燃料電池能源 (FCEL) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your FuelCell Energy third quarter 2014 earnings results 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 be given at that time.

(Operator Instructions)

As a reminder, this conference call may be recorded. I would now like to hand the conference over to Mr. Kurt Goddard, Vice President Investor Relations. Sir, you may begin.

Good morning, and welcome to the third quarter 2014 earnings call for FuelCell Energy. Yesterday evening FuelCell Energy released financial results for the third quarter of 2014.

The earnings release, as well as a presentation that will be referenced during this earnings call, is available on the Investor Relations section of the Company's website at www.fuelcellenergy.com. A replay of this call will be available two hours after its conclusion on the Company website.

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 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.

Delivering remarks today will be Chip Bottone, President and Chief Executive Officer; and Mike Bishop, Senior Vice President and Chief Financial Officer. Now, would like to turn the call over to Chip Bottone. Chip?

Thank you, Kurt. Good morning, everyone, and welcome. Please turn to slide 4, third quarter 2014 highlights.

As we continue our global growth, strategic relationships with influential customers and partners are validating our business model and the competitiveness of our ultra-clean distributed energy solutions. During the third quarter, we enhanced our relationship with NRG Energy, a leading independent power producer North America, on multiple initiatives.

As disclosed on a separate press release this morning, NRG has purchased the University of Bridgeport project which begins the repeatable business model that we envisioned when we began our relationship. NRG values clean and flexible distributor generation and extended of $40 million credit facility, enhancing our ability to finance the development of projects and develop more projects simultaneously.

NRG has also made a substantial equity investment in the Company, demonstrating their confidence in the Company. Our global utility model is continuing to develop on three continents now, with interest in owning on-site combined heat and power FuelCell plants for their customers in North America, Asia and the European-served area.

In North America, we identified New Haven, Connecticut as the site of the second of two power plants under previously announced contracts from United Illuminated. The quiet, compact FuelCell installation supplied existing substation, enhancing the resiliency of utilized power supply while avoiding the need for transmission.

In Asia, POSCO Energy, or South Korean partner, is on schedule with the construction of four and seven unit FuelCell parks in the Seoul region. The widespread deployment of large-scale FuelCell parks in Asia has demonstrated the value of FuelCells for utility group support, which is applicable worldwide. POSCO is on schedule with that construction of its manufacturing facility, adding second source of supply for FuelCell modules.

During the third quarter, we achieved our highest ever quarterly gross margin percentage since commercializing our proprietary FuelCell technology. The higher margins reflect a more favorable sales mix, combined with supply chain cost reductions and manufacturing efficiencies gained from sustained production at 70 megawatts annually. The higher margins were achieved despite lower than expected revenues as closures of some products moved into next quarter.

I'll discuss our operations and markets in more 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. Please turn to slide 5 titled Quarterly Financial Highlights.

FuelCell Energy reported total revenues for the third quarter of 2014 of $43.2 million compared to $53.7 million for the prior year period. Revenues increased from a second quarter of 2014 as product mix transitioned to more complete power plants.

For the third quarter of 2014, product sales totaled $32.3 million, service and license revenues totaled $7.1 million, and advanced technology contract revenues totaled $3.8 million. Gross profit was $4 million for the third quarter of 2014 compared to $4.5 million in the same period last year and up from $1.6 million in the second quarter of 2014.

The gross margin percentage in the quarter was 9.2% compared to 8.4% of the prior year quarter and more than double the percentage reported in Q2 2014. This is a record gross margin percentage since the commercialization of our FuelCell technology began.

The sales mix in the third quarter of 2014 was basically equally weighted between complete power plants and FuelCell kits. Historically, FuelCell kits had made up a greater percentage of revenues. The higher percentage of complete power plants in the third quarter of 2014 drove the margin expansion and illustrates how the sales mix impacts margins.

Total operating expenses were $10 million for the third quarter of 2014 compared to $9.1 million in the prior year period. Continuing from the second quarter of 2014, we have increased spending and product development initiatives related to the increasing demand of new, multi megawatt applications to support new order closure which led to the increase compared to the prior year period. We are targeting operating expenses at this level in the coming quarters.

Net loss to common shareholders for the third quarter of 2014 was $7.8 million, or $0.03 per basic and diluted share. This compares to $6.4 million, or $0.03 per basic and diluted share in the third quarter of 2013.

