FuelCell Energy, Inc. (FCEL) Q4 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the FuelCell Energy Fourth Quarter and Fiscal Year Conference Call. [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 our 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 2 hours after its conclusion. The telephone numbers for the replay are listed in our press release. Before proceeding with the call this morning, I'd 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 U.S. Securities and Exchange Commission. Now I'd 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 had 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 these achievements goes to our talented team of associates and their dedication to our vision, which is to provide ultra-clean, efficient distributed generation baseload power for less than the cost of grid-delivered electricity. I'll 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 recorded 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 through 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 volume 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 0.98:1. 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 per 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 repair and upgrade program, and the reevaluation of the Series I 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 $69.8 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 of revenue ratio improved to 1.03:1 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 per basic and diluted share for fiscal 2010. Total liquidity was $64.4 million at October 31, 2011, including cash and investments in U.S. 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 through financing activities. Total net cash used for fiscal 2011 were $21.6 million and compared 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 have previously forecasted total cash use of $24 million to $32 million for fiscal '11. Improved operating leverage from higher volume drove the favorable 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 in 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 initiative. Our financial statements reflect very favorable trends over the prior year, as we grew revenues and reduced product and operating cost. We are focused on top line revenue growth, driving down costs and 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 installed base and backlog receives 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 installed base, that is driving future service revenue. We are creating permanent jobs both in the U.S. and abroad that are tied to local demand attracting the interest of governments seeking to realize the benefits of distributed baseload power generation, while simultaneously creating sustainable jobs. Our Direct FuelCell power plants are ultra-clean, efficient and reliable distributed generation solutions. Our high-electrical efficiency results in more output for a given unit of fuel, reducing operating cost and emissions. The 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 excel in solving energy, environmental and business problems. Our 3 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 U.S., and is propelling us into new markets in Southeast Asia, Europe and Latin America. Global expansion in select market 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 of qualified projects is approximately 345 megawatts, including 170 megawatts in the U.S., 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 to 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 reduce product cost and improve 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 profitably of 80 or 90 megawatts of annual production. As we ramp production levels, we're adding direct labor with about 60 associates hired in 2011 for the production line. Other than direct labor, there are minimal fixed cost 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 in 8 locations in the U.S., and they are now either operating or undergoing commissioning. During this time, POSCO Power installed DFC power plants at 2 locations in South Korea, totaling more than 11 megawatts. In total, our installed base has grown by 17% with these recent installations. And over the past 5 years, the combination of installed base and backlog has grown at a compound annual growth rate of 48%. With our growing installed base, the advantages of fuel cell solutions are becoming more widely recognized, contributed to a growing momentum in key markets. Now let's turn to those markets. In Connecticut, Greenwood Energy, a renewable energy investor, placed an order for a 1.4-megawatt DFC1500 power plant on a turnkey basis at 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 multiyear service agreement. This turnkey project is our first with Greenwood Energy. Like many investors, Greenwood is seeking renewable energy investment opportunities and was impressed with the economics of our power plant. Projects like this are coming to fruition because our power plant projects offer attractive economics, and we have built a track record as a solid and 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're able to deliver to meet our customers' requirements. Investors are attracted to the credit profile of universities and their consistent need for baseload power. Fuel cell 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 plants 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 customers in other vertical markets to reduce their energy costs. When configure with combined heat and power or CHP operation, the high-quality heat generator by our fuel cell power plants can be used for heating and cooling purposes. This lessens dependence on combustion-based boilers, reduces CO2 emissions and virtually eliminates pollutants like NOx and SOx. Use of our product in CHP can yield system efficiencies up to 90%. The economics of this whole high-profile fuel cell installation is good for that state of Connecticut. This project is appropriately sized in financial property and capital. Officials have expressed interest in signing FuelCell power plants in other campuses within the Connecticut State University system. This type of investor-owned project sited at the university is a model that's replicable in other states and countries. We currently announced a new partnership with Abengoa, a multinational company based in Spain, that is focused on applied energy and environmental technologies. Abengoa possesses both fuel cell 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 progress -- prospects for expansion. Under the terms of our agreement, Abengoa will develop, manufacture and market stationary fuel cell power plants using proprietary fuel cell 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 in the balance of the plant produced by Abengoa. Our partner will use its biofuels experience to develop a fuel processing system that will allow fuel cell 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 for proprietary components supplied by us using balance of plant they manufacture. We control our electrical property by leveraging our manufacturing capacity and reducing shipping cost. 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 underserved relative to clean and renewable baseload distributed generation. Our strategy involves more than one partner to develop and grow the fuel cell market in Europe, and we continue to pursue other opportunities in the marketplace for clean baseload distributed generation. We are in advanced discussions 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 the licensing agreement with us, POSCO assembles complete power plants using fuel cell components produced by us in 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 fuel cell park in Daegu City, South Korea. The 11.2 megawatt project includes 4 scalable 2.8 megawatt DFC3000 power plants. POSCO sold these to Cobalt Sky, an investment and energy consulting firm and sold them in 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 the sub-megawatt DFC module for installation in Jakarta. POSCO will combine the fuel cell 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 a 100-kilowatt fuel cell 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 marked the commissioning of our power plants. In 2010, Pacific Gas & Electric, one of the largest utility companies in the U.S., ordered 2 DFC1500 power plants for installation at 2 California university. 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, 2 DFC300s began operating for a repeat customer at Eastern Municipal Water District, and one DFC300 began operating at U.S. Army's Camp Parks. Public policy to accelerate fuel cell deployment saw a great deal of progress in the 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 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 fuel cell projects. Our advanced technology programs are focused on 3 strategic areas that have strong prospects for commercialization within a reasonable time frame: 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 2 new contract awards from the Department of Energy totaling $4 million. One contract involves use of our Direct FuelCell technology to separate CO2 from coal-fired power plants' emissions, which we refer to as carbon capture. The other involves the development of solid-state electromechanical hydrogen separation and compression technology, 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, generated record revenues for the quarter, as well as gross profit for the second consecutive quarter and announced global expansion into South East 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 the confidence in us. Thank you for your support. Operator, we'll be happy to take questions at this time.

