燃料電池能源 (FCEL) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the FuelCell Energy fourth quarter and fiscal year conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Kurt Goddard, Vice President of Investor Relations.

Good morning, and welcome to the fourth quarter 2011 earnings call for FuelCell Energy. Delivering remarks today will be Chip Bottone, President and Chief Executive Officer; and Mike Bishop, 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 the call this morning, 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 FuelCell 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. Fiscal year 2011 was a year of growth for our Company. We earned record revenues and generated gross profits during the third and fourth quarters, the first since commercializing our products. We successfully managed a significant production increase and are executing on our backlog. Credit for this achievements goes to our talented team of associates and their dedication to our vision, which is to provide ultra clean, efficient distributed generation base load power for less than the cost of grid-delivered electricity. I will review our business and update you on our execution of our strategic initiatives in greater detail after Mike Bishop, our Chief Financial Officer, reviews our financial results for the quarter. Mike?

Thank you, Chip. Good morning, and thank you for joining our call today. FuelCell Energy reported total revenues for the fourth quarter of 2011 of $34.7 million, compared to $19.7 million in the same period last year. Product sales and revenues for the fourth quarter were $33.3 million, compared to $17.2 million reported in the prior year. This is a 94% increase in quarterly product revenue and a record for the Company.

The Company's product sales and service backlog totaled $210 million as of October 31, 2011, compared to $154 million at the end of the prior year. The components of this backlog include product orders of $132 million, service agreement backlog of $78 million. We plan to deliver product backlog for October 2013. We generated gross profit from product sales in the fourth quarter of 2011. This is our second consecutive quarterly gross profit, resulting from increased production values and lower product costs.

Margins for product sales and revenues improved by $4.3 million, compared to the fourth quarter of 2010, and the product cost to revenue ratio improved to 0.98 to 1. Research and development contract revenue was $1.4 million for the fourth quarter of 2011, compared to $2.5 million in the prior year. The Company's research and development backlog totaled $15.8 million as of October 31, 2011, and increased compared to the $9.7 million reported in the prior year. Net loss to common shareholders for the fourth quarter decreased to $7.9 million or $0.06 for basic and diluted share, compared to $12.9 million or $0.11 per basic and diluted share in the fourth quarter of 2010. This improvement is due to increased revenues and improved product margins.

Turning to the full year, my discussion of results will exclude the charges related to the prepare and upgrade program and the revaluation of the series 1 preferred shares recorded during fiscal 2011. Please note there is a non-GAAP reconciliation included at the end of the earnings release, which illustrates financial results, excluding these items. For the fiscal year, the Company reported total revenue of $122.6 million, up 76% compared to total revenue of $59.8 million in 2010. Product sales and revenues were $115.1 million, compared to $59.2 million in the prior year, and R&D contract revenue was $7.5 million, compared to $10.6 million in fiscal '10. Margins for product sales and revenues improved by $14.9 million compared to the prior year period, and the product cost to revenue ratio improved to 1.03 to 1 on cost reductions, including better labor efficiency and improved overhead absorption from higher production rates. Net loss to common shareholders for the fiscal year was $40.6 million or $0.33 per basic and diluted share, compared to $58.9 million or $0.63 for basic and diluted share for fiscal 2010.

Total liquidity was $64.4 million at October 31, 2011, including cash and investments in US treasuries of $63.4 million and revolver availability of $1 million. Net cash, cash equivalents, and investments generated in the fourth quarter of 2011 was $13.9 million. Cash flows from operations totaled $9.5 million, reflecting strong milestone payments from contracts and backlogs. We used $2.2 million of cash on capital expenditures in the quarter and generated $6.6 million from financing activities. Total net cash used for fiscal 2011 was $21.6 million and compares very favorably to total cash used of $42.4 million in fiscal 2010. These totals exclude net proceeds from underwritten common stock offerings and revolver borrowings. We had previously forecasted total cash use of $24 million to $32 million for fiscal '11. Improved operating leverage from higher volumes drove the variable variance to our prior forecast.

Our earnings release contains forward-looking 2012 financial guidance. Based on a projected annual run rate of 56 megawatts, we forecast product sales and revenues in the range of $31 million to $34 million per quarter. Fiscal 2012 operating cash use, based on the current production run rate and projected order flow, is forecasted to be approximately $17 million to $22 million. Cash used on financing activities include approximately $7 million to $8 million of scheduled cash payments to preferred stockholders, the majority of which will incur in the first half of 2012. Capital expenditures are estimated to be $3 million to $5 million for the fiscal year.

