Good day everyone and welcome to the FuelCell Energy Third Quarter 2008 Earnings Results Conference Call. Today’s conference is being recorded. At this time I would like to turn the conference over to Ms. Lisa Lettieri of Investor Relations. Ms. Lettieri, please go ahead now.

Thank you, operator. Good morning everyone and welcome to FuelCell Energy’s third quarter results conference call. Delivering remarks today will be R. Daniel Brdar, Chairman and CEO and Joseph Mahler, Senior Vice President and CFO. Our earnings press release is posted on our website at www.fuelcellenergy.com and a replay of this call will be posted two hours after the calls conclusion. Before proceeding with the call, I would like to remind everyone that this call is being recorded and that this presentation contains forward-looking statements including the company’s plans and expectations for the continuing development and commercialization of its Fuel Cell Technology. Listeners are directed to read the company’s cautionary statement on forward-looking information and other risk factors in it’s filings with the US Securities and Exchange Commission. I will now turn the call over to Dan Brdar. Dan?

Thank you, Lisa. Good morning everyone and I appreciate you joining us for our third quarter conference call. Today I will begin with the brief overview of the quarter before having our Chief Financial Officer, Joseph Mahler go through our financial performance. Built on our strong first half of the year our continuing cost reductions, record revenue, backlog and order pipeline and production ramp up were well positioned to close out fiscal 2008 in record fashion. We are on schedule to deliver another 20% cost reduction on megawatt class products to improve production in the second half of next year. With strong traction we achieved over the last year among customers seeking efficient ultra-clean power generation coupled with our investment and ramping up production to fulfill current backlog led to a current run rate of 30 megawatts per year compared to a 11 megawatts last year. As a result of this year’s cost reduction efforts we expect to see positive gross margins on multi megawatt power plant and fill some modules which would be the majority of our production in the latter half of 2009. The market is definitely moving fuel cell but they all needs clean, efficient and reliable power plant that can offer economical power using the fuels available today like biogas and natural gas. Our fuel cell details that and our target markets are increasingly adopting that products. However in a few minutes I will turn the call over to Joe Mahler to look at the quarter’s numbers. Joe?

Thank you Dan and good morning. We are reporting strong product sales and revenues as well as backlog while continuing to execute on our cost out program. Total revenue for the third quarter of fiscal 2008 were $27.9 million compared to the $13.5 million reported in the third quarter of 2007. Product sales and revenues tripled to $23.2 million from $7.8 million in the same period a year ago. The certain development contract revenue was $4.7 million compared to $5.7 million. We are now producing product at a 30 megawatt run rate. The net loss to common shareholders for the third quarter was $26.8 million or $0.39 per basic and diluted share compared to a net loss to common shareholders of $16.2 million or 20% per basic and diluted share in the same quarter of last year. Higher cost volumes of product sales and revenues resulted increased operating losses albeit at a lower rate than in the prior year period as margins continued to accrue. The product cost ratio for the quarter was 1.681 as compared to 1.91 in the year ago period, improved product margins over the prior year can be attributed to result from ongoing cost out program and increased production volumes on megawatt power plants. Product cost reduction is on target with a focus primarily on megawatt and multi megawatt products. The cost to revenue ratio was impacted by manufacturing defect related to a bad part that affected stat production, the impact of this was $2 million charge during the third quarter. The year-to-date cost ratio is 1.65 compared to 2.07 a year ago demonstrating the results of our continuing cost reduction. We are confident we will continue to hit our product cost targets. Product revenue backlog including long term service agreement was a $100.7 million slightly more than double to prior year third quarter. In terms of megawatt it’s 34.6 megawatts versus 13.4 megawatts in last year’s third quarter, last quarter we’ve reported a megawatt backlog of 43.5. As you know, the passing of the investment tax credit by Congress has been delayed, Dan will discuss the status of this in more detail in his comments. From a number of standpoint delay has impacted our backlog, specifically one of our customers requested a change order that has pushed it’s deliveries beyond 2008, which is the end date of the existing credit. Accordingly, in our backlog we have reduced it by 3.9 megawatt value at 11.8 million of product sales and 5.3 million of service contracts. Once ITC passes we will return these to the backlog. Total cash and investments were 104.4 million as of July 31, third quarter net cash is 17.4 million which is inline with our expectations, capital spending totaled approximately 2.6 million and depreciation expense for the quarter ended July 31 was approximately 2.2 million, when you look at the year-over-year comparison we have made significant progress increasing production, reducing product costs and expanding our market. Dan?