On an adjusted basis, which excludes the net expenses related to the final conversion of the 8% convertible notes during the period, the net loss attributable to common shareholders totaled $7.7 million and also $0.03 per basic and diluted share. EBITDA, which is a measure of cash flow and is based on earnings before interest, taxes, depreciation and amortization, totaled negative $4.7 million for the third quarter.

Now, I will transition to slide 6, titled Financial Metrics. Cash and cash equivalents, including restricted cash, totaled $133.1 million at July 31, 2014. This is a very strong cash position for the Company that supports project development and provides an assurance to our customers. Additionally, the revolving debt facility which we announced in July, 2014 that is extended by NRG Energy substantially increases our total liquidity.

Including the existing $4 million revolver extended by JPMorgan, plus the NRG facility, the Company had total liquidity of $176 million at the end of the third quarter of 2014 compared to $95 million at the end of the third quarter of 2013. Net cash used by operating activities in the third quarter of 2014 was $15.9 million, which includes a $4.8 million increase in accounts receivable, reflecting orders announced in the second quarter of 2014.

Depreciation expense for the quarter was $1.1 million, and capital expending during in the quarter was $2.2 million. The final conversion request for the 8% convertible notes were received during the quarter, and the instrument was retired with no outstanding balance at quarter end, which reduces the future interest expense.

During the third quarter, we maintained the annual production level of 70 megawatts and shipped 11.2 megawatts of FuelCell kits. Backlog increased sequentially to $350 million at July 31, 2014 compared to $343 million at the end of our second quarter. Backlog includes product sales orders of $137 million, or 82 megawatts.

Service backlog increased to $202 million at the end of the third quarter compared to $163 million this time last year and $182 million at the end of Q2 2014. Advanced technology contract backlog was $11 million at the end of the third quarter.

In megawatts, product backlog decreased by 7 megawatts during the quarter while in dollars, total backlog increased by $7 million, reflecting our continuing transition towards a higher margin business focused on delivering turnkey projects in the US and growing service revenue from long-term service agreements. Our service backlog exceeded $200 million for the first time as of the end of the third quarter. We value the service business for the financial predictability it can offer with a growing installed base, and it reinforces our long-term customer relationships.

Now, please turn to slide 7 titled Positioned for Profitable Growth. As we have highlighted in previous earnings calls this year, as we book additional complete power plants, the sales mix becomes more favorable, leading to expanding revenues and margins.

At the current production level of 70 megawatts annually, we continue to target average quarterly revenues of $50 million to $60 million, low teen margin percentages and expect to reach EBITDA breakeven. Actual results are depending on the timing of customer requirements and order closure.

We were below this level in the third quarter as a result of timing, but have high confidence in converting near-term pipeline and inventory into revenue and cash in the coming quarters. The Company will increase production levels as backlog supports.

The annual production capacity for our North American facility is 100 megawatts, which the Company will leverage to drive additional growth. We also have plans in place to expand and scale beyond this level as multi megawatt FuelCell parks become a larger percentage of our sales mix. We expect net income profitability to be achieved in the range of 80 megawatts to 90 megawatts of annual production volumes.

Finally, we expect our agreements with an NRG Energy to be a strong catalyst for near-term growth. NRG is seeking to leverage our project development capabilities and demonstrated by today's announcement of the sale of the University of Bridgeport project to NRG. This is also supported by the $40 million loan facility extended to us by NRG in the third quarter.

NRG's investment in FuelCell Energy provides a supportive and long-term holder whose interest well aligned with that of the Company. These agreements, coupled with our strong financial position, are expected to increase multi megawatt order flow and lead to continued, improving trends and business profitability.

I will now turn the call back to Chip for further discussion of the NRG relationship, our operations and market activity. Chip?

Thank you, Mike. Please turn to slide 8, Flexibility and Endorsement.

As I mentioned, we expanded our relationship with NRG Energy, our partner in North America. NRG is a Fortune 250 company that serves almost 3 million residential and commercial customers in the USA. As a driver of change in the energy industry, NRG is working to provide its customers with cleaner and more efficient energy options, including our distributed FuelCell power plants.

This relationship is closely aligned with NRG's focus on distributed generation. Our ultra clean power plants are ideal distributed generation solutions that produce flexible base load power within a small footprint, easy to permit for rapid project execution and installation.

Announcing our first project sale to NRG is a notable accomplishment as we look to replicate the structure for other projects. What this means to investors is multi fold. NRG invested in FCE for accretable deal flow, and they are attracted to the projects due to the predictable cash flows, solid credit off takers and compelling project economics.