As a Company, we are executing on our strategic initiatives. Our financial statements reflect very favorable trends over the prior year, as we grew revenues and reduced product and operating costs. We are focused on top line revenue growth, driving down costs, expanding margins, and reaching profitability. Chip?

Thank you, Mike. Our business strategy is to expand in 11 distinct vertical markets we have identified and penetrate key geographic markets while we continue to reduce our product costs. We estimate the near-term global potential for our products at more than $6 billion, plus an additional $6 billion potential for services. Our install base and backlog received 180 megawatts, illustrating our momentum. Top line revenue growth remains our focus.

We have an attractive business model that we can replicate globally. Our business model features multiple revenue streams and a growing install base, this driving future service revenue. We are creating permanent jobs both in the US and abroad that are tied to local demand, attracting the interest of governments seeking to realize the benefits of distributed base load power generation, while simultaneously creating sustainable jobs.

Our Direct FuelCell Power Plants are ultra clean, efficient, and reliable distributed generation solutions. Their high electrical efficiency results in more output for a given unit of fuel, reducing operating costs and emissions. Their emissions profile virtually eliminates pollutants and helps customers reach their sustainability goals. Our Power Plants generate electricity at the point of use, avoiding additional investments in transmission and distribution. Our worldwide global business is growing because our Direct FuelCell solutions itself is solving energy, environmental, and business problems.

Our three strategic priorities to achieve our vision are driving growth, operational excellence, and customer satisfaction. Let's review our progress on these initiatives. Sustained focus on driving growth is generating new business and building momentum in South Korea and the US and is propelling us into new markets in Southeast Asia, Europe, and Latin America. Global expansion in select markets is an essential component of our strategy to generate volume. Our growing volume reduces costs, generates cash, and accelerates our progress towards Company profitability. Sufficient volume will allow us to achieve our vision of pricing below the cost of grid-delivered electricity. Our pipeline-qualified projects is approximately 345 megawatts, including 170 megawatts in the US, 130 megawatts from South Korea and Southeast Asia, and 45 megawatts from Europe.

We are focused on operational excellence, which we define as making continuous improvements in every aspect of our business. This focus is enabling us to solidly execute on the production of our product sales and service backlog, while continuing to produce product costs and improved margins. Our team of associates has worked hard to more than double our production to 46 megawatts produced, compared to 22 megawatts produced in fiscal year 2010, demonstrating that we can respond to increasing order flow and effectively manage our supply chain. We remain on track to achieve Company profitability at 80 or 90 megawatts of annual production. As we ramp production levels, we are ending direct labor with about 60 associates hired in 2011 from the production line. Other than direct labor, there are minimal fixed costs, as we ramp production towards our existing capacity level.

Our focus on customer service supports our revenue growth through long-term service agreements, and we execute with our customers and through additional adjacent services, such as installation services. During the last several months, we have installed DFC Power Plants at eight locations in the US, and they are now either operating or undergoing commissioning. During this time, POSCO Power has installed DFC Power Plants at two locations in South Korea, totalling more than 11 megawatts. In total, our install base has grown by 17% with these recent installations. And over the past five years, the combination of install base and backlog has grown at a compound annual growth rate of 48%. With our growing install base, the advantages of FuelCell solutions are becoming more widely recognized, contributed to growing momentum in key markets.

Now, let's turn to those markets. In Connecticut, Greenwood Energy, a renewal energy investor, placed an order for a 1.4-megawatt DFC1500 Power Plant on a turnkey basis in Central Connecticut State University. Greenwood is a North American renewable energy division of Libra Group, a global conglomerate. Greenwood will sell the ultra clean electricity and steam generated by the power plants at the university under a long-term power purchase agreement. We will maintain the plant under a multi-year service agreement. This turnkey project is our first with Greenwood Energy. Like many investors, Greenwood is seeking renewable energy and investment opportunities and was impressed with the economics of our power plant.

