FuelCell Energy, Inc. (FCEL) Q1 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the FuelCell Energy Reports First Quarter 2012 Results. [Operator Instructions] As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to your host, Mr. Kurt Goddard, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to the First Quarter 2012 Earnings Call for FuelCell Energy. Delivering remarks today will be Chip Bottone, President and Chief Executive Officer; and Mike Bishop, Senior Vice President and Chief Financial Officer. The earnings release, as well as an accompanying slide presentation, 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 the press release. Once again, for those of you listening to this call via the dial-in phone number rather than via the internet, management will be referencing a first quarter 2012 slide presentation that is available on the Investor Relations section of our 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 U.S. Securities and Exchange Commission. Now I would like to turn the call over to Chip Bottone. Chip?

Thank you, Kurt. Good morning, everyone, and welcome. I'd ask you to please turn to Slide 4. We continue to execute on our global growth strategy, including a series of strategic initiatives in Asia with our partner POSCO Energy that we announced this morning, combined with actions in Europe with 2 new partners. Our partnership with POSCO Energy includes a 120-megawatt multiyear order commitment, acceleration of deliveries under the existing 70-megawatt order, a commitment by POSCO Energy to purchase 20 million shares of FuelCell Energy common stock in proceeds of $30 million and a licensed commitment for manufacturing of direct fuel cell components in South Korea. We continue laying a foundation for our future growth in Europe and Latin America by establishing a joint venture with Fraunhofer IKTS, based in Germany and a partnership with Abengoa, based in Spain. We now have 2 broad and complementary channels for our products and services in these large and growing markets for claim-based load distributed generation. While our partnership with Abengoa will leverage their market presence and sales resources, our joint venture with Fraunhofer IKTS will be different. A preeminent global applied research organization, Fraunhofer will apply their extensive research capabilities, and we will be able to leverage their government and industrial relationships as we focus on building a direct sales model through the joint venture. As these new relationships demonstrate, our flexible proven business model is being replicated successfully on a global scale. We are executing on our strategic plan to drive growth through global expansion and penetration of key markets. Our margins continue to expand during the quarter, and we achieved our third consecutive quarterly gross profit. We have lowered year-over-year operating costs and refined our operating profile. We recently executed new service agreements including another with the California Utility, contributing to the growth of our services business. These results are consistent with our growth plans as we continue moving towards company profitability. I will discuss our strategy and results in more detail after Mike Bishop, our Chief Financial Officer, reviews our financial results for the quarter. Mike?