[Operator Instructions] And our first question comes from Walter Nasdeo with Ardour Capital.

If I could, I'd like to touch on just a couple of things. And 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, Chip, 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 driving me -- there's no question, and you're seeing it in the margins, in such that we're seeing bigger, bigger plants and we're basically taking our standard product and shipping it into those multi-megawatt plants. We are also seeing other applications that perhaps are not as focused on the price of a project, as there are compliance, Walter. And where those other drivers are available, yes, we're going 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 project even though they're smaller scale. The way we actually did the 100 kilowatt, Walter, is we basically we took our normal stack. And if it's got 400 cells, then we just basically cut it down. So we're still using our same manufacturing process and 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. And then, also, just on scalability of your capacity up in Torrington. We're 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 to 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 3 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 27 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 a variable cost we would 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 the 3 quarter out kind of look and say, hey, it's time to start ramping this up or...

Yes, 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 2-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're out there creating demand, and we don't want to obviously starve that demand that they create. So I'd say we're very, very well aligned. And in fact, we have continued meetings with those guys on some other things because there's a substantial market that we thought we'd be developing. And frankly, it is developing. Not just in Korea but some other opportunities. So I think we'll be -- with the dialogue we 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.

Our next question comes from Sanjay Shrestha with Lazard Capital.

So first, kind of a follow-up on Walter's question, right. 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? So is this -- and how are you guys thinking about it, right? So is it more coming from POSCO? And now with Abengoa in the mix, does Connecticut has to happen. So how are you thinking about that in terms -- okay, here are the 3 or 4 criteria that we need to see, and we should really go ahead and get to that 90-megawatt kind of an annual production run rate?

Yes. Sanjay, this is Chip. If you will, we kind of stratify our demand in kind of 3 ways: One is because we have some visibility, obviously to, 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 and we've been doing this now for a good 12, 18 months, meeting with POSCO to make sure we understand that business. And as I said to Walter, that's going to result in that 35-megawatt, basically a year, baseload business. Now 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 U.S., 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 did a pretty good job, but within reason, 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 dollars. So yes, we're looking at things not just for 12 months but frankly, we're looking at things for 24, 36 months as well. So as we see that demand start to come, that will ramp up and make that commitment, which is not a significant commitment in terms of capital, as I mentioned.

Okay. Now in terms of your sort of expectation over the next 12 to 24 months with the new European partner now, right. Have you guys sort of talked about what is the potential size of that market for the bioenergy? And how do you sort of see the market sort of gradually ramp up? And when can we really potentially, let's say, start to see some sizable order like the kind of 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. I mean don't forget they're -- right now, they started in South Korea and they're expanding outside of that. But the plan in Europe is to have multiple partners to drive that growth. And like I said in the comments, I think it's an attractive market that has been underutilized. I 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 news here that talks about multiple people that we'll be using to fill that capacity that we have.

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 R&D contract backlog, how far does that go? First question, and I have one more.