The project is good marketing for our sales teams as we work to structure projects through power purchase agreement with other customers that want the benefits of clean on-site power without the additional capital outlay to purchase the asset. This announcement signals to our to prospective customers that we can attract capital for their projects, and this announcement will help us attract additional sources of capital from investors that value the NRG name and their due diligence process.

During the third quarter, NRG extended a $40 million credit facility for project development and made a substantial investment in our Company. NRG's continued investment further validates our distributed generation solutions and business model to their customer base. NRG, with 6% ownership, is now the second-largest holder of our common stock with POSCO Energy the largest holder at approximately 11%.

Combined with our Company's strong cash position, this investment is reassuring to customers that are entering into project-related agreements with us for extended periods of 15 years or more. We value of that added operational flexibility and financial leverage we gained through the NRG credit facility.

Now, we have access to committed capital under attractive terms, enhancing our ability to develop projects and then sell fully-operational power plants to long-term product investors. The facilities speeds up execution, minimizes construction period financing and optimizes the financing of complete -- completed projects and is expected to help accelerate order flow.

Our partnership with NRG opens up three areas of opportunities. First, NRG customers needing clean and flexible on-site power with minimal space requirements. NRG will own the plants and sell power and heat under the power purchase agreements.

Second, development by FuelCell Energy of large, multi megawatt FuelCell parks financing through NRG. And third, the potential for repowering existing NRG power plants for clean energy with permitting and interconnections already in place.

Please turn to slide 9, Operations. Our objective in operations is to build a strong foundation to realize our vision with a culture of continuous improvement. As you can see from the improved margins, we are gaining operating leverage which will further improve the volume growth and mix improvement, as Mike referenced.

We are continuing to maintain the 70 megawatt annual production rate at our North American manufacturing facility. Based on our continued high confidence level in near-term order projections, we are maintaining this rate at will increase as demand supports.

Reinforcing our core values of continued improvement and commitment to quality, we recently announced a FuelCell Energy quality system is now ISO9000 2008 certified. This world recognized standard defines adherence to quality-oriented processes and procedures and supports are selling initiatives by facilitating due diligence of FuelCell Energy by prospective customers.

We are installing a DFCH2 tri-generation FuelCell power plant at our Torrington manufacturing facility. It should be operational by the end of this month. This installation will showcase the tri-generation capabilities of DFC power plants for industrial applications.

Tri-generation refers to the capabilities to efficiently generate electricity, heat and hydrogen. These solutions can reduce costs associated with purchasing, transporting and storing hydrogen.

We estimate our cost savings at $200,000 annually in on-site production of electricity, heat and hydrogen. The heat will contribute to facility heating, electricity will support our round-the-clock production and hydrogen will be used for manufacturing processes.

Construction of POSCO Energy's manufacturing facility in Pohang, South Korea is on its schedule, and the building is nearing completion. Manufacturing equipment will then be installed, and operations are expected to begin in mid 2015. This state-of-the-art facility, which is being financed by our partner, would double global manufacturing capacity.

As POSCO and FuelCell Energy utilized the same supply chain for purchased material, the increased production volume will lead to lower material cost from increased purchasing volumes. Based on the plans for 2015, we expect a 50% increase in the supply chain volume which keeps us on track with our material cost reduction points.

Please turn to slide 10, Market Growth. Our proprietary direct FuelCell power plant support two primary markets, on-site combined heating power, or CHP, and utility grid support. Under an order that exemplifies our on-site CHP market, we will install a 1.4 megawatt DFC1500 power plant at the University of California's Irvine Medical Center, a top ranked 411 bed facility. Configured for combined cooling, heating and power, the plant will generate 30% of the facility's electric power needs, while the heat will be used in a direct exhaust adsorption chiller to produce 210 tons of cooling for an office building and associated institutional requirements.

By reducing the use of electric chillers, the center benefits from avoided costs of electricity and supports the environment by avoiding the pollutants and greenhouse gases emitted by centralized conventional power plants. The medical center expects to save between $4 million and $10 million in energy costs over the project term.

FuelCell Energy is developing the project and will install, operate and maintain the plant. We expect to close on permanent financing closer to the commercial operation date.