Thank you, Chip. Good morning, and thank you for joining our call today. Please turn to Slide 5 titled Financial Highlights. FuelCell Energy reported total revenues for the first quarter of 2012 of $31.3 million compared to $28.1 million in the same period last year. Product sales and revenues for the first quarter increased to $29.6 million compared to $25.8 million reported in the prior year. Research and development contract revenue was $1.7 million for the first quarter of 2012 compared to $2.3 million. We generated gross profit from product sales and research and development contracts in the first quarter of $2.1 million. This is our third consecutive quarterly gross profit resulting from increased production volume and lower product costs. Gross profit for product sales and revenues improved by $4.2 million compared to the first quarter of 2011. The product gross margin was 6.6% for the first quarter of 2012 compared to a negative 8.9% in the prior-year period. Improvements in margins are primarily attributable to increased production volume, lower product costs achieved from manufacturing and supply chain efficiencies and improved service margins. Total operating expenses were $7.5 million for the first quarter of 2012, compared to $8.3 million in the prior year. Our focus on cost control drove this expense reduction of approximately 10%, while we grew revenues year-over-year by approximately 11%. Net loss to common shareholders for the first quarter decreased to $6.7 million or $0.05 per basic and diluted share, compared to $11.7 million or $0.10 per basic and diluted share in the first quarter of 2011. This improvement is due to increased revenues, improved product margins and lower operating expenses. Finally on this slide, I would like to comment on the steady improvement in EBITDA, which is earnings before interest, taxes, depreciation and amortization. Compared to Q1 2011, EBITDA improved by $5.5 million as a result of improved margins and lower operating expenses. Now I will transition to Slide 6 titled Cash and Investments. We ended Q1 with cash and investments in U.S. Treasuries of $41.5 million and revolver availability of $1 million. During the quarter, we had preferred stock payments of $4.3 million, of which $3.2 million represented the final payment to Enbridge, the holder of the Series I preferred shares, which is nonrecurring. Going forward, total preferred stock payments will be reduced to approximately $1.1 million per quarter. Looking at inventory, we maintained our annualized production run rate at 56 megawatts in the first quarter. In advance of firm contracts, we built 2 1.4-megawatt DFC1500 power plants totaling approximately $7.2 million. Selectively maintaining inventories to manage lead times is strategically important as illustrated by the example on the right side of the slide. In this case, we had a power plant in inventory in Q4 and as a result, we were able to accept an order with a very tight customer timeline. The project investor that owns the plant needed it to be producing power in a 4-month window, which we were able to execute on. We are comfortable that the 2 power plants, which are substantially complete in inventory, will be allocated to new contracts and be converted to cash. As mentioned in the release, subsequent to quarter end, we reached agreement with our partner, POSCO Energy, whereby they will purchase 20 million shares of common stock, resulting in proceeds to the company of $30 million. This transaction is expected to close in April 2012 and would increase POSCO's ownership percentage to approximately 19% of our common shares outstanding. In addition, we will be receiving an upfront license fee and running royalty upon execution of the sell license agreement. We had previously provided operating cash guidance in the range of $17 million to $22 million for the fiscal year. This guidance remains unchanged as we expect working capital to benefit later in the fiscal year from order activity and inventory reduction. Cash used in financing activities in fiscal '12 is expected to follow our prior forecast of approximately $7 million to $8 million of scheduled payments to preferred stockholders, of which $4.3 million was paid during the first quarter. Capital expenditures, primarily through enabled capacity expansion, are estimated to be in the range of $3 million to $5 million for the fiscal year, consistent with prior guidance. I would like to conclude on Slide 7, titled Backlog and Near-term Activities. The company's product sales and service backlog increased to $184 million as of January 31, 2012, compared to the $157 million at the end of Q1 2011. The components of this backlog include product orders of $108 million and service agreements of $76 million. Measured in megawatts, backlog totaled 62 megawatts as of January 31, 2012, compared to 27.5 -- or 26.5 megawatts in Q1 2011. We shipped 11.2 megawatts during the quarter. The POSCO Energy commitment will add 120 megawatts to backlog when closed. The company's research and development backlog increased to $14 million as of January 31, 2012, compared to $8 million for the prior-year period, reflecting awards of a number of contracts. We expect revenue acceleration in the second half of the year from our domestic and European pipeline, as well as the new order commitment from POSCO Energy. Our services activity also continues to increase, reflecting the growing installed base. We are focused on accelerating revenue, converting working capital to cash and executing on our business initiatives to achieve company profitability. Chip?