Products like this are coming to fruition because our power plant projects offer attractive economics, and we have built a track record as a solid, reliable partner that delivers on our commitments. This order was closed in September, and we are on track for the power plant to be producing power by the end of 2011. This project required rapid engineering and installation completion to meet the year-end deadlines, and based on our years of installation experience, we were able to deliver to meet our customer's requirements. Investors are attracted to the credit profile of universities and their consistent need for base load power. FuelCell Power Plants help universities reduce operating expenses, meet their sustainability goals, as well as provide secure and reliable on-site power, with little, if any of their own investment capital. Our power plant's modest footprint and quiet operation make them practical to site on the campus. Central Connecticut is our eighth university project domestically.

The high efficiency of our DFC Power Plants helps universities and other customers in vertical markets to reduce their energy costs. When configured with combined heat and power or CHP operation, the high quality heat generated by our FuelCell Power Plants can be used for heating and cooling purposes. This lessens dependence on combustion-based boilers, produces CO2 emissions, and virtually eliminates pollutants like NOx and SOX. Use of our products in CHP can yield system efficiencies up to 90%. The economics of this whole high-profile FuelCell installation is good for the state of Connecticut. This project is appropriately sized and financed with Provident Capital. Officials have expressed interest in siting FuelCell Power Plants at other campuses within the Connecticut State University system. This type of investor-owned project sited at the university is a model that is replicable in other states and countries.

We currently announced a new partnership with Abengoa, a multi-national company based in Spain that is focused on applied energy and environmental technologies. Abengoa possesses both FuelCell experience and marketing resources in Europe and Latin America. Our partnership is targeted at developing renewable biogas and liquid biofuel opportunities in these markets, and we see strong prospects for expansion. Under the terms of our agreement, Abengoa will develop, manufacture, and market stationery FuelCell Power Plants using proprietary FuelCell modules provided by us for the sale in Europe and Latin America. The pilot DFC Power Plant will be installed at Abengoa's headquarters in Spain and will incorporate a 300-kilowatt Direct FuelCell module supplied by us and the balance of the plant produced by Abengoa. Our partner will use its biofuels experience to develop a fuel processing system that will allow FuelCell Power Plants to operate using liquid biofuels. Markets in Spain, Brazil, and Mexico are particularly attractive.

Our partnership is part of an overarching expansion strategy and includes key elements of our localization strategy, under which our partners assemble completed power plants from proprietary components supplied by us using balance of plant they manufacture. We control our intellectual property by leveraging our manufacturing capacity and reducing shipping costs. This flexible business model can be replicated with multiple partners in many regions. This partnership is a significant step forward as we execute our European strategy. Europe is a collection of economies with different needs, assets, and drivers of value that we feel is presently under served, relative to clean and renewable base load distributed generation. Our strategy involves more than one partner to develop and grow the FuelCell market in Europe, and we continue to pursue other opportunities in the marketplace for clean base load distributed generation. We are in advanced discussion with other prospective partners in Europe and expect to announce more progress.

Our partnership with POSCO Power in South Korea is an excellent example of the strength of our business model. Under a licensing agreement with us, POSCO assembles complete power plants, using FuelCell components produced by us and our proprietary balance of plant design. Since 2007, POSCO has ordered 140 megawatts of our products and has begun to expand in Asia as they work to develop an export market from South Korea. Last month, we announced the commissioning of the world's largest FuelCell park at Daegu City, South Korea. The 11.2-megawatt project includes four scalable 2.8-megawatt DFC3000 Power Plants. POSCO sold these to Cobalt Sky, an investment and energy consulting firm, and installed them in an urban location. Under long-term power purchase agreements, electricity will be sold to Korea Electric Power Company, and the heat will be sold to the local municipality for their wastewater treatment facility.

This showcase project demonstrates utility scale, grid support in an urban location. We are seeing a trend towards larger power plants and larger installations, because the economics of these projects improve with scale. In September, we announced expansion into Indonesia with POSCO's purchase of a sub-megawatt DFC module for installation in Jakarta. POSCO will combine the FuelCell module with manufactured balance of plant and will install the complete power plant. POSCO has opened a sales and service facility in Indonesia to support further growth in Indonesia and other southeast Asian markets such as Thailand, Malaysia, and Singapore. Working with POSCO, we developed 100-kilowatt FuelCell Power Plant for the commercial buildings market, a large and attractive market driven by South Korean energy policy. Two demonstration units have been built for installation at Seoul City. The first is undergoing commissioning, and the second is being installed.

