FuelCell Energy, Inc. (FCEL) Q3 2017 Earnings Report, Transcript and Summary

Good morning. My name is Denise, and I will be your conference operator today. At this time, I would like to welcome everyone to the FuelCell Energy Third Quarter 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Kurt Goddard, Vice President Investor Relations, you may begin your conference.

Good morning and welcome to the third quarter 2017 earnings call for FuelCell Energy. This morning, FuelCell Energy released financial results for the third quarter of 2017. 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 FuelCell technology. I would like to direct listeners to read the company’s cautionary statement on forward-looking information and other risk factors in our filings with the U.S. 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 would like to turn the call over to Chip Bottone. Chip?

Thank you, Kurt. Good morning, everyone, and welcome. Please turn to Slide 4 highlights. Our primary highlight is that we received over $1 billion of new and incremental global project awards. These awards provide us with a clear path to profitability and are transformational for Fuelcell Energy. These results highlight our strong competitive position and the confidence of our customers to execute and provide valuable lasting solutions. We were awarded the entire Long Island Power Authority or LIPA 40 megawatt utility program comprised of three separate projects. These awards represent up to $800 million in contract revenue over a 20-year power purchase agreement. We closed our first fuel cell project in Asia. This 20 megawatt fuel cell park in South Korea represents approximately $200 million of equipment sales and expected services revenue. In outright equipment sale, it will monetize existing inventory. We announced a 7.4 megawatt utility project in Connecticut that supports the utilities’ U.S. Navy customer. This project represents nearly $100 million in generation revenue. Projects like this enable utilities to retain customers needing clean and secured distributed power. We developed a 3 megawatt biogas power plant project under California's BioMAT feed-in tariff program. The installation is for the city of Tulare’s wastewater facility, the power is to be sold to the grid rather than used onsite. The single project represents up to $60 million of revenue as part of our generation portfolio, and this BioMAT model is repeatable. And finally, on new projects, we announced a solid oxide fuel cell project at the NRG Energy Center in Pittsburgh. We will provide both electrical and thermal energy to NRG Yield's facilities. What is most intriguing is that this project incorporates the same solid oxide platform for use in a sizable energy storage market that we are pursuing. We have converted 70 megawatts of project awards valued at $1 billion from our project pipeline. Our global pipeline continues to grow even with these conversions. This global project pipeline includes large utility projects as well as onsite projects, carbon capture, distributed hydrogen, and long duration energy storage. We see strong interest from project investors, reflecting the attractive credit profiles of the power off-takers in the project’s predictable cash flows. I will discuss our activities in more detail after Mike Bishop; our Chief Financial Officer reviews our financial results and business model progress for the quarter. Mike?