Thank you, Mike. Can I ask everybody please to turn to Slide #8? This morning, we announced a series of exciting initiatives with a South Korean partner, POSCO Energy. Three different forces are driving near-term demand in Asia for ultra-clean and efficient power plants. The primary driver at present is the Renewable Portfolio Standard that took effect on January 1, 2012. Full [ph] indications suggest compliance with the 2012 goals may be challenging for the impacted utility's independent power producers, but good for us in the sense that they may resort to bidding for renewable energy credits if they're not able to add renewable power generation by year end. Active bidding for rack supports renewable power generation by project investors, such as the owner of the 11.4-megawatt fuel cell park we highlighted last fall. In addition to the RPS market, POSCO Energy's developing export markets in Asia for DFC plants with our support. Finally, the previously announced 100-kilowatt demonstration plants for the commercial building application market are now operational. There are a number of aspects to today's announcement: 120-megawatt order is the largest order the company will have ever received and provides a consistent level of production for our Connecticut production facility for many years. This certainty of demand facilitates manufacturing efficiencies and the value of our supply chain. In addition, the existing 70-megawatt order will be accelerated to meet forecasted demand. The equity investment will further bolster our balance sheet. Our goal is to produce locally with a global supply chain. Production in South Korea is consistent with this goal as we will closely coordinate global purchasing for both facilities. Local production improves responsiveness and decreases shipping costs, and it's worth noting that POSCO will be funding this capacity expansion. POSCO Energy will pay a onetime licensing fee for the manufacturing rights. FCE will also receive ongoing royalties for each completed power plant sold by POSCO Energy. We continue to broaden and deepen our partnership with joint development agreements including the potential for larger-sized power plants. Please go to Slide #9. The economics and attributes of our power plants are well-suited for solving the many power generation challenges facing Europe. These include the need for clean baseload distributed generation, reduced carbon footprint and like countries everywhere, the ability to contribute local content and create local jobs. Our relationship with German-based Fraunhofer IKTS and Spanish-based Abengoa are important components in our overall strategy to develop the large, growing and underserved market for clean distributed baseload generation in Europe. Our business model utilizes a complementary multi-channel approach. First, we sell fuel cell power plants direct to customers as we do in the U.S. and we'll do in Europe through the joint venture with Fraunhofer. And second, we'll sell via partners, which we'll do with the Abengoa. Fraunhofer IKTS is a global leader with advanced ceramics for high-tech applications. Our relationship with Fraunhofer will help us penetrate the European market in 2 distinct and complementary ways: First, Fraunhofer brings a vast network of relationships including government, industry and potential suppliers; secondly, Fraunhofer will apply its considerable material science and fuel cell expertise to our Direct FuelCell technology. We will retain the rights to intellectual property developed by the joint venture. FuelCell Energy has established a legal entity in Germany through the joint venture and will retain majority ownership. The joint venture has been structured to allow for partners and investors that requires minimal cash expenditures as Fraunhofer is contributing their existing R&D resources. We will add resources as demand warrants. Recognize the value of clean distributed generation, a number of European governments have been signed for stationary fuel cell power plants, operating in either clean natural gas or renewable biogas, as well as combining power applications. To illustrate the potential of the European market, in just the past year with a very minimum local presence, we built an active sales pipeline of approximately 45 megawatts of projects. Developing European market will help us diversify our revenues, as our goal is to have a diversified revenue base with equal thirds coming from North America, Europe and Asia. Please go to Slide #10. The focus on customer service supports our revenue growth with comprehensive portfolio of services for fuel cell power plants, including installation services and long-term service agreements up to 20 years in duration. We continuously monitor, operate and maintain virtually every one of our installed base of DFC power plants. We recently executed a service agreement with Southern California Edison and have other service agreements closing during the second quarter of 2012. Our customer value proposition is to operate and maintain the power plants that the customer benefits from the attributes of the fuel cell power generation, but does not need to be involved in the day-to-day operation. This is a model that is certainly difficult for others to replicate. There are a variety of ownership models for our power plants including electric utilities that place the plants in a rate base, end users that purchase the power plants directly and project investors that own the plant and sell electricity and heat through the long-term