燃料電池能源 (FCEL) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the FuelCell Energy third-quarter 2016 conference call.

(Operator Instructions)

I would now like to introduce your host for today's conference, Mr. Kurt Goddard, Vice President of Investor Relations. Sir, you may begin.

Good morning, and welcome to the third-quarter 2016 earnings call for FuelCell Energy. Yesterday evening, FuelCell Energy released financial results for the third quarter of 2016. 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 website at www.fuelcellenergy.com. A replay of this call will be available approximately 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 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.

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

Thank you, Kurt. Good morning, everyone, and welcome. Please turn to slide 4, Q3 2016 highlights.

Earlier this week we introduced a truly breakthrough solution on our newest project, the 3.7-megawatt plant demonstrating approximately 60% electrical efficiency. This project is being fully develop and constructed by FuelCell Energy, with construction to begin in the fall of 2016. I'll have further comments later.

We are been awarded three different megawatt class on-site projects. The contracts are currently being negotiated. We expect finalization near term. Additionally, we received four awards for solid oxide fuel cell development from the US Department of Energy totaling $3 million for power generation, and more than $3 million for electrolysis support long duration energy storage. We are working with DOE to execute contracts, which we expect to complete by the end of this month.

There are more than 125 megawatts of fuel cell projects bid into a number of RFPs, and we are ready with projects under development for the expected 40-megawatt PSEG Long Island RFP. Bid evaluators for the Tri-State RFP and the Connecticut DEEP 2-to-20 megawatt RFP report that the evaluation process is moving forward, but they have not announced a specific date for a decision. We remain optimistic based on the compelling economic profiles of these projects.

We continue to execute our multiple installations globally, and I'll provide updates on these projects shortly. Our install base continues to grow, and will add to future services revenue. As illustrated by the 20-megawatt fuel cell park on the slide now being constructed in South Korea by our Asian partner POSCO Energy, multi-megawatt fuel cell parks located in urban areas cleanly and affordably support the electric grid. Also depicted is the 5.6-megawatt project we are completing for Pfizer that we expect to finish and sell in Q4 2016.

We continue to focus on maintaining a strong capital structure. Having a strong financial posture is important to existing customers and prospective customers who are evaluating multi-million-dollar projects with operating durations of 20 years or more. I will further discuss our projects, markets, and operations after Mike Bishop, our Chief Financial Officer, reviews our financial results for the quarter. Mike?

Think you, Chip. Good morning, and thank you for joining our call today.

Please turn to slide 5, titled Financial Summary. FuelCell Energy reported total revenues for the third quarter of 2016 of $21.7 million, compared to $41.4 million for the prior-year period, with the decrease due to lower engineering procurement and construction, or EPC revenue, and the absence of module sales to Asia.

An example of a driver of lower EPC revenue are the projects we retain on our balance sheet, such as the Riverside renewable bio-gas project, which just completed commissioning and financing. We will recognize electricity revenue over the 20-year term of this project, rather than as one-time EPC and product revenue.

Gross profit for the third quarter of 2016 totaled $400,000, compared to $3.6 million for the same period last year. The gross margin in the quarter was 2%, compared to 8.7% in Q3 2015, decreasing due to a lower level of production and EPC revenue, partially offset by stronger Advanced Technology margins, as projects transitioned to private industry funding.

Operating expenses totaled $10.8 million for the third quarter of 2016, compared to $10.7 million for the prior-year period. We continue to focus our R&D spending on product enhancements, specifically targeted towards revenue opportunities in the utility market, such as the high-efficiency fuel cell and other multi-megawatt configurations.

Net loss to common shareholders for the third quarter was $11.8 million, or $0.38 per basic and diluted share. This compares to $7.3 million, or $0.29 per basic and diluted share, in the third quarter of 2015. The Company's cash, restricted cash, and financing availability totaled $179 million at July 31, 2016. During the third quarter of 2016, we strengthened our cash position, with a registered direct offering of common stock and warrants to one institutional investor.

This capital positions the balance sheet for the expected growth in backlog that we are forecasting based on multiple projects being pursued. We also see this capital raise as an important signal to existing and potential customers regarding our financial strength, and the resources that we have available to support long-term service and operating agreements, which may span decades.