We continue to increase our penetration in California markets, particularly in utility, municipal wastewater treatment, and government segments. The number of dedication ceremonies mark the commissioning of our power plants. In 2010, Pacific Gas & Electric, who are the largest utility companies in the US, ordered 2 DFC1500 Power Plants for installation at two California universities. Both of these power plants are now operational. Three power plants that comprise our first directed biogas project, one DFC3000, one DFC1500, and one DFC300, are undergoing commissioning in the San Diego area. Finally, two DFC300s began operating for repeat customer at Eastern Municipal Water District, and one DSC300 began operating at US Army's Camp Parks.

Public policy to accelerate FuelCell deployment saw a great deal of progress in recent months. The California Public Utilities Commission updated the SGIP program and implemented a combined heat and power feed-in tariff program. The SGIP provides incentives for both clean natural gas and renewable biogas applications and has been shifted to a performance-based incentive, which we support. The California Public Utilities Commission also recently enacted a long-awaited feed-in tariff for CHP applications, providing on-site power for up to 20 megawatts in size. Under the feed-in tariff, excess electricity not used on site can be sold to the grid at a price set by the CPUC called the market price referent, or MPR, as long as the heat is used on-site. The feed-in tariff will improve the economics of FuelCell projects.

Our advantage technology programs are focused on three strategic areas that have strong prospects for commercialization within a reasonable timeframe -- carbon capture, hydrogen, and solid oxide fuel cell technology. These programs, funded in part by the R&D contracts, allow us to leverage our core technology by identifying future markets for existing products and designing cost effective solutions. During the fourth quarter, we received two new contract awards from the Department of Energy, totalling $4 million. One contract involves use of our Direct FuelCell technology to separate CO2 from coal-fired power plant emissions, which we refer to as carbon capture. The other involves the development of solid-state electromechanical hydrogen separation and compression technologies, which helps to enable hydrogen infrastructure for vehicle fueling or industrial gases.

Our progress has positioned us well, as we continue to aggressively expand and globalize our business. We are executing on our strategy. We improved our balance sheet and generated record revenues for the quarter, as well as gross profit for the second consecutive quarter, and announced global expansion into Southeast Asia and Europe with strong partners. With profitable products and growing margins, additional order volume is propelling us to Company profitability. I want to thank our talented associates for making excellent progress and our investors for their confidence in us. Thank you for your support. Operator, we'll be happy to take questions at this time.

Thank you. (Operator Instructions) Walter Nasdeo with Ardour Capital.

I would like to touch on a couple of things. For my own clarity, can you kind of explain to me again the rationale about bringing -- going back down and building the 100-kilowatt systems over there, when earlier in your presentation shift you mentioned that with scale, margins get much better, and that's kind of what we've been looking for all along. So can you kind of walk through the economics of that for me, please?

Yes, Walter, that's a great question. The thing drive -- there's no question you're seeing it in the margins and such, that we're seeing bigger and bigger plants, and we're basically taking our standard product and shipping it into those multi-megawatt plants. We're also seeing other applications that perhaps are not as focused on the price of a project as they are compliance, Walter. And where those other drivers are available, we are willing to consider opportunities there. Korea is unique in regard to some of the policy they put in place to drive that compliance. So obviously, the price levels for that compliance facilitate being able to make some money on those kind of projects, even though they are smaller scale.

The way we actually did the 100 kilowatt, Walter, is we basically took our normal stack, and if it's got 400 cells in it, we basically cut it down. So we're still using our same manufacturing process, things like that. So we're getting scale from the fact that we're just building on what we do for our larger power plants. But it's purely driven by basically what policy that POSCO put in place and the price points and, frankly, the value that it can produce for their clients.

Okay, good. That clears it up for me. Thanks. And then also, just on the scalability of your capacity up in Torrington, kind of working on that 56 megawatt a year capacity. What's it going to take to get that to 100, 150, or as you move on, kind of incrementally increase that match, the demand that POSCO is expecting going forward?

Yes, so within the existing infrastructure, as I said before, I think I used the word existing, we can do 90 megawatts. There's really three things that have to happen for us to be able to execute on that. We need to spend about $1.5 million to $2 million of capital, just on some improvements in process and some equipment. The second thing, obviously, is we need to ramp up the supply chain, which we can do. We doubled our capacity, as you know, from 2010 to '11, going from roughly 20-some megawatts to 46 on an annual basis.