power purchase agreements. Project finances are enabler of demand so it's worth highlighting a recent managing transaction by a project investor that owns 4.2 megawatts of plants. This project investor and plant owner used equity to finance the purchase of the plants. The investor then raised approximately $23 million from the issuance of California Municipal Finance Authority revenue bonds a few months ago. This is the second project investor to raise capital for municipal bonds. We announced an 11.4-megawatt fuel cell park that became fully operational this past fall. Subsequently, a 10.4-megawatt fuel cell park became operational in South Korea. These types of installations are ideal solutions for electric utilities that need to add capacity throughout their network. Fuel cell parks can be added as power demand warrants and where the power is needed, minimizing investment in transmission and distribution, while enhancing power reliability and energy security from the distributed generation aspect to these fuel cell parks. We met our commitments under a 100-kilowatt joint development program with POSCO Energy and both demonstration plants are operating. This development will support the compliance-oriented building application market segment. The photo on the bottom of the slide shows one of the units located adjacent to a hospital. The team at FuelCell Energy is proud that our power plants have generated more than 1 billion kilowatt-hours of ultra-clean and renewable electricity since 2003, are exceeding the output of any other fuel cell company in the world. Please go to Slide 11. Our vision is to provide ultra-clean, efficient distributed generation baseload power for less than the cost of crude-delivered electricity without incentives. The global market is very elastic, meaning as you approach this point, the market grows well beyond the current $12 billion estimate for power plants and services. We can attain profitability at 80 megawatts to 90 megawatts of production. This is our first objective, and we're on a path to accomplish this with increasing volume. The work we are doing in opening new markets will drive our growth above our current capacity levels, while delivering reduced cost and operating leverage. Our focus on operational excellence is producing continuous improvements in our business and getting us closer to profitability. Our annual production rate was 4 megawatts in 2003 when we began commercializing our fuel cell power plants. Since then, in response to increasing order flow, the rate increased to 22 megawatts in 2010. It is now 56 megawatts, more than double what it was only 2 years ago. We have been asked, "How much volume will be necessary for us to achieve our vision of below-grid electricity pricing without incentives?" We estimate that in an annual production rate of only 210 megawatts, and will drive fuel cell power plant generation costs down to about $0.09 to $0.11 per kilowatt hour. This is a very achievable production volume, particularly relative to the POSCO Energy announcement this morning. Our growing services business is contributing to revenues. Growing installed base drives production volume for stack replacements at existing installations. We have service agreements with terms up to 20 years. With a growing installed base and longer-term service agreements, more production will be allocated to restacks over time, providing recurring source of production. Just to be clear, we are planning for rapid and extensive growth, so I feel it is useful to investors to understand the recurring business aspects of the business model from restacks and annuity-like recurring revenue. Our growing installed base and product backlog exceeds 300 megawatts if I include the 120-megawatt announcement today, this expanding installed base will drive future service revenue. Our track giving dynamic business model features diverse revenue streams including sales of products and adjacent services across multiple vertical and geographic markets. We sell directly to customers and via partnerships. Our company is creating permanent jobs in the United States and abroad that are tied to local demand. This strategy attracts the support of governments that are seeking the benefits of ultra-clean distributed baseload power generation, while simultaneously creating sustainable jobs. Please go to Slide #12. We are leveraging our flexible business model and executing on our global expansion strategy. We are moving towards a vision of grid parity pricing, which we estimate we can achieve in an annual production rate of only 210 megawatts. We have delivered improved margins and cost reductions leading to improved EBITDA results. Our initiatives with POSCO Energy bolster our balance sheet, provide multiple years of committed production for our U.S. manufacturing facility and leverage our partnership to grow stationary fuel cell adoption in Asia. Our existing new relationships -- exciting new relationships with world-renowned Fraunhofer IKTS will open many doors for us in Europe and will contribute to product enhancements. Our new partnership with Abengoa will help us to penetrate the market for stationary fuel cell power generation in both Europe and Latin America. Services is becoming a profitable portion of our growth and adding diversity to our revenue. In conclusion, I want to thank our talented associates for making excellent progress and our investors for their confidence in us. Thank you for your support. Operator, we'll be happy to take questions at this time.