Backlog totaled $392 million at the end of the current period, as illustrated on the chart on the bottom left of the slide. At the end of the quarter, service backlog totaled $299 million. Product backlog totaled $35 million, or 16 megawatts, and Advanced Technologies contract backlog totaled $58 million. These numbers do not include the Beacon Falls project, or other projects bid into request for proposals or notices of awards.

Turning to the Inventory & Project Assets graph at the right side of the slide, inventory and project assets increased with continued construction and projects. The previously referenced Riverside project is included in the long term project assets account, and was financed in early September under the PNC energy capital facility, generating approximately $9 million in cash.

We expect to finance another project under the PNC facility which is located in California, and nearing completion during the fourth quarter of 2016. These projects are being retained by FuelCell Energy, whereby we own the power purchase agreement and receive electricity revenue monthly from the sale of power to our customers.

Short term project assets include the 5.6-megawatt Pfizer project which is under construction, and expected to enter commercial operations in our fourth fiscal quarter. We are currently in negotiations regarding the sale of this project upon commissioning. Based on the expected sale of the Pfizer project, current backlog, and anticipated order activity, we are forecasting fourth-quarter revenues in the range of $56 million to $86 million, which is in line with our previously stated full-year guidance.

I would like to reinforce comments in prior quarters regarding the change in sales mix as we near a new fiscal year. We will be concluding the multi-year, 120-megawatt fuel cell kit order to POSCO Energy during the fourth quarter of 2016. As this volume is replaced with complete turn-key projects in future quarters, margins are forecasted to expand, as complete power plants have higher margins than fuel cell kits. This is why we reduced our break-even production rate, as highlighted in the earnings call last quarter.

As a result of this changing sales mix and timing expectations of new product deliveries, we are adjusting our production rate in the fourth quarter of 2016 to 50 megawatts on an annualized basis.

In closing, we expect meaningful revenue growth in the fourth quarter. Our balance sheet is strong, and the Company is well-positioned to execute our near term market opportunities. I will now turn the call back to Chip. Chip?

Thank you, Mike. Please turn to slide 6, Latest Solution. Our new 3.7 megawatt enhanced efficiency fuel cell power plant is a specialized configuration of our basic power plant and is designed for utilities, large industrial users, and the growing data center market.

These customers are focused on clean and affordable power that is driven more by electrical efficiency rather than total thermal efficiency. Our goal is to create a power plant to compete with combined cycle plants in terms of efficiency, economics, yet be cleaner and easier to site and construct. With a third fuel cell module integrated onto one of the standard two-module power plants, this innovative design generates ultraclean power up to 60% net electrical efficiency, the equivalent of a very large combined cycle power plant.

Unlike remote combined cycle power plants, however, our distributed solution can be situated in urban areas, avoids transmission and its associated line power losses and eliminates criteria pollutants emitted by combustion based power generation. As we just announced, we will soon begin construction of our first megawatt scale project, utilizing this configuration to showcase our ability to generate ultraclean power using minimal land and enhanced grid resiliency while contributing to local and state tax revenue.

We expect to sell the ultraclean power to the local utility and we will explore selling the project once operational. Our enhanced efficiency designs can be scaled up to 100 megawatts, allowing them to be built easily and quickly in densely populated areas, making them ideal for urban redevelopment. Fuel cell projects in Brownfields, for example, returned dormant property to tax rolls and drive urban renewal.

Remote central generation projects simply cannot compete with this all encompassing value proposition for local economic development. This configuration lends itself to distributed generation resources by improving reliability, visibility by capacity markets and avoidance of distribution level investment.

Please turn to slide 7, Market Update. The 63-megawatt Beacon Falls Energy Park was bid into the Tri-State RFP. In July, reviewers announced that additional time was needed for their evaluation. We remain confident that the Fuel Cell Park provides a very compelling value proposition with advantages other submitters cannot offer.

The project will both drive and pay for natural gas, electrical and water infrastructure which contributes to adjacent economic development. Many competing bids require construction of transmission lines for additional power sources. The Energy Park will generate property and sales taxes and provide the benefits of manufacturing in the region which competing projects don't offer. Importantly, this park will generate up to five times the amount of renewable energy credits, or RECs, as a similar sized solar array due to low availability for solar in the region, helping the state achieve its renewable portfolio standard sooner with lower investment.

As we also discussed this last quarter, we submitted multiple bids totaling more than 50 megawatts of power plants into an RFP issued by the Connecticut Department of Energy and Environmental Protection for clean energy projects in the range of 2 to 20 megawatts.