Thank you, Chip. Good morning and thank you for joining our call today. Please turn to Slide 5, titled financial overview. Fuelcell Energy reported total revenues for the third quarter of 2017 of $10.4 million, compared to $21.7 million for the prior year period. As we transition to selectively retaining projects, our revenue is shifting to continuous monthly electricity sales through power contracts of up to 20 years. The generation portfolio generates consistent and recurring monthly electricity sales that will become more material with growth in the portfolio. Also, the prior year period included export sales that did not recur in the current period, as our Asian partner, POSCO Energy, now manufactures locally under license and royalty agreements. Gross loss for the third quarter of 2017 totaled $2.6 million compared to gross profit of $400,000 for the same period last year. We further adjusted production volume in the quarter to continue to manage inventory levels and control costs. As a result, we experienced considerably lower absorption of fixed costs leading to negative product margins. Service, generation, and advanced technologies all generated positive margins. Operating expenses totaled $11.7 million for the third quarter of 2017, compared to $10.8 million for the prior year period. Administrative and selling expenses increased year-over-year due to proposal activities and professional fees, including for example, expenses related to the recent utility announcements of 40 megawatts in Long Island and 20 megawatts in South Korea. Research and development expenses include initiatives to support new product introductions. Net loss to common shareholders for the third quarter was $17.8 million, or $0.31 per basic and diluted share compared to $11.8 million or $0.38 per basic and diluted share in the third quarter of 2016. Adjusted EBITDA loss reported in Q3 totaled $10.9 million, compared to $8.2 million from Q3 2016 as a result of temporary lower production volumes. Cash, cash equivalents, restricted cash, and financing availability totaled $113.8 million as of July 31, 2017, which includes $35.7 million of unrestricted cash, $38.1 million of restricted cash, and $40 million of borrowing availability under the NRG Energy revolving project financing facility. This week, we announced pricing of a convertible preferred offering, which will yield net proceeds of approximately $28 million. This offering strengthens our balance sheet as we execute on new project awards. Backlog totaled $437 million at the end of the current period as illustrated on the chart on the top right of the slide. At the end of the quarter, service backlog totaled approximately $184 million, generation backlog totaled $202 million, product backlog totaled $2 million, and advanced technology contract backlog totaled $49 million. We expect backlog to be substantially higher in the coming quarters, as existing project awards are converted to backlog. This is illustrated in the pro forma columns and totals over $1.5 billion. Turning to the inventory and project assets graph on the lower right side of the slide, inventory decreased sequentially by $4 million and project assets increased sequentially by $11 million. During the quarter, construction began at our two previously announced projects, increasing the total projects under constructions to 9.3 megawatts. The recently announced 20 megawatt project in South Korea will utilize existing inventory. Product revenue for this project will exceed $60 million and will be recognized rapidly as we begin shipping product in September with the majority of the equipment expected to be delivered in calendar 2017. As a result, Q4 2017 revenue is expected to be appreciably higher than recent periods. As illustrated by the chart in the middle of the slide, we have announced 70 megawatts of projects in just the last few months. The Korea project is an outright sales with expectations of a long term service contract to be executed this year. Other awards will go into our generation portfolio, as for the LIPA projects, we may retain or sell these assets in the future. Given the size of these awards, we are now well positioned to generate EBITDA positive results in future periods as these projects become revenue producing assets. We are receiving strong interest from both debt and sponsor equity project investors in relation to the recently announced projects. Strong credit off-takers, large project sizes, and a predictable power generation profile of our solutions are all very attractive to project investors. We expect to announce project financings for certain projects under construction in calendar 2017. In conclusion, our recent project awards that validate the competitiveness of our solutions and business model. Our growing generation portfolio is now complimented by robust near term product sales opportunities in Asia. We will grow revenue in Q4, 2017 while monetizing existing inventory. We further expect to drive growth in the business with recurring long term revenues and profitability as we execute under project awards and global market opportunities right in front of us. I will now turn the call back to Chip. Chip?