And the last is direct labor. And they kind of come -- the first one takes us 12 months or so to do. The supply chain is shorter, and then direct labor is even shorter. So, it's really very little capital. It's more variable costs, where we just add on an incremental basis.

Okay. And then just kind of off of that, how much forewarning will POSCO give you on their ramp-up? Will they give you a three quarter out kind of look and say, hey, it's time to start ramping this up?

Walter, we are as close -- we're closer to POSCO on a strategic level and, if you will, an order flow forecasting level than ever before. We have strategic meetings with those guys, and we really -- the reason for the two-year order that we got earlier in the year was for that kind of thinking. We want to be ahead of the curve, because they are out there creating demand, and we don't want to obviously starve that demand that they create. So I would say we're very, very well aligned. In fact, we have continuing meetings with those guys on some other things, because there's a substantial market that we thought would be developing and frankly is developing, not just in Korea, but some other opportunities. So I think we'll be -- with the dialogue with have with them and the triggers we need to have to execute on a higher volume, I think we're well positioned to, if it's there, we'll get it.

Okay. Thanks a lot. I appreciate it, guys.

Sanjay Shrestha with Lazard Capital.

Thank you. Good morning, guys. So first, kind of a follow-up on Walter's question. So when we think about going from 56 megawatt to this 80 to 90 megawatt of annual production that's going to get the Company to that overall profitability, right. So, what are sort of some of the things that's going to get us there? Is this -- and how are you guys thinking about it, right? Is it more coming from POSCO and now with Abengoa in the mix, does the Connecticut has to happen. So how are you thinking about that in terms of, okay, here are the three or four criteria that we need to see, and we should really go ahead and get to that 90-megawatt kind of annual production run rate?

Yes, Sanjay, this is Chip. Good morning. Thank you for joining. We kind of stratify our demand in kind of three ways. One is because we have seen visibility obviously, too, as I mentioned to Walter. POSCO's demand, then there's other demand, and then there's our service demand, because obviously we're fulfilling service requirements to our long-term service contracts. So it's key. We've been doing this now for a good 12, 18 months, meeting with POSCO to make sure we understand that business. As I said to Walter, that's what resulted in our 35 megawatt basically a year base load business. The way their business is going, we're providing some opportunity for them to fill the gaps beyond that 35 megawatts, number one.

Number two, all these other opportunities, be it the US, be it in Europe what we're doing, are going to be the capacity we have to basically fulfill, if you will, call it 35 other megawatts. So as we see, we've got this flexible manufacturing model. I think Tony and the guys have done a pretty good job within reason of being able to ramp up not just production but the supply chain and maintain our quality standards and such. But we've got that flexibility built in. So we can flex up to a higher number, given, like I said, that capital investment of a couple million bucks. So we're looking at things, not just for 12 months, but frankly we're looking at things for 24, 36 months as well. As we see that demand start to come, we'll ramp up and make that commitment, which is not a significant commitment in terms of capital, as I mentioned.

Okay, okay. Now, in terms of your sort of expectation over the next 12 to 24 months with the new European partner now, have you guys sort of talked about what is the potential size of that market for the bioenergy and how you sort of see the market gradually ramp up? And when can we really potentially start to see some sizable order like the ramp-up that we saw with POSCO? What's the general expectation there?

Yes, as I mentioned, we're going to have -- I think Europe is a little different than what POSCO is doing. Don't forget, right now they started in South Korea, and they are expanding outside of that. But the plan in Europe is that multiple partners to drive that growth. And like I said in the comments, I think there's a -- it's an attractive market that has been underutilized. I have spent a great deal of time there in the last few months talking to both individual customers, as well as government folks, and we're working very closely with what they have in place to try to capture as quickly as we can some new incremental volume for us. So I think you'll see some more news here that talks about multiple people that we'll be using to fill that capacity that we have.

Okay, okay. Two final questions for me then, guys. So in terms of your R&D line, given sort of that $15.8 million in your -- sort of the R&D contract backlog, how far does that go? First question, and I have one more.

Hi, Sanjay, it's Mike. Most of the R&D backlog will come through in 2012. We would probably be in the range of $10-plus million for R&D in 2012.

Got it. So I'm reading this sort of comment today about the Connecticut IOU submitting plan to have some pretty attractive renewable energy credits for solar and FuelCell. So that brings me to my question about your pending opportunity in Connecticut. Can you give us an update on that?