We expect decisions on this RFP within a similar timeframe as the Tri-State RFP. We are also working to close different offsite projects as well. We continue to develop multiple projects on Long Island in anticipation of the 40-megawatt fuel cell RFP from PSEG Long Island, as original bid submission date of August 1 was delayed by PSEG.

The RFP and tariff structure is on the agenda and expected to be approved at the upcoming September Board meeting with an effective submittal date of October 1. The state of New York is implementing energy policies to support adoption of a variety of renewable energy sources, including the recent increase to the Renewable Portfolio Standards to 50%. Fuel cells operating on natural gas or renewable biogas are eligible, and will drive demand for our solutions.

In support of this increased RPS target, the state has also introduced a new tariff structure that values distributed generation and is supportive of development of micro-grid projects. California's state legislature recently passed AB 1637 which will support onsite generation using fuel cells including those [operating on] natural gas. It raises, from 1 to 5 megawatts, the limit of the fuel cell net energy metering projects that are eligible for exemption from non-bypassable charges assessed by investor-owned utilities, and it extends the current legislation expiration to December 31, 2021.

In addition, AB 1637 doubles annual funding for the self generation incentive program from $80 million to $160 million. Implementation will begin once the legislation is signed by the Governor, who is supportive. Getting this done has been a priority of our Team. The new law will help support and expand market opportunities in California, as exemption of non-bypassable charges can add significant value to projects.

One component of our strategy to grow the European market is to work with leading European companies to expand market access. As an example, Andreas Frommel, Vice President of Business and Commercial Development at FuelCell Energy Solutions, was appointed Vice Chair of Hydrogen Europe, a leading industry association of 100 companies dedicated to advancing deployment of hydrogen fuel cell technologies in Europe. Other companies represented on the Board include industry leaders such as ENGIE, a leading French-based utility, and Siemens. We have received notice of award for another high-profile megawatt-scale project in Europe which we expect to finalize in 2016.

I would like to comment briefly on the investment tax credit. As I mentioned during our last call, the Senior Leadership of both parties of the US House and Senate have publicly committed to correct what they acknowledge the drafting area with the ITC legislation. And they have committed to correct an oversight during the year. We remain confident this will occur. In the meantime, we are mindful that legislation in the US will not affect our global business in Europe and Asia, and that all the projects in our backlog will be completed in 2016 within the window of the existing legislation. We continue to focus on cost reductions and solution refinements, such as the enhanced efficiency configuration as we discussed, which will allow us to remain competitive.

While we construct fuel cell parks relatively rapidly, historically within nine to 15 months, these projects are not eligible for the ITC until they are operational. This means that a project such as Beacon Falls, if awarded, will not be eligible for the ITC until it becomes operational. So while we want the ITC legislation corrected and strongly feel it is the right thing for Congress to do, a delay will not impact the projects we have under development.

Please turn to slide 8, Installed Base Expanding. A number of on-site CHP projects became operational in key markets. The utility-owned 1.4-megawatt on-site CHP power plant we installed at a manufacturing facility in Germany is now operational. This is the first megawatt fuel cell power plant operating commercially in Europe.

It was constructed under our agreement with EON, one of Europe's leading energy companies, and one which values how we provide a turnkey solution for installation, operation and maintenance. We will be attending a dedication event at the site in September, hosted by EON, with attendees including prospective customers and government officials.

In California, as we recently announced, the turnkey solution we provided for the Riverside Regional Water Control Plant is operational. The project is structured so the customer, the City of Riverside, pays only for power generated by the plant, achieving immediate operating savings without any capital outlay in a manner that supports their sustainability goals. We installed and will operate and maintain the complete 1.4-megawatt on-site CHP power plant, inclusive of the renewable biogas cleanup system designed by FuelCell Energy. The city buys carbon neutral power from us to support its operations under a long-term-power purchase agreement.

As Mike mentioned, we retain the PPA and earn monthly revenue from the sale of power, with financing provided by PNC Energy Capital. Our proprietary biogas cleanup system allows us to offer an affordable and comprehensive turnkey solution. This ensures the cleanup process is accomplished to a uniform standard and lets us take responsibility for the complete system on our customers' behalf.