[Operator Instructions] Our first question comes from Sanjay Shrestha of Lazard Capital.

So first up, just one point of clarification. You guys mentioned that your cash burn for the year is going to be between $17 million to $21 million, right? So given the burn in Q1 here so you're basically going to be cash neutral-driven, generating some cash for the other 3 quarters. Is that the right way to think about it?

Certainly for the fiscal year, Sanjay, that's how we're thinking about it. When you look, we used the inventory example on the call, we certainly expect to turn that inventory into cash during the fiscal year.

Okay. Okay, got it. Now in terms of -- okay, so then timing is probably the only variability there, whether it's Q2 versus Q2 versus Q4 but net-net, there should be a quarter where either it's -- even a distributor, there should be a quarter where you guys are starting to actually add to the cash rather than use the cash, right?

That's right.

Okay. Great. Now in terms of the POSCO relationship here, right, how should we think about -- how much of the POSCO backlog is going to get used in fiscal '12? And given this 120-megawatt order and shipments starting in '13, I mean, is it too much to sort of think that there is a good chance you guys could actually even be profitable for the fiscal year '13? Can you help us understand that? How should we think about sort of, so this component of your installed base and how much of the POSCO backlog from that 70-megawatt is going to get burned this year? How much is left as you go into '13? And how much of that 120 megawatt do you expect to ship in '13?

Sanjay, this is Chip. Thanks for joining the call and great question. Just to keep it simple, we're producing right now for POSCO about 2 kits a month, okay. What this ultimately means with the acceleration means that we're going to be doing about 3 kits a month, we call it the second half of the year. And then that kit kind of continues to next year. But I think the other piece of this is that, I think, if you did the math, what you'd see is, and to Mike's earlier point about using the inventory that we built or -- it's not inventory, it's actually almost finished plants, we will have other announcements of other orders beyond the POSCO to fill up that production plant. We're executing just like we said. So I think the EBITDA number as you saw is down, which is good. We'll turn that operating -- working capital into cash, and then we'll fill in with POSCO and some other orders for 2012.

Okay. Do you guys have a sense though, out of that 120 megawatt, how much of that might get shipped in '13 because it goes from '13 all the way to '16, right?

Yes. We actually have a detailed plan for that, Sanjay. All the way through 2016 actually, is actually how that kind of times out.

Sanjay, this is Mike. A way to think about it is, right now, we have a 70-megawatt backlog from POSCO. That, you divide it between 2 fiscal years, it's about 35 megawatts a fiscal year. They are accelerating what we had in '13, and we increased that to about 40 megawatts this fiscal year, and next fiscal year, it will be in that same range, 3-megawatt range for the next couple of years and then go down from there.

Okay. Got it. One final question for me then guys. So as we look at some of the other European partnership, right, especially given the aspiration in Germany for the baseload requirement and all that because solar and wind is just not going to meet that demand. So one, I just wanted to get some granularity as to what exactly do you guys expect and what's the timing on that? And two, what's now all this visibility that you guys have, should we start to expect some of these Connecticut project to come back to life again?

It's kind of a 2-part question. Let me go to the Germany one first, Sanjay. Yes, you will start seeing some visibility of not just Germany but Europe business here in the second half of 2012 for us. There's a few more details to work out, and obviously, resources to be bolstered and placed there. But it's pretty interesting discussions we're having with multiple type of customers with being introduced from Fraunhofer and Abengoa. I think the second part of your question was back to the U.S. and specifically Connecticut. There is -- I'm pretty positive on activity in Connecticut here in the second half of the year as well, our fiscal year. So I think it'd be safe to say that we'll see some closure out of that activity.

Our next question comes from John Quealy of Canaccord Genuity.

A couple of questions. Again, on the POSCO, this MOU, is this going to be finalized soon? And obviously, we're talking about orders being accelerated. Is this finalized now or when should we look for it to be finalized?

John, this is Mike. So there's really 3 components to the MOU. The first piece is the investment in FuelCell Energy common stock, that will close first. We expect that to close within 30 days. The next piece is the order, we expect that to close in about 45 days. And then on top of that is the sell license agreement, and that will be about 60 days.

Okay. And then your narrative about the royalty moving forward, the potential onetime royalty for POSCO once some production would move potentially to South Korea in '14. Can you talk about the magnitude for that? Would that set up a different licensing model or if you could just give us some more context there?

Sure. Certainly, there will be an upfront royalty payment. We are going through a review and evaluation and negotiation process right now on that. From there, we would look at having an ongoing royalty arrangement just like we do right now with POSCO that will be effective when manufacturing begins in Korea in 2015. But between now and then, we'll still have the ongoing royalty relations -- or ongoing royalty from the existing licenses, which is BOP manufacturing, as well as stacking and conditioning in Korea.

Great. And then I'm sorry, could you just remind us how much cumulatively that POSCO has invested in the company over the last several years, including this $30 million tranche?

With this, this brings POSCO's ownership percentage to about 19% of the company. It's just over 30 million shares.

Okay. And then just a couple of follow-ups. So on the European channel, can you talk a little bit more about Abengoa? I think you were putting one of the demonstration units on one of their campuses. But in terms of go forward, are you guys going to co-market things? Are they going to own units? How is that relationship slated to evolve?

