuelCell Energy reported total revenues for the second quarter of 2011 of $28.6 million compared to $16.6 million in the same period last year. Product sales and revenues in the second quarter were $26.7 million, almost double the $13 million reported in the prior year quarter. The Company's product sales and service backlog totaled $135.5 million as of April 30 compared to $75.5 million as of April 30, 2010. For the second quarter of 2011, product order backlog totaled $60.4 million and backlog for long-term service agreements totaled $75.1 million. The POSCO Power order valued at an estimated $129 million almost doubles our back log to more than $250 million, the highest in Company history. In the quarter we incurred a one-time charge of $8.8 million due to a repair and upgrade program for select group of 1.2 megawatt fuel cell modules produced between 2007 and early 2009.

No additional charges are expected under this program and the cash impact will be spread out over 12 months with an expected cash impact of $3 million to $5 million during fiscal year 2011. The charge was accounted for as an increase to cost of goods sold. During the second quarter of 2011, the accounting classification of the Series 1 preferred shares was adjusted to reflect a change in the timing of payments due under the instrument. There was no material change in the future cash flows, although the revaluation of the instrument resulted in a one-time non-cash charge of $9 million to additional paid in capital. The reason for the change in the valuation of the obligation was that the original obligation had been accounted for under purchase price accounting at the time of the acquisition of Global Thermoelectric in 2003.

Under the new valuation under debt accounting, the future estimated cash flows were discounted using a dividend rate in the modified agreement and the current foreign exchange rate resulting in the adjustment. This accounting accelerates the prior accretion model to the instrument. My discussion of the financials from this point will exclude the repair and upgrade charge and the non-cash charge related to the Series 1 preferred. Please note that a non-GAAP reconciliation is included at the end of the earnings release that illustrates financial results for the second quarter of 2011 and year-to-date excluding the repair and upgrade charge and the charge to revalue the preferred shares. Margins for product sales and revenues improved by $4.1 million compared to the second quarter of 2010 and the product cost of revenue ratio improved to 1.08 to1, primarily from improved product margins and lower commissioning and warranty cost compared to the prior year period. This met our expectation.

Research and development contract revenue was $1.9 million for the second quarter of 2011 compared to $3.6 million for the second quarter of 2010, decreasing due to lower activity under the Department of Energy Solid Oxide FuelCell Development program. This program was extended in the quarter and $8.2 million was added to backlog. The Company's research and development backlog totaled $15.2 million as of April 30, 2011 compared to $9.9 million in the prior year. Net loss to common shareholders was $12 million compared to $16.7 million for the prior year. Turning to year-to-date operating results, for the 6 months ended April 30, 2011 the Company reported revenue of $56.7 million compared to $31.2 million for the prior year period. Product sales and revenues more than doubled at $52.4 million compared to $25.8 million for the prior year and corresponds to our increased production rates, which are now 56 megawatts annually.

Research and development contract revenue was $4.3 million compared to $5.4 million. Margins for product sales and revenues improved by $7 million compared to the prior year period and the product cost to revenue ratio improved to 1.08 to 1 from 1.44 to 1, primarily from increased revenue with higher product margins and lower commissioning and warranty costs. Total liquidity was $57 million at April 30, including total cash and investments in US Treasuries of $55 million and revolver availability of $2 million. Total cash used for the 6 months ended April 30, 2011 was $17.3 million, including revolver borrowings of $3 million compared to $21.1 million for the prior year, excluding net proceeds of $17.7 million from the registered direct offering of common stock in January 2011.

The payment terms for the recent POSCO Power order requires an initial down payment and a total of 40% of the order value by the time the first kits begin shipping in October 2011. With the closing of the order from POSCO Power in the third quarter, the Company expects full year cash use to be in the range of the previously stated $6 million to $8 million per quarter or $24 million to $32 million for the full year. Capital spending for the second quarter was $0.5 million and depreciation expense was $1.6 million. Our power plants are gross margin profitable on a unit basis. Higher product sales and service contracts combined with continued cost reductions will drive profitability. We continue to estimate that we can achieve Company profitability at an annual production rate of 80 to 90 megawatts. Chip?