In July, New Haven, Connecticut was identified as the site of the second installation under a 5.6 megawatt order announced in April for United Illuminating consisting of two, 2.8 megawatt DFC3000s located at different sites. The other installation will be in Bridgeport. These installations exemplify our utility grid support market.

The New Haven power plant will supply electricity to a nearby substation owned by United Illuminating. Installing distributed FuelCells into the grid at a substation level offers many advantages. Quiet and compact, FuelCell power plants can be installed on relatively small parcels of land in densely populated environments.

Utilities can add clean, continuous power incrementally with no transmission needed, avoiding permitting and further capital costs. We are acquiring a growing number of utility customers in the USA like United Illuminating whose parent, UIL Holdings, serves approximately 700,000 customers across two states with combined total assets of $5 billion.

In the European-served area, new installations in the high profile locations of London and Berlin are attracting visitors of all types. These reference sites are helping with potential customers and policymakers alike to understand our value proposition and business model.

Also in our European-served area, our utility model is now evolving towards utility-owned on-site CHP installations. Our goal is for utilities to market power plants to their customer base while offering a power purchase agreement financing structure, enabling our customer to participate with clean distributed generation on the customer side of the meter.

Primarily in the 1 megawatt to 10 megawatt range, we will target CHP applications for large-scale power users requiring clean, economical and continuous flexible base load power. FuelCell Energy Solutions, our subsidiary in Germany, will install, operate and maintain these power plants under long-term service agreements.

Acknowledging the value of multi megawatt clean distributed generation, the German government awarded 4.9 million euro of -- to FuelCell Energy solutions in July. The funding supports a three-year project with our joint venture partner, Fraunhofer IKTS, aimed at further enhancing performance and lowering costs. It illustrates our strong relationship with Fraunhofer and our partner's alignment with the government energy objectives across Europe.

In Asia, a number of large multi megawatt FuelCell are being constructed by POSCO in South Korea. All four DFC3000 power plants for a FuelCell park owned by Korea West Power are now undergoing commissioning, and three of the seven power plants and a FuelCell park in Seoul City are also undergoing commissioning.

One of the regional governments in South Korea recently announced a nonbinding memorandum of understanding for up to 360 megawatts of FuelCell parks to be installed by 2017. The MOU is nonbinding and does not specify sites yet, so it is too soon to discuss in more detail at this time. We will provide updates as the projects evolve.

Japan is a logical market for megawatt class FuelCell power plants as there are a lot of parallels in South Korea including high population density that limits the space available for power generation and transmission, high fuel cost that supports high efficiency power generation, a desire for clean power generation but a geography and climate that is less supportive of intermittent renewable power. We hosted both a reporter from a major Japanese publication at the Bridgeport FuelCell park, as well is a large contingent from the advanced cogeneration energy utilization center of Japan as the park is generating worldwide interest.

Please turn to slide 11, Expanding Market Opportunities. This slide illustrates both our commercial capabilities, as well as the large follow-on market opportunities for our proprietary and versatile technologies. On the left side of the slide, we depict our currently served market using carbon and FuelCells which we have stated to be approximately $12 billion in size.

Through our advanced technology group, we have been evaluating new applications that open new markets for our versatile FuelCell technology. Utilizing a model that contributes a nominal gross profit to our Company rather than requiring capital.

The group focuses on new markets for existing technologies, including carbonate FuelCell, on which our commercial power plants are based, and solid oxide FuelCells. This strategy allows us to leverage our current technology platform and experience, as well as our industry, government and supply chain relationships, to develop solutions for new commercial markets with shorter time to market while avoiding large capital investments.

Distributor hydrogen for industrial purposes is a $1 billion market opportunity. Industrial applications include our DFCH2 tri-generation technology, such as the unit being installed in Torrington. Transportation applications include vehicle fueling such as DFCH2 that has been generating renewable hydrogen, plus electricity and heat, at a refueling station in California since 2011, a three year program that has met or exceeded expectations.

Our hydrogen compression technology is attractive to industries that require efficient, cost-effective methods for generating and compressing large volumes of hydrogen gas to support industrial processes. We are currently working with a large global chemical company interested in this technology, as announced previously. Carbon capture also represents a sizable multi billion dollar market opportunity with a strong service component as well.

During the power generation process, our DFC technology separates and concentrates carbon dioxide, while reducing nitrogen oxide emissions. The result is an attractive solution that captures the greenhouse gases and some of the pollutants emitted by coal-fired power plants, while increasing net efficiency.