This model can be replicated throughout our markets. In Connecticut, the 1.4-megawatt on-site CHP power plant purchased by Pepperidge Farms Bakery is now supplying affordable, ultraclean energy for repeat customers' commercial operations. It supplements an existing FuelCell Energy power plant that was installed in 2008. Our fuel cell solutions are helping this commercial operation realize significant energy cost savings and dramatically reduce pollutant and emissions while improving energy security and power reliability. This project recently won an industry sustainability award.

Three previously announced projects are under construction. The 5.6-megawatt on-site CHP plant at Pfizer is expected to be completed during the fourth quarter of 2016. The 1.4-megawatt on-site power plant at Santa Rita jail in California is expected to be completed during the fourth quarter of this year. Our customers upgraded to a new plant that will replace the smaller FuelCell Energy power plant that was installed in 2006. Like the Riverside installation, we expect to retain this project on our balance sheet and will recognize revenues from the sale of clean power through a 20-year PPA with the County of Alameda.

Finally, we expect the 2.8-megawatt on-site CHP power plant being installed for repeat utility customer United Illuminating in the town of Woodbridge, Connecticut to be completed toward the end of calendar 2016. Our power plant will serve as a clean energy source for the town's micro grid.

Please turn to slide 9, Global Operations. We are excited to see work unfolding on the first phase of the two-phase expansion of our North American manufacturing facility in Torrington, Connecticut. External site work is nearly complete, the foundation work is underway.

We are reconfiguring aspects of our plant processes and making adjustments to some work areas to enhance continuous production flow and prepare the transition to an increase in complete module manufacturing. This carefully timed capacity expansion positions us to meet future demand forecasted to arise from the numerous pending RFP awards, including utility scale projects such as large fuel cell parks and potential carbon capture projects. Our prudently financed investment in this expansion will provide near term operating cost reductions.

In Asia, the manufacturing automation line of POSCO Energy's state-of-the-art campus in South Korea is fully operational. Our Team has been working closely with POSCO to optimize the production line layout, incorporate material handling automation and foster a culture of continuous improvement. POSCO is also progressing with construction of a 20-megawatt all-green fuel cell park in Seoul, Korea as the photo on the opening highlights slide illustrates.

Please turn to slide 10, Summary. Numerous projects are progressing, and work is ongoing turning awards into contracts ready to execute. Due to their strong profiles, we are very optimistic regarding more than 125 megawatts of clean energy projects currently pending decisions including those under the Tri-State and DEEP RFPs. We are closely following a prospective PSEG RFP and expect to submit bids. We continue to strengthen our balance sheet to support these and future project proposals.

Several new power projects have come on line, expanding our install base. These include the first-megawatt-class fuel cell power plant operated commercially in Europe and a comprehensive turnkey installation in California featuring FuelCell Energy-designed biogas cleanup system. Nearly 10 megawatts of new power projects are under construction and will be commissioned near term.

Our growing install base is adding to future services revenue. The worldwide fleet has generated more than 5-billion kilowatt hours of ultraclean electricity, an industry record. Our skilled Team of Associates has been working hard to develop a large high quality project pipeline.

We are very optimistic and prepared to execute on multiple significant opportunities that are pending now and we look forward to sharing news of additional information soon. Thank you for your continued support. Operator, we will be happy to take questions at this time.

(Operator Instructions)

Craig Irwin with Roth Capital Partners.

Good morning, and thank you for taking my question. Chip, I was hoping you could give us a little more color on the discretions for IPC renewal? And the discussions related to IPC you are having with customers and prospective customers?

Whether or not they are willing to -- start projects, initiate projects, spend money on actually getting things constructed, understanding or the [oppositism] they get retroactively compensated for their projects?

Good morning Craig, certainly. So as I said in my comments, my expectation is the ITC will get resolved. And I might add there's also some other things that we are trying to do as well to be favorable to our business at the Federal level. I think there are three different windows.

Obviously a window now that Congress is back in session. There's a window where they come back after the election, and of course there is a window when they come back with the new Congress. So we have multiple shots to try to get that done.

So again, we are doing lots of different things. And the feedback is all positive. It's just a question of finding the right vehicle to get it done.

Relative to the projects themselves we are working on. There is no slowdown in people not expecting to get that. In fact some of the bigger projects as you mentioned, we are not the ones spending some of the development money. Things like interconnection and some other things like that. But people are doing that, because a lot of the kinds of expenses that you have early on in a project, there is no limited shelf life to them. For example, if you do interconnection study or those kinds of things, you can develop the project another way.