Thank you, Mike. Please turn to Slide 6 recent highlights and catalysts. The future revenue from recently announced awards exceeds $1 billion. The near term catalyst are additive, providing us the opportunity for additional growth. LIPA reported receiving a total of 376 megawatts of proposed fuel cell projects in response to their 40 megawatt power procurement and as I mentioned we were awarded the entire 40 megawatts from three individual projects reinforcing our strong utility value proposition. LIPA undertook this RFP to address a variety of issues that are facing each of which points to the strengths of our solutions. LIPA needed Long Island generation to supply densely populated areas with clear power, while avoiding costly transmission investments. The utility have affordable clean, quiet, and easy to site generation, our projects met all those needs. The projects LIPA selected were in the top area they identified as load-pockets needing power, these projects will enable LIPA to avoid four separate transmission and infrastructure upgrade projects they were planning and that would have cost ratepayer $76 million. In addition, LIPA will no longer need to pursue a specific load-pocket RFP to plant, because our power plants generally continuous and predictable power they will generate a significant number of renewable energy credits or RECs for the utility, which LIPA management values/ Affordability and the competitive economics were also important factors in LIPA’s decision. Our projects will be sited on underutilized land, providing must needed tax revenue to the local municipality and one of our four larger suppliers located in New York State. Generating clean and economical power awards needed with solutions manufactured in the region and sourced in part from our suppliers in New York State is part of the value proposition to Long Island ratepayers and tax payers. These three projects have attractive margin profiles, and could represent up to $800 million in revenue depending on whether we sell or retain them. As Mike said, we have not made those decisions yet and could decide on a combination of both. We recently announced 20 megawatt fuel cell power park project for Korea Southern Power Company. This utility customer owns more than 9 gigawatts of generation and this is their first fuel cell project. They value affordable clean on site power that is easy to site at one of their existing facilities. We are in discussions now with the utility regarding anticipated 20-year services agreement. In outright equipment sale, the project will utilize existing inventory to help generate cash. The combined value of the equipment and services revenue is approximately $200 million. This is the first project closed since we began marketing to customers directly in Asia. Our team continues to actively pursue numerous other utility projects in this large market. The award of the City of Tulare, the award from the city of Tulare made our California Biogas Market Adjustment Tariff program referred to as BioMAT. As shown in the upper chart, BioMAT mandates a total of 250 megawatts for biogas projects across three categories. The state's three major utilities Southern California Edison, Pacific Gas and Electric and San Diego Gas and Electric, each have mandates regarding the amount of power they must procure. The various biogas category totaling 100 megawatts is our primary market and includes biogas sources, such as water treatment, where we have extensive experience. Our solutions economics and ease of citing provide us with competitive advantages. Our latest project with the City of Tulare in California is located adjacent to the city's wastewater facility that will operate on renewable biogas to wastewater facility producers. The fuel cell power plant will generate renewable carbon neutral electrical for the grid under a 20-year PPA to Southern California Edison. Enacted into law in June, Act 17-144 enables Connecticut's two electric utilities, Eversource and Avangrid, each purchase up to 30 megawatts of fuel cells. The act also mandates at the Department of Energy and Environmental Protection of issue in RFP for clean energy procurement that values power resiliency, in-State economic development, ratepayer costs and low emissions. We have a number of projects in Connecticut that are well-developed and suited for meeting the utility in-State’s goals. A number of the catalysts are contributing to potential near-term orders and growth in margins and revenue. South Korea market is extensive and we see sizable market opportunities for megawatt - multi-megawatt fuel cell parks with the country's top utilities. Connecticut legislation supports utility ownership, as well as additional state level procurement and we have multiple projects in development. Onsite opportunities in the U.S. are expanding, including industrial and municipal opportunities, along with additional potential for BioMAT projects. We have a growing level of interest in our carbon capture solutions globally. We are moving forward together with Southern Company in Exxon Mobil on the carbon capture Pilot project site in Alabama. The results of our efforts in the area of reducing emissions for the transportation sector with our distributed hydrogen plants have gained attention and traction, and we expect to announce results soon. Combined with these catalysts, support an estimated 400 to 500 megawatts of potential business globally. Please turn to Slide 7, summary. Our company is addressing some of the most critical issues of our time. Cleaner and more resilient power, emissions, reductions and decarbonization for power generation and transportation, long duration storage to support the increased penetration of intermittent renewable. The Fuelcell Energy team has recently produced project awards of more than $1 billion. These awards are transformational for a company and clarify our pathway to profitability. Multiple catalysts support continued growth in orders leading to margin expansion. Phase 1 of our Torrington manufacturing facility expansion is nearing completion, as illustrated in the photo on the slide. This supports operational cost reductions and positions us for future capacity expansion as the backlog grows. We are ready for global growth with utility scale projects with a potential for carbon capture and other application, such as distributed hydrogen. Our expanding suite of innovative, competitive energy solutions meet and exceed the requirements of today's markets that our global pipeline continues to grow. Operator, we’ll be happy to take questions at this time.

[Operator Instructions] Your first question comes from Carter Driscoll with FBR Capital Markets. Your line is open.

Good morning, Michael, Chip, and Kurt. First of all, congratulations on the first win in Korea. I know you guys have been working hard on that. Could you talk about the process and how it unfolded in relation to the timeframe versus, say, domestic projects, I mean, it's a relatively concentrated market in Korea, you exposed some of your other project discussions or engagements to fall along a similar timeframe. It seems to be fairly short from the time we began to market in that region, to sign your first contract to what I expect is the revenue opportunity seemingly in the next quarter or two and then I have a couple of follow-ups. Thank you.

Carter, good morning. This is Chip. Maybe I’ll handle the first part of that question and ask Mike to deal with the second part, which I think your question was, how would you go from award to revenue if that’s okay. The market in Korea is actually not that complicated because the procurements are really done by the utilities, and there’s an overarching long-term plan for utilities to procure new and renewable resources, and And so we and of course with POSCO being there and installed over the last few years 200 megawatts of plants, it was kind of a natural thing for us to walk-in being the - we knew some of these people based on the references we already had, and obviously the owner of the technology was fairly easy working with them to say, okay if you got these projects to do let’s work on them. So the bidding process is somewhat similar to here except, I would say it's even simple because they have an RFP, you pick up an EPC partner. We provide the equipment and services, we put that together and then they make decisions fairly quickly. So, I would say that we got involved in that project probably I don’t know May-ish or something - something like that maybe April-ish, and decision was made in June and we finalized all the contracts and things in August. So that’s kind of typical timeframe I think for a project like this. I would also say that the projects over there are generally larger in nature. It’s going to be 20 megawatts and up, typically for these projects. This one was 20 megawatts, but there’s others coming. So, we have a pretty large pipeline I think in excess of 100 megawatts and stuff that’s kind of, I would say near-term pipeline. This is not stuff that’s planned out for three or four years, this is pretty near term stuff. So we’re excited about the opportunity and we’re working with all the players in the marketplace to make sure that they are following up on the needs to meet the new renewable energy or RPS goals that they have. Mike do you want to comment on that?