Thank you, Joe. In our previous call we spoke of our strategic priorities, driving growth, operational excellence and customer satisfaction. Let's talk about driving growth in support of our mission, meeting the world's energy needs today. With more than 80 power plants generating ultra clean energy at more than 50 sites globally, FuelCell Energy is the market leader of megawatt class fuel cells for clean and renewable base load power generation. Including the recent order we received from POSCO, our installed base and backlog stands at a record 182 megawatts. Our worldwide business is growing because, as in South Korea, our direct fuel cell solutions excel at solving energy, environmental and business problems. Global demand for power is forecasted to increase 50% by 2025. Urban populations are increasing making central generation difficult to site and costly.

Global communities need more energy, but must mitigate the costs and adverse health effects of pollutants and greenhouse gas emissions. Our DFC Power Plants are ultra clean, efficient, reliable distributed generation solutions. They're high electrical efficiency results in more output for a given unit of fuel, reducing operating costs and emissions. Their low emissions profile virtually eliminates pollutants and helps customers reach their sustainability goals. DFC Power Plants provide power of use without additional investments in transmission & distribution. To dimensionalize our Power Plant growth potential we've analyzed our worldwide markets and quantified near-term and addressable market needs by country and by vertical market. We estimate the near-term global market potential for our solutions is $6 billion.

We sell to 2 primary markets, the first is ultra clean energy. Fuel cell's operating primarily on natural gas across 7 distinct and diversified vertical markets. These vertical markets account for 162 megawatts of our install base and backlog. The second primary market is renewable energy. Fuel cells operating on renewable biogas across 4 distinct and diversified vertical markets. 20 megawatts of our power plants operating on biogas are installed or in our backlog. As previously mentioned POSCO Power placed a large order with FuelCell Energy for 70 megawatts of fuel cell kits, equipment and services valued at $129 million. This was a true team effort by our FCE associates. The largest order ever received by our Company to date, it almost doubles our product and service backlog and illustrates the impact that far sighted legislation can have in driving the adoption of clean power generation, while promoting local economic growth.

This 2 year order calls for FuelCell Energy to deliver 2.8 megawatts of fuel cell kits to POSCO every month from October 2011 through October 2013. POSCO will use these kits to produce complete power plants at its facilities in South Korea. POSCO Power has made major commitments to fuel cells and its relationship with FuelCell Energy, including the construction of a balance of plant facility and a new module assemble facility designed for up to 100 megawatts of production annually. Under a license agreement with FuelCell Energy, POSCO will build fuel cell power plants at these facilities using our design and supplied components. This allows us to leverage our manufacturing capability, while supporting and benefiting from South Korea's green economic policies. In March, POSCO Power officially opened its new module assembly facility with a ribbon cutting ceremony, which I attended with the Chairman of POSCO, our partner's parent Company, the CEO of POSCO Power and South Korea's Vice Minister of Knowledge Economy, the equivalent of the US Secretary of Energy.

Historically South Korea has seized opportunities to create export driven economies with technologies like automobiles, electronics and household appliances. In a short period of time, POSCO has developed nearly 70 megawatts of projects in South Korea and is engaged in developing export market for fuel cells in Asia. POSCO's large multi-year order, along with the completion of their new facility, represents the next step in the evolution of our relationship. Our progress in South Korea is an excellent example of how the combination of strong market and a motivated local partner with significant resources can drive fuel cell adoption and revenue growth. The South Korean power generation model is focused on clean distributed generation that is scalable, efficient and creates jobs.

Scalable distributed generation allows power generation to be added in cost effective increments and the point of use, while minimizing costly investments in transmission & distribution. Efficiency drives economics by generating more power from a given unit of fuel. Fuel cells are an ideal distributed base load power solution for South Korea and other geographies as well, because they are ultra clean, efficient, quiet and easily sited in highly dense areas. South Korea's clean distributed generation model is designed to drive economic growth and create local jobs, which is a model that's [affably] globally. The outlook for project financing in the US continues to improve and we remain encouraged with the discussions we are having with financial institutions for project financing.