Thanks Joe. In managing the company, we watch for market trends and customer requirements that have the ability to shape or drive our business some of these can be internal such as the focus we have applied to our cost out program or they can be external factors like the proliferation of renewable portfolio of standards. Increasingly leasing these external drivers fundamentally improved our long term ability to sell in the key markets, these factors include the broad recognition of the need for energy configuration and efficiency due to concerns about carbon emission and the long term high cost of fuel, the widening demand to develop to renewable fuels and the cost to build adoption of renewable alternative energy products to address our current energy problems. The growing worldwide market demand for high efficiency ultra clean power generation is reflected in our backlog, which doubled to 100.7 million from 49.6 million last year. Importantly, over 90% of that backlog is now megawatt cost power plants and modules. And in response to that demand, we successfully increased production to 30 megawatt annually from just 11 megawatts last year. We’ve also updated our own capacity expansion and alternate plans to be able to respond to the growing orders pipeline. The first major step of our expansion to 60 megawatt of capacity is in progress, later this quarter we take delivery of an additional equipment that doubled our capability to condition megawatt flat fuel module and increases our total conditioning capacity to 60 megawatts. In terms of internal drivers, our cost out program is on track to deliver another 20% reduction in our megawatt class products from several initiatives. One of the increase in the power output for megawatt power plants, there are improvements to the balance of the plant design to use…

Thank you, sir. (Operator Instructions). And for our first question, we go to John Quealy with Canaccord Adams.

Thanks, sir. This is Chip Moore for John. I’d like to start with the $2 million charge really to the manufacturing defect. Is that all in-house or does that affect any units in the field?

No, it’s all in-house, it believes from our long-time supplier where we had a part that sounded flay into production. We actually found the bad parts before units were shipped because we actually take the FuelCell through a testing conditioning process but there were couple of stacks that were impacted as a result but nothing actually found its way outside of the plant. So, our quality control systems actually caught the air of our supplier.

Okay, good. And looking at Connecticut the 16.2 megawatt just to clarify is that completely dependent on the investment tax credits getting extended this year?

The way the projects were proposed they were based on the assumption that the tax credit is there. If for some reason it looks like there’s kind of a protracted delay I suspect that we will get back together with the project participants and see how we want to restructure the projects. But, the feedback that we are getting from both the project here in Connecticut and customers that we are working with in California is everybody is confidence seems to be very high that the investment tax credit will pass which is the question of timing. So, no one (inaudible) and engaging in kind of the restructuring discussion because people are pretty confident that they are going forward as proposed.

Okay. And I guess last one from me given the news that South Korea is increasing its renewable targets as well as increases in California incentive programs. What if any increase are you seeing in RFP activity?

Well actually I have been requested to come over there next week because they’ve got couple of things going on. One is the large dedication ceremony to dedicate the facility where they are going to have a lot of high level executives from the government side and we are going to get our first preview on what we think the expansion with fuel cell program looks like because our partners are pretty excited that they are going to have some success taking the current program and significantly opening up the opportunity for us. So, I expect next week to be pretty exciting in terms of kind of news that we are going to hear based on the feedback we are getting so far from our partner.

In Korea, and what about California?

In California the program has already been expanded there for the self generation incentive program. So, really its just getting the way sort to treatment facilities there municipally owned through their city council processes and start to close some of the orders. We already seen a shift in the kind of projects that we are doing there away from the small 600 kilowatt now onto the megawatt and even some multi-megawatt opportunities. So, they are just keeping moving them along cause they rolled out dependent on the tax credit. The program in California is already there, it’s robust, it’s just working through the municipal approval processes.