Sure, as far - and good morning Carter, as far as awards to revenue, Chip said we finalized the equipment contract in the last week or so. As I said in my remarks that that contract is north of $60 million, it was important to the customer that that delivery happened pretty rapidly. They want this power plant up and operational in mid-2018 and given that that we had inventory, we were able to meet that schedule. So, we expect to begin deliveries of this project in September and have meaningful increase in product revenues over the next couple of quarters.

Now if I remember correctly, in the last quarter’s call, you kind of estimated your EBITDA break-even around sort of 45 megawatts of plant sales or roughly 60 megawatts of an operating portfolio, does that still hold, I mean it sounds like if you got another sale in the near-term in Korea, you could be bumping up against EBITDA break-even relatively short orders, am I thinking about that correctly?

Sure, Carter you’re thinking about that correctly and those are the goal posts. Just equipment sales on an annualized basis of approximately 45 megawatts or revenue and margin from the generation portfolio in the 60 megawatt range, but what’s going to happen here is it’s going to be a mix right. So, you’ll see obviously we have this 20 megawatt order now from Korea. The lion’s share of what these other awards are likely to be generation projects, the LIPA projects is as Chip and I both mentioned, strong interest from project investors will look to potentially retain some, potentially sell some, so the mix of all that gives us a great opportunity to drive the business to near-term EBITDA positive results.

Okay. And maybe just shifting gears a little bit. You mentioned on the R&D side, spending for new types of product development as you do it in continuous basis. Could you maybe elaborate on some of the - or highlight some of the key opportunities, obviously you have the first deployment with solid oxide with NRG. Maybe just give us a key product design or two that you could share us with us at this time?

Carter, this is Chip, I will take that one. So, we have what we call the IRD, there is really two parts of that, one is just things you would have to do to maintain any product portfolio, you know quality programs and things like that, and then there is the true I would call it development of new things. That spend in particular and this has been the trend throughout 2017 has really been dominated by our development of what we call the SureSource 4000, but the high efficiency fuel cell, that's not a new platform but that's an expansion of our current platform. There is a lot of work and frankly that project is just about completed construction. We did that in kind of unique way, where we are building the project as we develop that new platform, so that's been the lion’s share of that. That of course will tail off, we’re doing some other things, but that’s the lion’s share of it. Relative to projects like solid oxide and Exxon carbon capture and others those show up under advanced technologies. So when we get those projects they typically, we go into our backlog and you can see that backlog and we work off the backlog into revenue. But those are not development those are generally projects that are development in nature, but they are new platforms, but they are basically paid for either by grant money of some nature or public financing from the partners that we have in the business.

Maybe just a couple quick one before I get back in queue. Thinking about the revenue opportunity at least just doing the math on the Korea project, you are thinking roughly still in the range of $3 million for megawatt with equipment sales and follow-on services is that the right kind of ASP range to think about Mike?

I mean based on the number that I said, yeah I mean we’re not disclosing exact revenues, but we said we expect the revenue from this project to be north of $60 million.

Okay. And then maybe just lastly kind of, how do you think about go to market for the energy storage opportunity, yet obviously a lot of different solutions chasing a lot of different end markets, certainly a lot of pricing pressure and certainly some high expectation for future market growth. How do you think your potential solution fits, and how do you expect to market that going forward?