So we don't see any of that, Craig, at the moment. Of course it doesn't affect any of our revenue that we have planned for the fourth quarter either.

Okay. Excellent. Can you update us on what we can expect in carbon capture over the next few quarters? One would assume that if the DOE is committed to moving forward on additional projects, they have shared plans for another 11 -- I would suspect if there's something coming down the pike with ExxonMobil or other partners that you have?

How involved you expect FuelCell Energy to be in carbon capture at this time next year? How many projects would you maybe consider executing next year as overall momentum in this market ramps?

A few questions there, Craig, let me try to answer them all. So specifically to the contract that we have, with the DOE, we have been working on the site aspect of that, and that's moving forward. There is no question about it. And we will have an announcement on the site selection here very shortly.

The work we are doing with Exxon directly is going very well. In fact we just had a meeting with them, we are very well engaged and our teams are very well aligned.

As far as other new opportunities, there are those, that is true whether it is DOE, but we're also seeing opportunities emerge besides those sponsored by the government. Private companies needing to have solutions for the things that we do.

So I would say that we -- there is a lot of activity around the world on carbon capture, we are very keen on it. And those things as Mike mentioned, we've got a pretty good backlog in our advanced technologies business but we would expect that to turn into revenue relative to carbon capture here in the next subsequent quarters.

Okay, excellent and then clarification of your comments there? The site selection over with DOE for the project? Is that included in the discussion in your prepared remarks? Also, in the press release about projects in negotiation or would that project be incremental to those projects?

That is incremental to that. That's a project we are ready have, Craig, the carbon capture with the DOE. That was my comment about the announcement on the site will be coming shortly is specific to that, yes.

Okay. Excellent. Then Beacon Falls, I hate to flog this one repetitively, but this is potentially a really important transformational contract for FuelCell Energy. Can you maybe give us a little more color on where things stand in the process?

My understanding is that there has to be some dialogue at this point, particularly if the project is likely to go forward? Is there anything FuelCell or its partners can be doing to increase the probability of this project seeing the funding necessary for its future execution?

Yes, so let me -- I will reiterate with a little more detail on the status. But no decision has been made -- that was a Tri-state RFP. The decision on what to do will be by individual states. But nobody has made any decisions because there are some common projects they are contemplating, that have to do with transmission and things like that across multiple states.

But we continue to answer questions relative to what we are doing. You've probably seen in the news, that people are talking about it. And it certainly is viewed favorably by a lot of the constituents. So we are very keen on that.

And our partner ONG Industries is a very well financed company here in Connecticut as well. It is their property. What I would say is that the things we continue to do, since the decision hasn't been made, are things that we're doing. They look very carefully at -- can these projects be executed on. Do they have Siting Council approval?

Do they have interconnection agreements? Are they favored by the utilities? And for example, the capital raised that Mike referred to and you are aware of we did a few weeks ago, was all about making sure that we had the wherewithal to execute that. Because that is a critical part of these projects.

Nobody wants to pick a project that doesn't get done. At least not this state doesn't, in Connecticut. I think we are doing all the things we can do. We are in contact with the relevant people answering questions quickly, working on the different things. So I can't think of anything we are not doing.

Everything is pretty positive and the feedback is very positive as well from the different stakeholders. Because they themselves are probably talking to people saying, hey pick us, pick us. Because there's a lot in it as we mentioned for local economic development. It is a win-win is what we are really trying to do right now.

Great. Last question if I may, this quarter you were a little bit light on the topline, but SG&A spending was very well-managed, that was nice to see the tight control there. Can you comment how you see things progressing sequentially into the fourth quarter?

From an SG&A spending standpoint, are you likely to see the same constrained level of spending? And revenue progression, should we expect a fairly significant sequential increase in GAAP revenue? Or is it a run rate as we reposition the portfolio?

Craig, I'm going to asked Mike to answer that so he can get an answer in there as well, so I don't take the whole conversation here.

Good morning, Craig. Thanks for joining the call. Sure, I'll take that one. Let me start with revenue, Craig, and as I said in my comments.

