FuelCell Energy Reports First Quarter 2008 Results and Latest Accomplishments

FuelCell Energy (Nasdaq:FCEL) has reported on results and accomplishments for its first quarter ended January 31, 2008.

Financial Results

FuelCell Energy reported total revenues for the first quarter of fiscal 2008 of US$15.0 million compared to US$6.8 million in the same period last year. Product sales and revenues doubled to US$9.8 million from US$4.9 million in the 2007 first quarter. Revenues grew due to increased orders for megawatt-class (MW-class) power plants. The product cost-to-revenue ratio improved by 27 percent to 1.99 compared to the 2.73 reported in the prior year quarter. The improved product margin versus the prior year quarter is primarily attributable to increased sales of MW-class power plants and reduction of unit costs across all product lines. Compared to the fourth quarter of 2007, the cost ratio was impacted by product mix, production ramp related costs, increased inventory levels and service costs.

For the first fiscal quarter of 2008, orders totaled 9.45 megawatts (MW) representing US$28.8 million in product sales. The Company's product backlog as of January 31, 2008, including long-term service agreements, was US$84.7 million. This represents a 131 percent increase over last year's US$36.7 million, and a 47 percent increase over the fourth quarter's backlog of US$57.8 million. The increase in backlog was primarily driven by MW-class orders from South Korea and California customers.

Research and development contract revenue was US$5.3 million, up from US$1.9 million in the 2007 first quarter resulting from increased activity on the Company's multi-MW coal based solid oxide contract with the U.S. Department of Energy. Research and development contract backlog was US$13.2 million as of January 31, 2008 compared to $29.1 million at January 31, 2007.

The first quarter net loss to common shareholders improved to US$19.7 million, or US$0.29 per basic and diluted share from US$20.0 million, or US$0.38 per basic and diluted share, in the same period last year. The Company doubled product sales and revenues but lowered total net loss due to improving product margins. Loss on product sales and revenues increased by US$1.2 million which was partially offset by a margin improvement of US$0.8 million on research and development contracts. Administrative and selling expenses were approximately US$0.4 million higher due to increased marketing costs. Research and development expenses were lower by US$1.4 million over the prior year as certain development objectives were met.

Total cash and investments were US$138.6 million as of January 31, 2008. First quarter net cash use was US$15.1 million compared to US$22.3 million in the same period last year. Capital spending for the first quarter was approximately U$1.5 million and depreciation expense for the period was US$2.2 million.

Corporate Highlights

"Our US$29 million of orders is a record quarterly performance for FuelCell Energy," said R. Daniel Brdar, Chairman and CEO. "The repeat order flow in Asia and California and expanding production capacity create a strong platform for continued growth."

Leadership in Key Markets

South Korea: FuelCell Energy's manufacturing and distribution partner, POSCO Power, ordered two power plants during the first quarter, totaling 4.8 MW and has ordered 12 MW of MW-class power plants in the year since it signed the manufacturing and distribution agreement with FuelCell Energy. POSCO Power plans to open a 50 MW fuel cell balance of plant manufacturing facility by the end of 2008 and by 2010, intends to have 100 MW of annual production capacity in place. The balance of plants produced at this facility will be combined with FuelCell Energy-produced fuel cell modules and sold to POSCO Power customers.

California: Biogas operations remain a strong vertical market for FuelCell Energy's DFC power plants. To date, fuel cells operating on renewable fuel represent 56 percent of the Company's California installations and backlog and 25 percent of its worldwide installations and backlog. These installations, including food and beverage operations and wastewater treatment facilities, use anaerobic digesters to produce methane. Our fuel cells use this biogas to produce electricity and the fuel cells' byproduct heat facilitates the operation of the anaerobic digestion process. Customers using fuel cells in this type of combined heat and power application can achieve efficiencies up to 80 percent. Fuel cells operating on biogas qualify as renewable power generation in the 28 Renewable Portfolio Standard states and Washington D.C.

Eastern Municipal Water District (EMWD) in southern California ordered three DFC300 power plants to provide power for its wastewater operations. By using DFC fuel cells, EMWD expects to reduce its energy costs, and carbon footprint by 10,400 tons annually.

The Linde Group, the world's largest industrial gases company, ordered a DFC300 and three DFC1500 power plants, adding 3.9 MW to the Company's backlog this quarter. The three DFC1500 units will operate at customer sites in the San Diego area on biogas that Linde transports from the Pt. Loma Wastewater Treatment (PLWT) facility. The DFC300 will operate on biogas produced at PLWT and power Linde's processing operations.

Connecticut: In January 2008, Connecticut's Department of Public Utility Control (DPUC) approved 16.2 MW of projects under Project 150 that include six of the Company's DFC3000 power plants. These projects represent an estimated $43 million in potential product sales that can be added to backlog after project developers finalize electricity purchase agreements and project financing. The DPUC also gave contingent approval to an additional fuel cell project, the 19.6 MW Danbury "Triangle" project.

Cost Out

FuelCell Energy's cost out program is a key part of its strategy to achieve profitability. During the first quarter, the Company's new five-year stack went into production which extends the life of the DFC fuel cell's core technology by two years and significantly reduces cost of operation. In 2008, FuelCell Energy is targeting cost reductions of 20 percent for the MW-class DFC1500 and DFC3000 power plants through a power output increase, strategic sourcing and continued manufacturing improvements.
Manufacturing

In January 2008, FuelCell Energy increased its manufacturing production rate to 25 MW annually from 11 MW to meet demand from South Korea, California and Connecticut customers. The Company is also increasing production capacity to 60 MW annually from 50 MW. In connection with this project, the Connecticut Development Authority approved a US$4 million loan to expand the Company's Torrington, Connecticut manufacturing facility, expand its workforce, and extend its Torrington facility lease through 2015.

Source: Fuel Cell Today