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

Got it. So I'm reading this sort of the comment today about the Connecticut IOUs submitting plans to have some pretty attractive renewable energy credits for solar and fuel cells. 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're interested in that. But the new legislation that came out earlier in the year, and will take effect the 1st 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're keen 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 fuel cells as well, whereby it's a REC-based program, a fixed price REC-based business program which they can participate in. So there's kind of 2 -- there's 3 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 where we use the RECs. Basically, it applies to them as well. So I think they're seeing this is an opportunity. It's taken a little bit longer, frankly, because this is not something they've done a lot of. But I can tell you that we're in active discussion with them, and there is 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 offsets the blue print for other multiple deals to happen?

Well generally the weather, the storm in October, set these guys back a little bit, Sanjay, and some of their dealings because they had to use resources or 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're 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. So I think it's just working through the mechanics. That's what we've seen.

[Operator Instructions] And next in line, we have John Quealy with Canaccord Genuity.

It's Mark Sigal 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 multimegawatt scale, sub-megawatt scale? And what percentage or what megawatt number of that backlog is POSCO related?

Sure. Mark, it's Mike Bishop. So 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. So if you look at the profile of 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 U.S., Asia and Europe. Can you talk about, from a potential time line, what markets lead that? I'm assuming Asia and the U.S., perhaps Europe comes after that. And can you talk about over what time frame is that 300-plus-megawatt opportunity, is that a 5-year or 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 is most active, I would say, as you've said, it's Asia followed by the U.S. 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 homerun on every single one of them. But those are all things that are in a 2- to 3-year time horizon or maybe less. So it could be anywhere from next week to 2 or 3 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 would obviously boost the revenue. But typically the pipeline is looking at 2 or 3 years, and then you try to have projects you can close short term and then 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, it's a program specific to POSCO. And like I said, those are the first 2 units we built. One is in commissioning, the other one is in installation. I mean, they're pretty high on this program. Frankly, we don't have any of that volume baked into our forecast. But they're 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 the balance of plant that they supply. It's a pretty nice looking unit, kind of self-contained. So that will be upside for us.

Our next question comes from Jeff Osborne with Stifel, Nicolaus. Jeff Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Most of my 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 megawatts. How much would that cost? And what's kind of the lead time you would need to do that?

Okay. This is Chip. 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, but the kind of chunks of capacity we would build would be about 70-megawatt chunks of capacity, incremental capacity. You guys spend about $35 million in capital, give or take, all right? But the question is where would you put that, and Torrington obviously would be a nice thing because it's got a lot of the space and such to do. So we would -- I think at that point, where we'd be profitable in generating cash and such, so we'd be looking at different kind of methods to raise that kind of cash, Jeff, to provide that kind of -- for that capital. Jeff Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Got you. I was just curious. And would it take 9 to 12 months to do something like that or -- I'm trying to get a sense of it, would it match up well with your orders? Because my understanding is if you receive an order today, it's typically revenue or delivery 9 to 12 months from now. Is that kind of the right time?

Yes. I would say, to get all that up and running and everything else, you are probably talking about 18 to 24 months. But again, we would do project work. So we have some ability to manage the kind of the flow that we had to do. Jeff Osborne - Stifel, Nicolaus & Co., Inc., Research Division: 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 funny, I get that question a lot. I get this thing about -- well, public debt is a bit of a challenge. But actually, what's happening is public debt is 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, 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 the structure for these 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, for over the last, seems like 9 months or so. And so having this SGIP back in order, and also having the additional benefit to the CHP feed-in tariff, which helps us, because that allows us to sell into that market at megawatt or multimegawatt level, is kind of a big deal. So that has and will start to spark increased volume now in California. Jeff Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Got you. And last question I had is, I think, it was the last earnings call or maybe it was 2 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. They've got -- they're all different shapes and sizes, but they all tend to be bigger. There's some that are 10, there's some that are 20, there's one that's 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 the 130 megawatts that I made reference to earlier, they're all much bigger projects. And their project funding is frankly all private investment as well. So that is all good news for us because they got pretty strong off takers in utilities, and they have ample capacity for financing through the private sources. And some of these might even be -- they might be a partial investor because POSCO Power themselves, who's part of POSCO, is a $1.8 billion power company, and they own some of the assets that they currently have in the field. Jeff Osborne - Stifel, Nicolaus & Co., Inc., Research Division: If some of those move forward, will they need to accelerate the 2.8-megawatt per month schedule or -- 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've got such a big pipeline and they're generally big jobs, we set up our manufacturing plants, 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.

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

Okay. 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 disconnect. Everyone, have a great day.