In Connecticut, we continue active discussions with financial institutions regarding the financing of the 43.5 megawatts of Department of Public Utility control approved projects. We are receiving strong project development interest and support from the State and have optimistic that we'll be able to close 1 or more of these projects soon. Currently most of our installations in California are in the growing renewable biogas market. Fuel cells are an ideal distributed generation solution for these markets, because they excel at converting waste problems into clean energy solutions. California leads the nation in the adoption of clean energy. Legislation was passed in April that increases the clean energy requirement of the State's renewable portfolio standard from 20% to 33%.

Our California markets are gaining critical mass as customers gain experience with our products and make repeat purchases or serve as business references. The new California administration continues to be supportive of clean and renewable energy distributed generation. The administration is developing plants that deploy 12,000 megawatts of distributed generation by 2020. We are participating in the process of determining the strategies to realize this goal. Globally there's growing appreciation for clean distributed base load generation. Power generation challenges in select areas of Asia and Europe illustrate the value proposition of direct fuel cells. Our globalization strategy is moving forward in Europe, as we continue our discussions with multiple perspective partners there.

Earlier this year we marked our entry into England when the Crown Estates ordered a DFC Power Plant for its quadrant 3 redevelopment project in Central London. Our advanced technology programs are focused on areas of research and technologies that have strong prospects for commercialization. During the second quarter, we received an $11.7 million award from the Department of Energy for Phase III of the Solid State Energy Conversion Alliance program, better known as the SECA program. We have also received 2 awards totaling $1.7 million under DOE program to demonstrate advanced biogas desulphurization technology that could lower operating cost per unit to running our renewable biogas. The Environmental Protection Agency awarded us a contract to evaluate our FuelCell Power Plants' ability to separate CO2 from industrial emissions.

In short, our power plants provide multiple value streams for our customers, ultra clean power, high quality useful heat, and hydrogen. CO2 separation would add a fourth value stream with a large market potential. Operational excellence is a foundation of our path to Company profitability. The cost per megawatt class products has been reduced by more than 60% since they were first commercialized in 2003 and our products are now profitable. Our cost ratio continues to improve and excluding the repair and upgrade program charge was 1.08 to 1 for the second quarter. Higher volumes will drive further cost reduction and expand sales opportunities within our markets. During 2010 we increased our production rate by 50% to 35 megawatts annually. We increased production another 60% again during our second quarter to 56 megawatts in response to increasing order flow.

This is another great accomplishment by our FCE associates. An added benefit of the recent POSCO order is our ability to plan level loading of the fuel cell kit production at our plant in the United States. This will yield manufacturing and supply chain efficiencies, helping to further reduce our costs. We have an ambitious but achievable vision, provide ultra clean efficient distributed generation base load power for less than the cost of grid delivered electricity without incentives. We have reached grid parity in certain high cost regions and we believe by continuing to focus on cost reduction with reasonable volume expectations we will be able to achieve parity with grid pricing in the near-term. At the same time that our cost per kilowatt hour of DFC FuelCell Power Plants is decreasing, the cost per kilowatt hour of centrally generated power is increasing, because of the need for additional investment in new capacity and transmission infrastructure.

Finally, customer satisfaction has and will continue to be a key driver of our install base growth, which has increased at the rate of over 40% annually over the last 4 years. A sizeable segment of our growing backlog is service agreements of up to 20 years in duration, which all of our customers have executed. As our customer base continues to grow, this will generate other additional and adjacent services giving us a large opportunity to build-out our service model and grow this revenue stream. Revenue from recurring services will smooth out quarter to quarter earnings, while generate additional profit margin. The pace of FuelCell Energy's growth is accelerating. We are globalizing our business, penetrating key markets, and focusing on top line revenue growth. Increasing at steady production volumes will allow us to achieve manufacturing supply chain efficiencies and organizational leverage. As new orders grow our product and service backlog increased revenue will lead to Company profitability. We thank you for your continued support. Operator, we would be happy to take questions at this time.

(Operator Instructions) Walter Nasdeo with Ardour Capital.