We do expect revenue to be in the range of $56 million to $86 million in the fourth quarter. So a meaningful increase over the third quarter, and that's really driven by current backlog, anticipated order activity, as we talked about and then the Pfizer project getting to commercial operations in the fourth quarter. We expect to sell that in the fourth quarter which will generate revenue as well.

As far as SG&A, thank you for the comments there. We continue to manage operating expenses, both SG&A and research and development, tightly. You can see some modest increases in the fourth quarter, but certainly nothing significant over where we sit today.

Thank you again for taking my questions.

Thank you, have a great day.

Carter Driscoll with FBR.

Morning, Kurt, Mike and Chip, how are you today?

Good morning, Carter.

Just following up on Craig's question, what really gets you between the low and the high end of the range? Is it timing of project completions? Or is it that one bucket that gives you the $30 million range, your anticipated activity or as a pull-through the backlog? Just trying to get a handle on what could push us in one direction or the other for Q4?

Sure, Carter, this is Mike, and thank you again for joining. Yes, I think to characterize this properly there, Carter. We obviously have a strong inventory balance where we sit today, so as we get new contract awards, we can execute on our awards quickly and generate revenue from them. So the purpose of the range is really around timing of new awards. The sooner we get new awards and execute on them, the more likely we will be towards the higher end of that range.

Okay, but I am assuming this doesn't include any of the bids that you talked about, Beacon, Connecticut, 2 and 20 are PSE&G, correct?

I'm not going to comment on specific contracts, I would say, as Chip said as well, we have a fair number of contracts in negotiation right now that could drive revenue increases in the fourth quarter.

Okay. Can you talk a little bit more specifically -- you gave good color on Beacon Falls, and like you said they are evaluating a interstate transmission project which probably delays some of the other awards. Can you talk more specifically about PSE&G, ahead of their Board meeting and talk about it last month, it got pushed out?

Just talk about your expectations or timing, if they do everything that you think they're going to do in terms of them going forward with this 40 megawatts? And just lay out the timing -- I'm assuming it's probably not pushed any type of revenue contribution into calendar Q1 2017 -- just want to get what your expectations are for that, the new RFP?

It's a pretty simple thing they have to do. They each have to basically say, okay go, but they didn't have the Board meeting in August for different reasons. So the next opportunity is the 21 of September.

Assuming that they say, they have that meeting and it gets on the agenda, and they say yes. Basically the window for projects opens October 1, as I said in my remarks. It goes on, again it could somewhat change but just directionally, that goes on for a couple, three months, Carter. They would then have those things in, and then they would make a decision on the projects in Q1 of 2017.

Now, could you do some projects in 2017 revenue? It just depends. We've got -- we been developing sites for months, if not years out there, with some very strong partners. And that could result in some revenue in 2017 if we were selected. But certainly, 2018 and beyond for sure.

Okay.

We've got some very interesting projects, we will be very competitive lining up with where PSE&G has told us they want the power to come from. And all the other criteria they have given us. So we are pretty keen on that.

Okay, thank you for the color. Talked about in your prepared remarks a couple of different -- two additional PPA projects you are hoping to be commissioned and potentially financed? I am assuming you would use your existing financing partners for those?

And then as a follow-up, is there at some point you might actually break out specific electricity sales? I realize its a relatively low component today, but do you anticipate as you switch to more of this model that you would introduce that type of line item?

This is Mike again. Absolutely. As we said in the past, a 1.4-megawatt project is about $1 million a year of electricity revenue. So as we get more scale there, we will break that out separately on the income statement but certainly, provide more disclosure around it in our public disclosures. Happy to do that.

Any particular pressure on the PPAs themselves, in terms of either length or rate? Certainly seen some compression in PPAs in solar land maybe just some color there as to what you've seen?

No, I will start and maybe Chip could jump in. But no, typically our PPAs have been long-term, north of ten years. The Riverside one is a 20 year power purchase agreement, which just entered commercial operation.

The structure of a project that we would do versus solar are very different. In the case of Riverside, they're providing us with fuel and things like that. These are projects that wouldn't apply to solar. And even the other ones, in some cases we are doing steam as well, things like that.

We don't see -- I think there is a very specific dynamic to solar that you are seeing with that compression. Part of it might just be competitiveness driving some of that. Whether that is sustainable I don't know, but we don't see that aspect of it, no.