John, this is Chip. I'll answer that question. We have those guys actually here, I think, it's next week or this week actually, frankly. But we're having discussions with them about how we'd actually do that, so it's a little bit premature to talk about how we would do that. But I suspect -- I mean, they're going to be putting together some of their own technology, and then we're basically providing the modules similar to what we do with POSCO in the early days. So we're going to try to work out the branding aspects and some of those channel marketing challenges. But how do we do that with those guys here shortly and [indiscernible] .

Okay. And then in terms of domestically with the movement towards cheap gas in the buildout of the infrastructure, can you comment a little bit about any initiatives or plans you have domestically to try to increase penetration of fuel cell product on the gas side of things? As obviously, we're all going crazy for shale gas here?

Yes. It's interesting. Obviously, we play in the natural gas side and the biogas side, right. So frankly, what happens is the -- everything is on a return on investment basis. The base we build the bigger and bigger plants, right. And so when the cost of gas is down, okay, the paybacks get pretty attractive. But equally, we get a lot of interest when it goes up because of the efficiency levels we can able to produce. So what we're seeing is a little different rotation in maybe some customers that we typically see. But I think, particularly in Europe, not just the shale gas in the U.S. but it's become pretty obvious that gas is going to be a solution in a lot of different continents. So I mean, we're seeing people now go, "Okay, we expect that the price for gas would be maintained at a very reasonable price for a reasonable period of time." And so we're seeing people from an investor perspective look at that as a positive sign and going, "Hey, that's a lot less risk than I thought I had before." So I'd say with the market interest, we get a lot of these calls and stuff and doing interviews, but what's really happened is the customer base, and particularly the investors, are warming up to this idea. So we're going to see some traction from that. We haven't quite seen it thus far, but I suspect you'll see that soon.

And then lastly, I just want to make sure I understand the cash position. So $42 million at quarter end, excuse me, it looks like you're going to be net flat or neutral with cash burns at the end of the next 3 quarters, and so then we're going to have another $30 million from POSCO excluding the CapEx. Is that sort of how the math works? So about $70 million minus CapEx, is that what we should look at the end of the year?

That's how the math works, John, yes. And the other thing I'd point out as we discussed the upfront license royalty as well.

And then the preferred it was like about $1 million a quarter or something like that?

The preferred is about $1.1 million a quarter, yes.

The next question comes from Walter Nasdeo of Ardour Capital.

If I could, I'd like to jump over kind of to the design manufacturing side with some of these new initiatives that you're working on. Now do you foresee any alterations that you need to make to the design of the product going into Europe as far as any EU regulations or things like that?

Walter, the only thing we need to do is, the product has to be CE compliant. And we currently source components out of Europe anyway, I think it's a significant number. But we, actually, are in the process of shipping our first CE unit over to London right as we speak. So basically, we just have to finish the CE Mark work on the megawatt and the multi-megawatt units. But that's actually done by the folks here, so that's -- it just takes some time and a little bit of money but it doesn't alter the technology, if you will. It's more of the external to the plant, actually the components and mechanical balance of the plant, electrical balance of the plant.

Okay. Good. Now as far as like the manufacturing process and you're driving to automate that, how close are you getting or how many people actually touch components as opposed to automated as the stack is being assembled?

I'll try to answer that. I mean, a great deal of it is automated. I can't just on the top of my head tell you the exact percentage here. But our labor aspect isn't a very large piece of what we do. We're getting some significant leverage from the overhead, but the labor itself is less than 10%, Walter. We're always updating through our improved processes and things what more we can automate. Labor isn't the biggest challenge we have. It's really just about throughput and leverage. That's really where it is in leveraging the supply chain on volume.

Okay. So what is your current capability as far as units per month?

Well, we can do out of the current facility, Torrington, if -- we've got like $1 million of capital spend and some time to get there, but we can do about 80 megawatt depending on the mix, about 80 to 90 megawatts a year in volume. So you just do that on a monthly basis.