Yes, I can, Sanjay. In the past, and we're still working on some of those projects, there was engagement with the utilities. And for all the right reasons, both the attractiveness of the project and some of the more local-driven decisions, they are interested in that. But the new legislation that came out earlier in the year and will take effect the first of January provides kind of a double program. One, there's a provision for the utilities themselves to own generating assets, which they haven't had the ability to do, up to a certain amount of megawatts, and there's some rules to that. And they are keying to maximize that and frankly go ask for some more, based on that being successful. In addition to, there's a $300 million program that applies to FuelCell as well, where by it's a rec-based program, a fixed price rec-based program which they can participate in.

There is three different shots that the utilities are looking at. One is the existing Connecticut 150 projects. Two is this new asset ownership program. And the third one is the -- where we use the recs basically that applies to them as well. So, I think they are seeing this as an opportunity. It's taken a little bit longer, frankly, because this is not something that they have done a lot of. But I can tell you that we're in active discussion with them, and there's certainly interest on their part to execute on these agreements.

Okay, so what would you say is the biggest sort of sticking point before at least a single deal happens that sort of sets the blueprint for other multiple deals to happen?

The weather, the storm in October set these guys back a little bit, Sanjay, in some of their dealings, because they had to use resources of different functions to deal with that. But now it's a question of just structuring these things. And it's a little different kind of structure than they are used to. So I just think it takes time for them to go through their processes. In some cases, there might be multiple partners on that, so you have to structure some of these things so that somebody takes this amount of the tax benefit if that applies to a project and so on and so forth. I think it's working through the mechanics.

Fair enough. Thank you so much, guys.

Thanks.

(Operator Instructions). And next in line, we have John Quealy with Canaccord Genuity.

Hi, good morning. It is Mark Segal for John. My first question, how many megawatts did you guys ship in the quarter? And also, how many of those megawatts went to POSCO? And as a corollary to that, can you just give the backlog breakdown in megawatts, perhaps multi-megawatt scale, sub-megawatt scale, and what percentage or what megawatt number of that backlog is POSCO-related?

Sure. Hi, Mark. It's Mike Bishop.

Hi.

Just to start with where we are at the end of the quarter, total megawatts at the end of the quarter is about 73 megawatts in backlog. During the quarter, we shipped 7.3 megawatts. Of that 7.3 megawatts, about 2.8 megawatts went to POSCO. If you look at the profile backlog right now, it's largely weighted to POSCO kits. It's about 67 megawatts of POSCO kits, about 4 megawatts of DFC1500, and about 2 megawatts of sub-megawatts, DFC300.

Okay, great. And then just as a follow-up, you guys talked about a fairly sizable pipeline. I think it was north of 300 megawatts, and divided that into US, Asia, and Europe. Can you talk about, from potential timeline, what markets lead that? I'm assuming Asia and the US, perhaps Europe comes after that. And can you talk about over what time -- time frame is that 300-plus megawatt opportunity? Is that a 5-year, a 10-year opportunity? Just how you're thinking about that.

Mark, this is Chip. Yes, I'll give it to you in round numbers. I mean, just kind of where the activity's most active, I would say is, as you said, it's Asia followed by the US and followed by Europe. When we talk about a pipeline, it's our expectation, not every one of those projects obviously will come to close in a fixed period of time, because that's just -- you don't hit a home run on every single one of them. But those are all things that are in a two to three-year time horizon, or maybe less. So it could be anywhere from next week to two or three years out. That's kind of how we do project development.

So our selling cycle, like I said on this Connecticut project we did, was fairly short. And we've got capacity around us to react to some of those cases, which obviously would boost the revenue. But typically, the pipeline is looking at two or three years. And you try to have projects you can close short-term and then in the longer term.

Okay, that's helpful. And then just lastly, can you talk about what your timing expectations are, when you expect commercial scale volumes of the 100 KW product to be out in the field?

The program we have -- there's a 100-kilowatt program that Walter made reference to and we talked about in there, is a program specific to POSCO. And like I said, those are the first two gains we've built. One is in commissioning. The other one is in installation. They are pretty high on this program. Frankly, we don't have any of that volume baked into our forecast. But they are very keen on the program. So, that's one that we're watching very, very carefully. And we'll know a lot more in the next 90 days, I would say, based on the performance of these units, which, again, is not new technology. It's basically our stack technology with a balance of plant that they supply. It's a pretty nice looking unit, kind of self contained. So that would be upside for us.