Carter this is Chip, I will take that one again. So the procurements in general for storage, in the US anyway are really determined lot of times by the public utility commissions and they hand those objective down to the utilities, and the utilities themselves to the procurements. So we might do power purchase agreements in the future for other things, primarily the utilities themselves are procuring these and putting them on their balance sheet because I think the market or the financing storage project is a little immature at this point Carter. So it's kind of buy by the utility put on their balance sheet strategy. What's unique about what we’re doing and there is a lot of people to talk about storage, storage, but there is actually a fairly segmented portion of this from instantaneous storage that supports more voltage regulation to long duration storage, which is really aimed at transformation of the grid where you have increasing amount of renewables on the grid, which leads to basically diminishing the profitability of large central generation of this general likeness across the globe. So what people are finding very interested in our offer is that it is a long duration, number one, which means anything more than six hours, which allows them to address things like base load in times we don't have renewables to support the grid. But it also the basis of our technology is using hydrogen and that's been an interesting thing for people to understand because one, hydrogen allows you to use it for other things think about transportation number one, but secondly when we generate this hydrogen through our solid oxide fuel cells it leads to a very, very high rapture proficiency, which leads to a low - or the lowest we believe ability to have storage, I mean storage is not cheap. So if you've got to have, you've got to make sure you hit all the technical reasons, along those better we hit that and then you look at affordability and we have an advantage there. So, we are very excited about this. We go slow on any of these things, but we are dealing directly with the utility companies themselves and the technical people who are the ones that frankly have the problem to figure out how we're going to integrate all these resources on the grid and keep the lights on.

Appreciate answering all my questions. I will go back in queue guys.

Your next question comes from Jeff Osborne with Cowen and Company. Your line is open.

Good morning, a couple quick ones here. Mike, I wondering if you could just comment how many megawatts do you actually have in inventory now that are fixed and ready to go. It sounds like there's a lot, that's going to be depleting inventory I just want to put it in perspective relative to the size of the Korea win and maybe some initial construction for some of the other projects?

Good morning Jeff, this is Mike. Yeah, so inventory today is, I mentioned in my remarks we're going to be able to deliver rapidly on the Korea project. When you look at kind of the breakdown of inventory there's probably about two-thirds of the value of inventory that's product that can come out relatively quickly meaning completed a balance of plants or completed modules. So I don't really break it down in terms of megawatts, but in terms of percentage of inventory that can be deployable. I'd say it's about two-thirds or in the $40 million to $50 million range.

Got it. And then can you just walk us through the timing again of the 40 megawatts of LIPA projects I know you've discussed both in the prior question, as well as in the text or script about, it's uncertain the revenue accounting treatment of those, like when would you start construction of the three projects when do they expect to be finished just so we can kind of keep that in mind as we think about modeling?

Jeff, good morning this is Chip. Let me take that Mike can - if I miss anything Mike can add in. So the LIPA projects Jeff are really three sites, we're treating it as one 40 megawatt project, but it is actually three sites and with the thought process there is that there is site specific things like the interconnection would vary at each site, but then we would execute in constructing them. We go from one site and we take the same crew to go to another site, and another site right. So the first thing that we're doing right now is we've filed all the interconnection paperwork and other things we have to do there's permits and other major things we're doing, but we've got a completely organized plan of action here that, from the outside world here we would expect to sign ultimately PPAs early in 2018 even though you have an award you have to sign the actual document, there with work start to be done certainly are permitting right now. Construction at some nature probably takes place in 2018 and 2019 and then start up takes place in 2019 and 2020 just to give you some directional project plan. Now when you talk about the cash that you can generate form those projects and you talk about selling those assets that's a completely different conversation, because for example, if you want to sell projects you can sell projects when you get the project you can sell them after you've started the project or you can sell them at some point in between. It is relative to financing those projects there is multiple path with that because we do have instruments as you know out there and there's been other interested people outside of those instruments that we have, that we've already negotiated have come to us and said look we want to - we're interested in funding this as you go. So since we have the ability to produce these things are pretty vertically integrated and construct them, I would say have you know ways to we can finance these things using you know debt or these instruments that we have that generates cash. I'll hand it over to Mike. Does that make sense Jeff, Mike can…

That does, I was trying to get a sense about the path to EBITDA positive, so it doesn't sound like LIPA helps you in 2018 to get there. It certainly could help in the cash perspective depending on how you move forward with the financing and whether you retain or sell them. So, I get that part, but just as we think about you know modeling the EBITDA trajectory if you finish over the next few quarters have 30 megawatts of operational assets give or take, I think 30.7 megawatts and then you know you've got this 20 megawatts of Korea that certainly helps, but probably not enough between those two items to get to the EBITDA breakeven next fiscal year. Is that fair?