Chip, this is kind of a nice order for you to kick your tenure off there at the Head of FuelCell. I was wondering if it's possible for you to go ahead and kind of discuss a little bit with us what you're kind of global sales and marketing strategy is. You mentioned that you're going into global markets, but how are you planning on penetrating those, and what's going to be your focus for growth going forward?

Nice to talk to you again, and thank you for that. Yes, you started in Asia with the order for POSCO, so let me start there. Globally, POSCO has done a great job in Korea. We're working with them, obviously, now to continue the penetration within their own market, and they have several opportunities, but also to encourage them to focus on export opportunities as well, starting primarily with southeast Asia. We are having with them some discussions on perhaps what to do with Japan, and there's some other markets to penetrate, but clearly strong partner relationship building from where we are, is our solution in Asia.

In Europe, I mentioned in my comments that we are having discussions, Walter, with some potential partners right now, and I expect to have something soon. Again, the key strategy there is we need the right partner, much like POSCO has been the right partner, well capitalized, understands the power generation business and can really execute.

Back in the US, we're deploying more of a direct model. Activity so far has been, as you know, on the west coast in California and the east coast primarily in Connecticut. We had a pretty strong fourth quarter last year to carry over to the first quarter where we did almost 20 megawatts of new order business, which is a record for us in California last year. We're now building and shipping that, and I expect that that kind of number would continue going forward with our team out there.

And we are seeing the Connecticut projects -- I know people have heard this before, but some positive movement there, and I mentioned in my remarks that we should see some progress there. So I think that's the beginning of that. There's broader interest in the east, and that's kind of the path forward to kind of get to a sustainable run rate that gets us on a path of that 90 megawatts of profitability.

Great. Thank you very much. I appreciate it.

Thanks.

Sanjay Shrestha with Lazard Capital. Please go ahead with your question.

A couple of quick questions. First off, how should we think about the gross margin in your backlog right now for the product, as well as the consolidated gross margin from the cost to revenue perspective? What sort of an improvement are we going to see going forward because of that backlog and embedded profitability in that?

Yes, I think, Sanjay, this is Joe Mahler. I think the gross margin in the backlog is clearly positive.

Okay.

You should continue to see our cost ratio improve, as we push that volume through. Higher volume will reduce it even faster, so as we add more orders on top of this, that will actually accelerate the reduction of the cost ratio, and actually move us first to gross margin profitability and then at 80 megawatts to 90 megawatts to Company profitability.

And that 80-megawatt to 90-megawatt comment is really the scale benefit that you need to get that operating expense covered from a gross profitability standpoint?

Yes. That's full profitability for the Company.

Now, a few more follow-ups then if I may. So in terms of this charge that you guys took in this quarter, what exactly were they related to? And were they actually the products that you guys have shipped to POSCO in the past, and there's some tweaks you had to make, and then as part of the evolution of the Company and it is what it is. What exactly was that?

The charge is, in effect, we shipped units, and you're correct, Sanjay, that I think there were 16 modules in play and I think 14 of them were in Korea. And in the period of '07 to early '09, we shipped modules out into the marketplace, and there was a flaw in the design that effectively shortened the life. And what happened is we observed that, and then it was in our interest to immediately take action on that, and we actually worked a plan -- POSCO had most of the modules, so we worked a plan with POSCO to solve that situation. That situation only exists in those modules. It doesn't affect a later module version, which we call our C 1400. It does not affect that, and it did not affect any of the sub-megawatts.

So as you said, Sanjay, it's just one of those things, it was what it was, or it is what it is, but that's the action we took, and we worked very closely with POSCO and POSCO worked with us very aggressively on this program. And the other aspect of the program is that we are able, once we saw the issue, if you capture it early in the life, you actually retain a lot of the life of the original modules.

Perfect. I have a few more questions if I can actually. So the fact that there is such a big repeat order from POSCO clearly should be viewed that this issue is now completely behind the Company, right?

Absolutely.

Okay, 2 more.

They wouldn't have spent $130 million more, Sanjay. I mean, I sat with them face to face with the Chairman, and he said -- look, we understand these things come up and we'll go from -- we're moving forward. So they fully are on board, yes.