Okay. Well, what happens if you kind of get shoved in like you're saying if someone has a need, a rapid need for a handful of units. Is there any kind of plan in place for you to be able to meet those needs?

Yes. Well, first of all, if you remember, last year, when we ramped up -- I mean, flawlessly would probably the best way to describe it very, very quickly, okay. We have a certain amount of -- Tony Rauseo looks at the supply chain very carefully and we look at what the critical parts are. So we have bonds [ph] and things like that at critical points. But earlier, Mike talked about -- we built, basically, the 2 power plants, the modules, if you will, for 2 projects. We do have some of those figured in our forecast. I mean, that's why we do them, and that's kind of a strategic decision. In the short term, we put some cash into those, but we've been able to basically show how we get that cash back and we get it back. It happens pretty quickly. The other thing, it makes some of these projects go because it really shortens the construction period time of these power plants, which time is money in the financing industry, as you know. So it's a strategy that we've used, I think, effectively and we continue to do it.

Great. Okay. And then just one last thing for me. How is POSCO's marketing of your product throughout Asia going? Are they getting any ramp up in that yet?

Well, we've got the first -- the answer is they're putting resources and money to it, Walter, is the short answer. We've got, of course, the one project in Southeast Asia. We are having discussions, they are having discussions. We're supporting those discussions in Japan, given the opportunities there. Those are the major ones at this time. But I mean, there's just a lot going on in Korea itself, but we're doing kind of double duty here on the import -- the export side, as well as making sure we capture volume which is pretty substantial in the domestic market.

Our next question comes from Jeff Osborne of Stifel, Nicolaus. Jeff Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Mike, I was just wondering if you could touch on the expense run rate, what we should be thinking about over the next couple of quarters? Should it be at current levels or do you need to step up for this acceleration?

Jeff, right now, where we're at with R&D and SG&A, we expect it to be in this range for the rest of the fiscal year. No significant changes higher or lower. Jeff Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Got you. And then have you decided or POSCO decided what the size of the plant will be that they intend to build for 2015 production? Is that known yet?

That's a great question. No, we -- and part of this discussion and Mike alluded to, Jeff, this 60-day period or give or take is we're having those discussions with them. There's a lot of details that have to be worked out. But whether they build a 70-megawatt or above, that's still to be determined. There are other facilities over there, stacking others or above 70-megawatt capacity right now. Jeff Osborne - Stifel, Nicolaus & Co., Inc., Research Division: That's 100 megawatts, correct?

Correct. Yes. Jeff Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Great. And then 2 other quick ones here. Around POSCO, can you touch on the 2 units on the 100-kilowatt side that you've jointly developed in terms of, a, what the expected profitability of those are? I assume you're not going to be making those in Torrington, and this test will go on for some period of time and then eventually those would be made in Korea or maybe I'm reading it wrong?

Jeff, let me -- so that is a market that started out unique to Korea from a compliance perspective. Basically, new buildings, government in nature and it will expand starting in Seoul had to basically have a certain percentage of on-site generation, okay. It's just part of their overall energy strategy. And so frankly, POSCO was the first to enter into that, and thus the project for the 200-kilowatt products. For those products, we deliver 2 aspects of those you can see in the picture. We, basically, inside there is a module. I think it's 100-cell module or something, rather than our 400-cell module. And basically, that module that we make here or goes into that, and then we supply some engineering expertise as well. So POSCO basically created the balance of plant, if you will, and all the esthetics and the enclosure for that project. So we're working on that. Those are kind of like alpha units. And now based on the fact that they're running and everything else, we're going back now and looking at what really would be the future cost and margin or other opportunities around the world. Jeff Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Got you. And then the last one is, should we still think about 80 megawatts as the run rate for profitability for the company or has that changed?

Our profitability target is 80 to 90 megawatts of annual run rate depending on product mix. We're comfortable with that range.

I would now like to turn the conference back over to Mr. Chip Bottone for any closing remarks.

Well, thank you very much, everybody, for joining the call today. We certainly appreciate your questions. They were great questions. A lot of news today we're very proud of, and we look forward to seeing everybody on the call next quarter. Have a great day. Thank you very much.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect and have a wonderful day.