Well so on an annualized basis, I would say it depends Jeff. Obviously more product sales get you there faster and as Chip said, we executed this product sale relatively quickly on a quarterly basis, you know there is opportunities to get there, but you describe the generation portfolio correctly. We expect to have at least 30 megawatts of an operating portfolio in 2018, which will generate meaningful revenue in cash flows from that portfolio and then the product sale opportunity is incremental for that.

Got it and then just two other real quick ones Mike, probably more for you, but can you just talk about when New London and Triangle Street would be actually generating electricity revenues so we can just model the appropriate quarter on when the electricity revenue segment should step up. And then the second question was just around the services segments, so a big sequential drop I think you mentioned you had a lot of restacks last quarter can you just talk about the line of sight over the next few quarters as it relates to restacking and how we should think about the services segment?

Sure. So as far as timing on triangle street as Chip mentioned that's nearly done with construction that project will be energized in the fall, this is our first article that we will be going through a series of tasks, but generating output to degrade in the fall timeframe and you expect close to a full-year of generation revenue from that. As far as you mentioned New London, I think you're referencing the CMEEC project on the Groton sub base that is a project that will begin construction in 2018 and start generating revenues in the second half of 2018. As far as services, you mentioned correctly that service revenue is variable quarter-to-quarter depending on the timing of module exchanges we had scheduled module exchanges in the second quarter, which drove higher revenue than we recognized this quarter. That variability obviously will continue just depending on timing. We would expect, you know not a lot of module exchange activities in the fourth quarter. In 2018, we have more upcoming given some of the activity that we had five years ago, but I'd say closer to the range that you saw this quarter at least in the next quarter or so.

Got it. Thank you. That's helpful.

Okay, thank you.

Your next question comes from Eric Stine with Craig-Hallum. Your line of open.

Just want to just touch on LIPA little bit and the amount - the $800 million that you're estimating and I can appreciate that you know the form of that is still to be determined, but if I think about your typical economics on a project it gets me to roughly half of that. So maybe I mean, is it something where you mentioned renewable energy credits, is it something where you're planning to participate into that or there are other value streams that you potentially monetize as part of those three projects?

Eric this is Chip good morning. Maybe I'll start and I'll turn it over to Mike. That's seems to be the common thing I'm saying as many, so he has done a good job. So look, it's - the way I would look at that is that directionally you're correct on your statement okay. Effectively when you do power purchase agreements, okay, you expand the market size by basically picking up all the various revenue streams, okay and you get paid for that. These contracts include things like the RECs that you made reference to and I won't get too technical here, but these are, you know that's why you do these right. So when we got it - when we go after good projects we got lot of optionality right, as we just determined here. I think ultimately you would want to do a project where you have more revenue and better margins and that's what we have in front of us here and by the way that excludes any ITC. If that was to happen which still may happen that would be even better, but so now I mean I think that's why we want to put these kind of projects on our balance sheet in kind of a measured pay as you go kind of way because it makes sense for the long term, you know and sustainable revenue of the company.

Eric, this is Mike, just to add to that, so the - up to $800 million of revenue that Chip mentioned in his remarks that contracted power purchase agreement revenue, right. So that's generating power over the 20-year term, so if you will retained all those assets that's what you would expect, if you would sell them it would be less than that, you know you could estimate in the range of $400 million to $500 million if you where to sell all those projects outright, but then the company would retain long term service agreements as well. So that’s just kind of the math around this projects.

Okay. That's very helpful. Maybe then just turn into to South Korea I was interested in your commentary about KOSPO and the fact that this is their first project that they've got nine gigawatts and you know this is their first project. So, I mean it sounds like you've got roughly four to five projects in the pipeline near term, but maybe any of those Korea's Southern Power and how do you see that company's pipeline and interest level you know looking going forward.