That's exactly what I was trying to get at. So market questions if I may. So, Chip, when you talk about project financing activity getting better for this already approved Connecticut project, can you go into some more detail on that as to what type of entities you're talking to, because in the past it was a potential concern surrounding the stack replacement after 5 years and --. So can you talk about that a little bit more? And second part of my question is now with this big order from Korea, is it one of those where South Korea is at least a 70 megawatt to 100 megawatt kind of an annual opportunity for you guys going forward?

Okay, let me answer the financing question first. What's different? I think we're seeing, particularly in Connecticut, we're seeing some of the smaller, more regional banks in terms of the debt side. We're also seeing, Sanjay, some more reasonable attractive terms. Both the expectation on returns, I wouldn't say it's lower, but I would say the cost of money and the kind of risk/return profile is certainly improved to be much more attractive both for the lender and for us frankly. So I think maybe that's just time healing the markets in general, or I think the other thing is, if you look at our backlog and all those other positive things people are saying -- okay, you guys are going to be here.

As far as the different instruments, we've also seen that change a little bit. We were looking at -- some people have put 100% equity in these deals. Some people have a mix of debt and equity. Some of the debt is tax free bonds, like in California. So we're seeing also some creative -- creative is probably the wrong word, but some new instruments that I think have been helpful to attract both the lenders and the equity folks. So, I think maybe that's a little bit post-2008 financial crisis, but I think it's also, we've been here longer now. We have more products out in the field, and people's confidence level is growing.

And in terms of South Korea?

As far as POSCO's opportunity, that's a great question. Certainly, we've made public that the RPS numbers are 6,000 megawatts in total over roughly a 10-year period, and POSCO is starting, obviously, with addressing the RPS needs with basically 2 orders, 70 megawatts is roughly 35 megawatts a year. They expect, we expect that number to grow. We can support them in doing that in the same method.

As we've mentioned, their facilities are built for 100 megawatts themselves, both for balance of plant and module assembly, but they are also looking at other things. We have some other development programs with them for other projects. So they're all-in with the technology of FuelCell's powering not just power generation but other things as well. So I think the export piece also represents upside, but I don't want to get too far ahead of ourselves. We're focusing on what we're doing right now, and continuing to support other efforts.

Great. Thank you so much, guys, and congratulations on this great announcement.

(Operator Instructions) Matthew Crews with Nobel Financial.

Wanted to talk maybe just a minute about the pipeline both in California, we've already discussed Connecticut here, but also in South Korea. Could you describe what you have in near-term visibility in the pipeline in California? That would be part 1 of the question.

Yes. We have about 130, we look at our pipeline every month or more, but we have about 130 megawatts just in California alone in what we call our pipeline. But I bring people back to the fact that we did, over the last probably 6 to 9 months, we've done about 20 megawatts in California, which from a go-forward basis, 20 megawatts, 30 megawatts a year is a good number in California. Even with that backlog, there's a certain maturity period and things like that in execution, Matt, to get that stuff over the line. So I think that's still there. There's been a new administration, which has been positive in terms of direction on things that obviously we're in favor of, but any new administration comes in and says -- I have to put my stamp on things.

So we've had a little bit of slowdown in terms of conversion just due to some changing rules. The direction doesn't change. The incentives might move around a little bit, but directionally it's the same path. And then I would say that we still continue to work on, beyond the current tools that we have, SGIP and others, things like the feed-in tariffs and things like that. I was just out in California last month, and some of these things have been on the table a while, but that's kind of the process, but I'd expect that we're on the back end of that tail rather than the front or the earlier end that we were in the past couple years.

And on South Korea, I think there's been discussion, or at least in some type of reports out there of size of power plants up to 60 megawatts in size. So we've seen folks talk about the 20-megawatt power plant sizes, but in terms of POSCO's 30-megawatt annual order flow from you guys, and comparing that to what the size of the plants are out there, I'm just curious on the pipeline that POSCO's made available to you to discuss, or what you see there in terms of what types of plants or how many plants they're looking to build out.