Okay. And then as my last question, obviously there is not a lot else you could say about your development of ExxonMobil but you seem pretty confident that the site selection with the Department of Energy is going to occur in the near-term. Can you talk about what you have or have not learned in this process with Department of Energy? And are there any applicability to the developments you are doing with ExxonMobil?

I realize one is coal versus natural gas with initial implementation for the first phase. Anything that you could compare and contrast or share notes? Are you able to do so across those two projects as well?

Yes. Let me say this. The ability to work with the different people with Department of Energy, a company the size of Exxon and frankly, utility people as well, because that's where this plant will ultimately be built and those will be the customers of the future, it's extremely pleasant. And what I mean by that is we got something here that apparently nobody else has. We are dealing with people that are very logical and talented and well financed.

So they are not pressured to take shortcuts. And we are really talking about the things that are critical issues to be successful. Just two days ago, we had a meeting with Exxon at very high levels. And we checked in on how is it going and it's going very well.

So I think it's all about the people. I think it's a fact that it was organized properly, I think it's the cultures and it all seems to be working very nicely.

But relative to coal and gas, there is a natural association there. Because those are the two primary fuels used by, at least in this country, 60% or so of power generation in most utilities comes from those two sources. So they really need a solution that covers both.

And it's nice to have some of that expertise that we perhaps wouldn't have. But we talk about, when we talk to the Department of Energy, they like what we are doing, we keep them briefed, they like Exxon, they like us, the utility companies are all in the mix there. It's a pleasant process.

Okay, I appreciate that, I will get back in the queue. Thank you.

Thank you.

Eric Stine with Craig-Hallum.

Hi everyone, a lot of my questions have been asked, and I will just limit myself to two. First, you mentioned the negotiations on the three megawatt class projects. I don't know how limited you are, but if you can provide any details around size, potentially application and timing, that would be great? Also, are these things that you view as ones that you will own, and they will be PPAs or potential project sales?

Eric, good morning this is Chip. You said three projects is that what you are referring to?

Yes you talked about the three that you have been awarded, but you are in negotiations, so they're not in backlog? Yes, just some details would be great?

I will give you what I can. To what I can tell you is one of them is in Europe, I was specific in my comments about that, which we are happy about. And that will be a very high profile site. Again, building on what we did, the plan that we had to enter the market there with megawatt class solutions.

The other two are in the US. I would say that these are -- we are happy about these projects, they were very competitively bid, I think it illustrates our business model. I wouldn't assume that these would be necessarily done as the Riverside was done, through the PNC. So I really can't say anymore than that, but I expect to have details made public here shortly.

Got it. Okay. Thank you for that, and then maybe a second one just sticking with Europe? It sounds like that the one project that you just talked about that maybe is outside and beyond, don't know if that's the case or not? But just sticking with EON, now that you've got that first project in operations, wondering how you have seen the pipeline develop, since you've gotten tied up with EON?

And then, with a reference project in the ground, are there other projects they have that are triggered once that starts? Or does there need to be an operations period before you start to see more activity with EON?

First of all, our focus is to do business with them, because obviously they have a business focused on building out distributed generation, right? When they split the Company up, that went with one of the -- what we call the commercial part of EON, that is the name EON today. But we also have activity we do directly outside of business with EON.

I would say it is not anything in competitiveness, it is, we focus on different things because we can. I would say that while we do have a pipeline of activities, given the fact that this is -- that the project in Germany is the first of its kind, that does have some semblance of -- we would like to see run, I have to be honest with you.

And we are having a big ceremony the middle of September over there with EON. And they have invited potential customers, and government officials and such, and we will have some strategic meetings with them about how we go faster.

But it wasn't necessarily the reason that things haven't progressed any faster. I think when they see this plant and everybody always does, when they see it for the first time, they will get more comfortable, which is somewhat of a natural thing. But I see that as not the biggest driver, but more of an enabler.

Got it, okay, thank you a lot.

Jeff Osborne with Cowen.

Thank you. Most of the questions have been answered, but just wanted to follow-up on one of Eric's? You mentioned you have been awarded these contracts and you are competitively priced, Chip? At that point, what is left to negotiate?

Sorry. Let me clarify. Obviously the -- depends on where it is, whether you are in Europe or the US, but when you get an award, then you actually have to sign the contract documents so those contract documents depend on the nature of the transaction. In other words, if it is a PPA there is a PPA document you have to actually work through and get signed and all that.