Craig this is Chip again. Some typically and I say typically because - Eric sorry, typically these folks have to have about 10% of their power from new or renewable energy sources. Now those include fuel cells, wind, solar some other different things. So, I mean you know when people start as a, you know it's a management issue, but the goal is the same whether you're any utility company, which means that you know some of the larger ones even have a bigger opportunity. Why they decided to do their first project this year, I don't know we're kind of happy that they did, but you know they had other things are working on and they finally got around to it. They say they do like the profile of these projects, they do plan to procure more fuel cell projects I can tell you that. But they're just one of six of the sub KEPCO utility companies in the country. So you can think about projects that are you know with all the different utilities. And there's another segment of the market where they're actually developers working on projects where they're basically trying to be meet direct compliance, because at the end of the day that's what the utilities are trying to do. So, we actually like the model here where the utilities are putting it on their balance sheet it makes for rapid projects because if you look at a typical project that might be like power purchase agreements and things, there's a lot of time spent in the development process and then a lot of time spent on the execution process a lot of permitting and interconnection, when they are the one procuring this stuff, the front end of that collapses and then the execution process allows us to execute quickly because permits and things like that they handle that stuff, you don't have an issue with interconnection because they are the ones owning it. So we like the profile in many, many ways of these projects and you know we've got 200 plus megawatts in the marketplace. So we had first mover advantage and frankly we have a competitive advantage, so we're very keen on the path going forward and our team is focused on projects beyond KOSPO at this point in time, now that we've got this one as an award.

Maybe last one from me just turn into Connecticut and you may have mentioned this, so I apologize if you have, but the legislation there, you know sets up a mechanism or dictates that an RFP will come at some point, I mean any thoughts on timing of that potential size, I mean - and is that a potential path forward for Beacon Falls?

I think there is three questions there. One, I can't really honestly tell you the timing although we are pushing to get that sooner rather than later. The size is going to be, you know again it can be done in two RFPs or one RFP, but it generally if you get it in one, there's probably capacity there to do anywhere from 100 megawatts to 250 megawatt procurement in total, I would say that we get all of that, but that is the procurement size. Beacon Falls and other projects of a similar size could be part of that RFP depending on how they are constructed because right now there is no limit, right the other RFPs there is a 2 to 20 and above 20. This one is undefined at this point. Eric, so that that project could very well fit into that RFP, yeah.

Okay, thank you.

Your next question comes from Craig Irwin with ROTH Capital Partners. Your line is open.

Hi good morning and thank you for taking my questions. So Chip, you've touched on most of the important subjects, but there’s been very little discussion about carbon sequestration, can you maybe share with us next steps in your collaboration with Exxon Mobile and what you expect to materialize from your work with DOE over the next number of quarters?

Craig, good morning. I will do that. So carbon capture we’re doing two things at the moment; one, as you know we’re building this Pilot plant with Southern company actually at Alabama with Alabama Power. And that’s a collaboration between ourselves with the Department of Energy, Exxon and Southern Company, and that’s going to plan. We’re going to be in the construction phase of that this coming year 2018. Okay. And then that’s got a testing portion of it. We are going to test it for coal. We are then going to test it on natural gas and that will go on for a while. Second part of carbon capture is we're working with Exxon, specifically on developing a model for large-scale deployment of carbon capture systems. And when I say large-scale deployment, we’re talking about probably a minimum deployment size per project of 500 megawatts. So working on that whole thing, which is capture rates efficiencies, cost of doing that, operating cost, all those kind of things to go with that model, and third leg in carbon capture is we obviously got a lot of interest based on what we are doing from other people. And some people are from the industrial sector needing to fix their problem if not with NOx and things, so certainly with CO2 reduction or just efficiency improvements like different industrial companies and then there is the people there in the oil and gas business, things like oil sands and other global energy companies that are trying to find solutions to reduce emissions from either post-treatment of coal or post-treatment for natural gas. So, we have got a whole bag full of stuff going on at the moment and the activity level is increasing with the interest level around the world.

Would you anticipate services revenue from this to continue to remain strong through 2018?

On the carbon capture?

Yes.

Yes, so relative to the pilot project in Alabama that’s more of a - if you will of a sale and there might be a year of something in Phase 1 of services agreement. Now we could decide to keep running that thing long-term Craig. We haven't made that determination, but it’s possible that we could develop a long-term service agreement from that. On the other projects that we’re talking to people about, those are more long-term things. So you would see more of a traditional model there where they would buy the plant and then we have a long-term service agreement. But the third leg of that stool which is building large-scale power plants alongside coal or gas plants, which is the end game here, they would absolutely have long-term service contracts, but they would be much, much bigger, I mean 500 megawatts a piece. So, it would be a massive opportunity.

Great, thank you for that. So, my second question is related to the LIPA PPA's and the LIPA projects and then the projects you already own on your balance sheet and developing with your own capital. So this call, I think it is the first time that I have heard you ever mention such a high level of activity regarding potential sale of these projects, can you maybe discuss whether or not this is a priority whether or not that this is something that you see maybe as an opportunity to reduce the capital means to execute on the LIPA projects that you’ve captured? And would you expect this to be an ongoing priority for the company over the next number of years recycling the equity that you have invested in these projects.