Yes, it's a good question. I'll give you a little more clarity on that. The largest power plant that we have under construction, and it probably started in this year, is 11 megawatts that happens to be in Korea, but we are seeing bigger and bigger plants. Here in the US alone we have one for 15 megawatts, and POSCO is talking about 11 megawatts and 20 megawatt plants. They do that for lots of different reasons. Scale reasons, they're trying to power bigger blocks of growth in highly densely populated areas and things like that. POSCO has signed a number of memorandums of understanding with both local utilities and independent power producers in the country, probably between 60 megawatts and 80 megawatts of different contracts, and that obviously changes every week.

So there's clearly interest. There's clearly belief that they have to do this, and frankly, as the RPS in Korea comes to fruition really in 2012, where they start to hit some of these objectives, there's really not too many other solutions people can do because all of these projects take a long time to site and get permitting for. So they have a pretty active pipeline. We're in touch with some of their customers. We understand that from a return on equity perspective and things like that, these projects work. So it's a question, I think, of just starting to execute some of these projects as they've teed them up.

And the base -- would one look at the POSCO Power order of 30-megawatt size annual as a base that they could come back to you in 6 to 9 months and say -- listen, that might have been a little low. We need to do a follow-on order? Is that type of --?

Yes, that door is open, frankly. I mean, our operations guys have done a great job in increasing, over a fairly short period of time, our run rate. So I think we can react fairly quickly to these guys, and I think we've laid that out for them as well. And bear in mind that this RPS, which is what we have these orders for, is just 1 piece of what they're working on. There's building application, program we're working on, and they're talking about other things as well. There's all exports, so I don't want to try to guarantee anything, but certainly they're aggressively pursuing things beyond the order they gave us, which is really just to support the RPS.

Okay, thank you very much. And just 1 last question for Joe. There was a comment in the release regarding cash collection and the timing of order closure. Could you give a little more detail on what order, or where that order was going, or the revenue associated with it?

Yes, in the comments that I just talked to, Matt, I talked to the POSCO order.

Okay.

So in the last 2 calls, we've been talking about $6 million to $8 million quarterly cash burn, and that was our, in effect, our guidance for the year. And what happens with the POSCO order, the POSCO order is loaded on the front end for working capital, so we get about 40% of the order value before October 31. That brings us right back in line with that guidance, so on an annual basis, our cash will be somewhere between $24 million and $32 million is our current estimate.

So that's what that [room] is regarding. Okay, thank you very much.

Okay.

(Operator Instructions) Stephen Ottridge with BMO.

The POSCO orders, are any of them going to be used for biogas applications in the next while?

This is Chip. Potentially. We shipped them kits. The balance of plant portion of the overall plant is modified if you do biogas slightly. It's modified slightly, if you do biogas versus natural gas. So potentially, some of that could actually be done. I don't know off the top of my head if they have any orders specifically for that, but certainly they have installations in biogas right now, and so some of those 2-year order there, it's 70 megawatts, that certainly could be earmarked for biogas applications.

Okay. The other question I have for you, you have improved sealants now for your direct fuel cells. Can those sealants get used in the [solid] oxide area that you're working on with Versa?

In theory, yes. It's a different design. Probably can't go into those details here, but if you look at the molten carbon that we have cell stacks and 400 cells stacked high and they're a certain width. With solid oxide it's a little different design, whereas you don't have as wide a cell stack, so perhaps it could be. We've had good results so far with our solid oxide program, but really where that comes into play I think is when you start to scale it up from where it is now in 15 or so kilowatts into 60 kilowatts and beyond. Good learnings to have, you're exactly right.

And when could we expect to see real revenues come from solid oxide fuel cells for you? I mean Bloom Energy is out there proudly marketing something now.

Yes, I mean right now our revenue comes from the R&D portion of our solid oxide program. We have a design that is different from Bloom's. We do both heat and power. Our folks would argue that it's a generation or 2 ahead of theirs, and of course, so that's going to be several years for us to basically have a product in the range that would be for commercial operation.

Thanks very much.

I'd like to turn it back over for closing comments. I'm not showing any other questions in the queue.

Well, if there's no further questions, let me thank everybody for joining today. Thank you for your support, and we look forward to talking to you on the next call for the third-quarter results. Have a great day. Thank you.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the conference. You may now disconnect. Good day.