If it's a non-PPA document then there is a commercial and service agreements. There are two different things. These have to work through that. Everybody wants to take their $0.02 and look through. It is nothing sinister. It just takes time. It needs to go through the different levels of attorney reviews and things like that with these in particular companies.

Got it. Some of these could get across the finish line relatively quickly, and you could take the product out of inventory and quickly deploy them -- at least the two in the US -- to be up and running by the end of the calendar year to capture that ITC then? All three of them -- all three get across the finish line and that gets you to the high-end of the range?

It depends, not only those but there are some other things. But these projects could be revenue recognizable, if that is a word, Jeff. As compared to when we do these PPAs.

We typically take them all at the end. I don't want to get into too many details, but you are right, we have the inventory, the inventory does match with the profile of these projects. And that could possibly be the case.

I might have missed it in the prepared remarks, but I saw the slide about the short-term and long-term assets on the balance sheet and inventory, but the thing I missed is finished goods inventory -- how much megawatts do you have today that are deployable?

Jeff, this is Mike. We have around 5 megawatts of deployable inventory today.

Got it, okay. And then maybe Mike, just a couple for you? Did you give -- you had a couple prepared remarks on POSCO and reminding people how that winds down? Did you give the kits megawatts in the quarter?

Kit megawatts shipped in the quarter is what you are looking for?

Exactly -- recognized from POSCO?

Yes sure. So in the quarter, we shipped -- let me make sure I have the right number. We shipped 8.4 megawatts of kits to POSCO in the quarter. Just to complete the question we have 4.2 megawatts of kits remaining that we are shipping in the fourth quarter.

Okay and that gets you to the [121], I think it was, cumulative?

Yes.

I got it. And how is the POSCO facility running? We discussed this three months ago, but there were some press reports about some issues or potential issues there? What is your perception now, three months later and the ability to get royalty revenues as that facility ramps up?

Let me comment on a couple things here, Jeff. Mike and Tony and others have been there just recently. And I would say that their facility is spectacular. We put some extra automation there as part of a plan to do it there first before we did it here. And if Tony was here on the phone he would tell you it is everything they expected and more.

So they've got a beautiful facility. And there is a process which you have to start. You have to run a certain amount of trials, and then you've got to check those components and make sure they are right. But actually -- that picture you saw making their own stack, they're actually making materials to make stacks and of course stacking the kits is worse than stripping them.

So from a business perspective it is moving, you saw the 20-megawatt plant, they got that contract I think in -- earlier in the year. May, maybe? And you can see they have already deployed a bunch of stuff using the inventory. So they are not stockpiling inventory. I think there is a very natural flow, a very organized process which they are going through at the right kind of pace.

Relative to the earlier comments, the comment was that they had some reduction in force. That's exactly true. For two reasons. One, as they ramped up, they needed more people to do certain things, and as we always do with them, we have dialogue about what is the right manpower, what are you going to do, what are we going to do? Things like that.

And after that review session, basically resulted in a reduction in force, which is now complete. So there is nothing sinister about that, other than as the business changed and the plant got built and everything else, we have the operation reviews with them, and the result was they needed to reduce their workforce, which is now complete.

Got it. And the last question I had, assuming, Mike, if you get to the midpoint or the high end of the revenue guidance range, I would assume with the reduction in inventory, and just the higher revenue levels, and also the lower mix of kits that Q4 would be a cash flow positive quarter? Is that a safe assumption?

Yes, what I would say Jeff is from a cash perspective, we certainly ended this past quarter with a strong cash balance. We, as I mentioned, we completed financing on the Riverside Project. We have another financing to complete with PNC for another project in California, and we expect to sell the Pfizer project so we should have strong cash flow in the fourth quarter as well.

Okay, great, thank you.

Thanks Jeff.

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

Thank you very much everybody for joining today. Some very good questions. I guess I'd characterize the quarter, as we continue to execute as we've said, everything from improving the balance sheet to the installed base expansion to executing on good use of product development dollars and things like that. The remarks, the comments were, the fourth quarter revenue is going to be significantly higher than we had, just due to timing.

And we are very confident on the activity that we've got in front of us that can close, and keep that going. With that said, we will be announcing things over the next several weeks. Different questions that people ask me, I will get more details on those. And I appreciate your constant interest in what we are doing. So with that, I will close the call, and you all have a great day and we will talk to you next quarter. Thank you.

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