Good morning Craig this is Mike. I will take that one. So the LIPA projects, we are talking about them on this call because we were awareded them over in the past month. As Chip mentioned, that’s a 40 megawatt opportunity for the company that has very meaningful revenue and cash flows. These projects will enter construction in 2018. There is very strong project finance interest in the marketplace to either buy these projects or work with us to construct the projects. We’re going for a process right now and we will evaluate the best opportunity for the company to bring capital into the company to enable these projects. These projects will get done and it may turn out to be a mix where we retain some and we sell some. We, again very strong interest we are very cognizant of the fact that it does take capital to build these, but I am very encouraged by the interest in the marketplace and our ability to execute these in a prudent manner over the next year or so.

Great. Do you have a timeline maybe where you might be able to give us investors some visibility on how these projects are going to be executed?

Chip walked through it a little bit on the last question. We - the number one goal right now is still get executed power purchase agreements, the way the LIPA program works is you work with the utility to finish interconnect studies, we have done preliminary work, working with the utility when we put in our bids, after selection you go and finalize all those studies, those studies get wrapped into the power purchase agreements. We’re aiming to have those completed and executed late this year, early 2018, but in parallel we are going through permitting processes on the islands so that we are ready to construct finishing up engineering designs and that type of things. So these will be in construction next year and then power generation late 2018 into 2019 and 2020. As Chip mentioned these are all going to come online at the same time and it will be a staged approach, but a year plus away from actual power generation on these projects.

Great, thank you for that.

Your last question comes from Colin Rusch with Oppenheimer. Your line is open.

Good morning this is Kristin [ph] on for Colin. Thank you for taking our questions. Most of our questions have been answered, but just a few quick ones, particularly as you ramp on the projects in Korea, are there any areas of concern within the supply chain that you have?

Kristin this is Chip. Hello and thank you for filling in for Colin. No, in fact what’s interesting is the projects in Korea are actually simpler to do than some other places even included in the US. This particular project that we’re talking about KOSPO for the first one, we are going to be using our inventory and frankly some of POSCO’s inventory. So there is no supply chain impact at all. It is basically an inventory play. But even going forward these are pretty standard plans and when you think about, they come in chunks of 20 megawatts or more. We like that also from manufacturing perspective Kristin. So, we're very comfortable that we can pace ourselves accordingly, which would still generate pretty meaningful revenue and probably more importantly margins and cash flows on these kind of fast turnaround projects.

Okay, thank you for that. And then as my follow-up, are you starting to see any geographies or applications where you're having pricing power?

This is Chip again. That’s a great question, the other question was good too, but I think Kristin more than pricing power, I think what it is, it is finally people realizing the value of the solutions we have. Like for example in LIPA we mentioned that the projects were awarded offset $76 million of other spending and eliminated another procurement on top of that. Well that’s nice that you put those two together, not everybody does that. The LIPA process is pretty thoughtful. So, I would say that what we're seeing is people realize the benefits of our solution and that’s across the board whether it’s anywhere in the world. So it’s not so much pricing power, it is valuing what we do and that’s why they make decisions to do the projects and frankly recently the projects are doing with us.

Great, thank you for the color and I’ll turn it over.

Okay and there are no further questions at this time. I will turn the call back over to Chip Bottone.

Thank you. I want to thank everybody for joining today and obviously the great questions. There was a lot to talk about today. The things that we’ve done over the last couple of three months, we have been obviously working on for quite some time. So it’s nice to see how these things come together and it was certainly a lot of hard work by a lot of people that aren’t on this call that might be listening. So, I want to thank them for that, but look we’re on a great path here. We’ve got this vastly increasing backlog as Mike said it will start to show up in the numbers here in the next quarter. We’ve got some near-term revenue improvements, which we’re happy about and then the pipeline that we have with the catalysts are very significant and we have high confidence that will be successful on those. So Craig asked about recycling capital, yes we have that optionality in a lot of these projects that we’ve built and are operating fine. So, we feel really good about where we're going and we look forward to showing you what we can deliver based on what we have said we're going to do. So, thank you for your patience and we look forward to talking to you all in the next call. Have a great day.

This concludes today's conference call. You may now disconnect.