Okay, great. Thanks a lot, guys.

Thanks a lot.

Jeff Osborne with Stifel Nicolaus.

Great, good morning. Most of the questions have been answered, but I was just wondering if you could expand on the CapEx commentary to go above and beyond the 90 megawatts to get to profitability. I think the next step you were talking about is 140. How much would that cost, and what's kind of the lead time you would need to do that?

Okay. This is Chip. The -- we get to 90 with the numbers that I made reference to. Beyond that, it just kind of works out for a lot of different reasons, that the kind of chunks capacity we would build would be 70-megawatt chunks of capacity, incremental capacity. You got to spend about $35 million in capital, give or take. The question is where would you put that. And Torrington, obviously, would be a nice thing, because we've got a lot of the space and such to do. So we would -- I think at that point, we would be profitable in generating cash and such, so we would be looking at different kind of methods to raise that kind of cash, Jeff, to provide that kind of -- for that capital.

Got you. I was just curious, would it take nine to 12 months to do something like that? I'm trying to get a sense of would it match up well with your orders? Because my understanding is if you receive an order today, it's typically revenue or delivery nine to 12 months from now. Is that the right timeline?

I would say to get all that up and running and everything else, you're probably talking about 18 to 24 months. But again, our project -- we do project work, so we have some ability to manage the kind of a flow that we have to do.

Okay. And you gave a very detailed update on the Connecticut market to Sanjay, I believe it was. But I was wondering if you could just touch on the California market and the wastewater market, what you're seeing there, especially given the municipal debt situation and the funding issues.

Yes, it's -- it's funny. I get that question a lot. I get this question about public debt is a bit of a challenge. But actually, what's happening is probably debt's not the challenge, because a lot of these projects we're doing are actually financed with private money. The Point Loma thing was private money, both debt and equity. The projects that we're going to be doing that I didn't make reference to here, in Inland Empire, which is a 2.8 megawatt coming online and 1.4 in San Jose, are done completely with private money as well. We're working on a structure for those guys to actually get debt financing with certain revenue bonds.

So that has not been the constraint. The constraint has been, which is now lifted, is really the clarity and the certainty on the policy direction and the support for that policy. And that's really been the bulk of the work we've been doing, Jeff, over the last, seems like nine months or so. And so having this SGIP back in order and also having the additional benefit of the CHP feed-in tariff, which helps us, because that allows us to sell into that market at megawatt or multi-megawatt level, is kind of a big deal. So that has and will start to spark increased volume now in California.

Got you. And last question I had, I think it was the last earnings call or maybe it was two calls ago, you folks had talked about POSCO contemplating or bidding on projects to the tune of 20 to 30 megawatts in size. Could you just give us an update on some of those chunkier projects, where those stand in terms of their development?

Yes, there's -- they have got -- they are all different shapes and sizes, but they all tend to be bigger. There's some that are 10, there are some that are 20, there is one that is 60 megawatts. I think it's public information. They have a memorandum of understanding on a 60-megawatt project.

So, we're not seeing the 2.8 projects anymore. If we look at their activity list, which is included in 130 megawatts that I made reference to earlier, they are all much bigger projects. And their project funding is, frankly, all private investment as well. So that's all good news for us, because they've got pretty strong off-takers in utilities, and they have ample capacity for financing through their private sources. Some of these might even be -- they might be a partial investor, because POSCO Power themselves, is part of POSCO, is a $1.8 billion power company, and they own some of the assets that they currently have in the field.

So if some of those move forward, will they need to accelerate the 2.8 megawatt per month schedule? And what's the mechanics of doing that?

Yes, that's -- we're actually having discussions with them on that right now. Again, we have some flexibility to do that, which is why we set up our model the way we did. And because they have got such a big pipeline and they are generally big jobs, we set up our manufacturing plant, Tony and the guys, to basically try to respond to that. So we've got some flexibility to move some things around. We can accelerate things so far. But we're in very close conversation with them about a couple of these large projects that, when they hit, we'll be able to react.

Great. Thanks much for the detail.

Thanks.

At this time, I would like to turn it over to our speakers for any closing remarks.

Well, if that's all the calls, I want to thank everybody again for joining the call, and we'll see you in several months. Have a nice holiday season. Bye-bye.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all now disconnect. Everyone, have a great day.