We recently announced a new contract to continue to work with US Department of Energy on carbon capture for coal-fired power plants. Our carbon capture technology is generating interest from utilities and independent power producers, as well as industry. We expect a contract soon for integrating FuelCells into combined cycle natural gas power plants to capture and concentrate carbon dioxide generated by the combustion process.

The goal of our solid oxide FuelCell program is an adjacent technology to our multi megawatt carbonate FuelCells. We are developing cost competitive SOSC solutions for sub megawatt markets that will allow us to leverage our existing sales and service infrastructure. Target markets include technology and commercial applications, small data centers, smaller waste water treatment facilities in applications like high-rise buildings.

Our other current solid oxide FuelCell programs include storage applications using advance reversible systems and electrolysis for hydrogen generation in mobile and manned and unmanned vehicles. Again, these markets offer us multi billion dollar market opportunities upon commercialization.

In short, we have contracts in hand for all of these new market opportunities, with more announcements coming shortly. The impact of the business is a potential for significant volume growth, more than doubling our potential markets.

Please turn to slide 12, Summary. We are continuing to position for global growth and profitability. Our strong and influential partners such as NRG and others around the world recognize the value of our ultra clean and efficient distributed generation solutions.

Our strategic alliance with these industry leaders validates our approach. We are leveraging our partner's considerable financial, marketing and technological resources to accelerate adoption to grow volume.

Our global market opportunities are expanding as the industry realizes the value of our solutions can deliver in the extensive new applications we can serve. Our material cost reduction strategy is progressing.

Manufacturing in Asia will generate additional cost reductions through volume purchasing and contribute to better margins. We achieved record quarterly gross margins, due in part to improving sales mix. Closure more near-term orders will allow us to continue our progress toward profitability.

Building credibility in the power generation industry, which is under tremendous transition, is essential to success in continued growth and profitability. Actually gaining credibility is the result of the great people delivering compelling projects for our partners and customers.

Our progress is made possible by our team of talented associates. I thank them for their dedication and hard work, and it thank all of you, our investors, for your continued support. Operator, we are pleased to take questions at this time.

Thank you, sir.

(Operator Instructions)

Jeff Osborne from Cowen and Company.

Just a couple questions from my end. Chip, I was wondering -- I think Mike alluded to a timing issue in the quarter where the revenue was below the $50 million to $60 million run rate that you are targeting for this 70 megawatt run rate. Can you just touch on what some of the issues were in timing? Was it financing in the NRG arrangement or something else, relating to construction or some other variable I'm not thinking about?

Yes. On that, just to step back for second, Jeff. One of the things that we do, our model, is that when we announce a project, it's ready to go. We are starting to work on everything from engineering and so forth. We did have -- we do have several contracts that we physically have signed but are not at the same state of that, and those will flow into the next quarter. So, that's a little bit of the revenue change because our business model is to build these in a fairly short period of time.

The NRG line of credit and things like that fit right in with that model. So, I expect us to catch up. But that's really -- I can't be too specific because our policies is that we have these things completely signed off and of the different things necessary to go forward are in place. That just wasn't so on some of these last-minute changes.

But I'm not worried about the timing of it per se, because we have so much going on right now. It's just a question of making sure they are ready to go, and they weren't quite ready to go to put them into a news release.

Understand. But if I'm hearing you right, the confirmation that you will run at 70 megawatts in the current quarter, there's no variable that you are aware of that you wouldn't be in that $50 million to $60 million revenue run rate for the quarter that we are in now as it stands today? (Multiple speakers). Okay, perfect.

Yes, we're -- the plant's running the same 70 megawatts, yes.

Okay. Two other questions. I just wanted to understand the reserve cash line and the evolution of that line as you look at the project pipeline that you have, as well as considering now that you have the NRG relationship and lines of credit. Will you still be needing to reserve cash to the degree that you did for the Bridgeport project as NRG maintains ownership? And assuming you still have a service arrangement, I think it was roughly $1 million per megawatt for Bridgeport. I just didn't know as the pipeline in evolves and NRG takes ownership of these, and given they own a piece of your Company, if the reserve amount could be a bit less moving forward?

This is Mike. Let me take that question. As you alluded to, on the Bridgeport project, there is a cash reserve related to us performing under our service agreements. Every contract is different. What I would say, as the liquidity position of the Company improves, we would see those requirements be much less or not at all, certainly, for strategic partners in that type of thing.

Okay. I think in the past, Chip, you've talked -- the last question I had is, you've talked about a 600 megawatt kind of pipeline or RFP activity that you are aware of. Based on your response to my first question, it sounds like the opportunity set in front of you is quite large, both near and long term.

But I just wanted to see if you could provide any color on where, geographically, you are most excited about or where you think the opportunity lies. In particular with Europe, which has been a bit slow to evolve, and maybe even touch on the Abengoa relationship, if there's any progress there, would be helpful.

Jeff, so you are right. We'll look at things on a global basis. That number refers to the stuff we're working on a global basis. Obviously, it's different in different regions of the world.

But as you can tell from my comments, let's start in Asia. Things are quite buoyant. We are still working on, how we generate a likely -- sorry, activity in Japan. But the Korean market is very, very active, and there's been a bunch of things made public. That's why I touched on it in my comments.

I am excited about Europe. We are doing the right things. We're getting some really interesting attraction. We are meeting with the people that make the rules in the UK, in Germany and other places, which is nice. And they are going, geez, I didn't realize you guys did all this stuff. That's good. And timing is good.

There has been, obviously, the economic issue and recent issues with some concerns about gas in Russia, from Russia. But, we are moving ahead with some projects. In fact, we have some pretty near-term opportunities which hopefully we will talk about on the next call.

But I would say the biggest spike in activity has been in North America, coming from, really, all sectors. You alluded to in your note this morning, I think different things going on in New York. That is correct. We have, actually in New York, submitted projects, now we have to get selected for those.

We've also been awarded LREC contracts in the state of Connecticut which are not public, which you need to finalize those. But yes, it's pretty buoyant, even in California there's a lot going on. Our challenge is to get those finished, buttoned up, ready to go, and then that would fit nicely into what production plans and inventory that we currently have to bring the closure.

Excellent. Thanks for the details. Appreciate it.

Sven Eenmaa, Stifel.

First I wanted to ask, in terms of the UI plants, when do guys expect to ship them, the 2.8 -- the two 2.8 megawatt ones?

This is Mike. Those plants are in construction right now. We are working with -- working the site issues. We have -- we are building the plants in our factory and expect to ship them -- to physically install them on site over the course of, I'd say, the next nine months.

Got it. Looking at the finished good inventory increase in the last quarter, is that something which is -- as you alluded, is that -- the increase sequentially, is that the function of $10 million of being shipped in the coming December quarter here -- I mean in the current quarter? Or is that something which is a long lead time here?

It's Mike, again. I would say it's a combination of both. An example of what is in that inventory right now is, we do have the DFC1500, for example, for the University of Bridgeport project, which we just announced this morning. As that gets to its commercial operation date, that will come out of inventory here pretty rapidly.

Some of the inventory could be a little bit longer term for some of the projects that Chip mentioned that we are actively bidding on or expect to come to contract closure here in the next, I'd say six months to nine months. Manage the inventory level pretty closely, and it is targeted for near-term orders in our pipeline.

Got it. And so, could you also provide a little more color on the MOU announced in Korea? When do expect the finalization on that side, or -- and when could that potentially translate into revenues for you?

This is Chip. Let me comment on that. How things work over there is they usually generally start with these nonbinding MOUs. And it's obviously -- the way we look at a nonbinding MOU is just that, right, they seem to take on a little different flavor. It's more of a commitment, usually, in reality, for them.

I would say that the discussions are ongoing on that, and they are not finalized, yet. From POSCO's perspective, I think the earlier you are seeing some of that revenue could be, assuming the project -- everything, the contracts get done, kind of starts in 2015 and beyond. Something that big is a multi year contract. If you think it starts in 2015 or 2016, if you think about it going over the next couple of years.

Got it. Great, thanks very much.

I'm showing no further questions at this time. I would like to hand the conference back over to Mr. Chip Bottone for closing remarks.

I'd like to thank everybody for the comments and calls today. The -- I think we're making good progress. Clearly, our -- people comment about our revenue, but if you think about some of the other things in the quarter, the margin increase, the cash balance, the backlog increase and things like that. And as Jeff tried to get me to talk a little bit more about the near-term orders, I just want to assure everybody that the activity level definitely supports our actions. Having a business that is acting on all of the fundamental things is really important, which I think we are doing.

With that, I'll close our call and say, again, thank you very much for joining and look forward to talking to you on the fourth quarter call. Have a great day.

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