All right, thanks.

Welcome.

For our next question we go to Chris Simmons with Simmons and Company.

Good morning.

Good morning, Chris.

Yeah. Just curious if you can give some guidance for the next quarter on the ratio product cost or revenue, should we see it step down a little bit more?

Yeah Chris, this is Joe Mahler. Yeah, I think we are not expecting to have our manufacturing defect come through again. So, that gets you back closer to the 1.5 level. We think we still have product mix, we still have to some old megawatt units cost coming through. So, we think we are going to be in that -- in about that 1.5 range I think in that -- to the next quarter.

And then for next year obviously you stated that in the latter half, calendar year 2009 that gross margin passed it on those multi-megawatt systems. So, when we start thinking quarters for ’09 for the fiscal year for the fuel cell, would we expect it to be a gradual improvement throughout the year or more of a step change towards the end of Q4?

Well, I think where you are going to see is -- having over 30 megawatts in backlog where all the older design its kind of take us to a couple of quarters to produce the rest of that. And then when we actually start putting the units in production that have the next round of cost reduction, you will probably see the quarter where you got a blend and then you will see the next quarter out probably the fourth quarter you start to see significant change in it.

And then Joe on capital, looking at the balance sheet right now on the cash and then the cash burn, what are your thoughts on capital is?

Yeah, obviously we keep it right now -- we can’t direct this every quarter. Here’s we look at that number and as we look forward we are -- we want to launch capacity expansion of this business. We expect that the order flow will drive that process and I think that’s when we really look at that issue. We see a lot of good news coming in this business and we see significant opportunity. We think the market is really resonating on efficiency at this point. I think we are getting through first wave of the alternative energy, wind and solar. People are implementing it. They are finding it intermittent and now we are getting a lot of feedback from especially Korea and California about efficiency and we see our product fitting very nicely in that. So, that’s the dynamics we are looking at in terms of capital rate.

And then finally, Dan if you could provide an update what’s going on in Europe, is there any new developments where we could see that market turn on?

Yeah, it looks these are familiar, we have a licensing arrangement with CFT solutions is used to be part of MTU but a long-term agreement that’s been around for probably 15 years. That license agreement actually ends at the end of next year. So, we are having discussions with CFT solutions in terms of how do we accelerate the progress in that market because Europe is a market that should be producing significantly more orders than it does. But if you are able to find a way to work with them to accelerate that market great, but if not, this would become the non-exclusive market at the end of next year. So, we could also partner with others. And if you look at the companies that we are working with now, folks like (inaudible) industrial gas company in the world, (inaudible) Germany we have several partners than actually have a significant European presence but I think we might have an opportunity to participate in that market. So, we see how our discussions go with our partner but if my view is generally been that if you have competition in the market place you can stimulate the market little faster.

All right, thank you.

We go next with Sanjay Shrestha with Lazard Capital Markets.

Hi, guys. It’s actually Gramin for Sanjay. How are you?

Good morning.

A simple question on SG&A in the quarter, tend to come down pretty significantly in some prior quarters. Is there anything one time in that or is that just slower sales being recognized?

No, its really more go back to last quarter was a little higher. In the second quarter you had your -- lot of shareholder costs come through. You got your annual meeting (inaudible) thus we had some incremental sales and marketing activity in that quarter changing some contracts and working on the finishing of the project 150 in Connecticut activity and I think you are back down to a more standard level.

All right, it’s a pretty good run rate for the coming quarters.

Yeah and its probably I mean the other factor that comes to is stock, even non-cash item comes through stock compensation. It could be slightly higher going out but it’s in the right range now.

All right, perfect great. And then also looking at the R&D backlog I know you mentioned in some federal contract. What’s your outlook for potential or there additional larger activity in that R&D market?

One of the biggest changes that’s been happening over the last year is the backlog that we’ve been coming down on is the (inaudible) program from US Department of Energy. We are coming to the end of the first phase of that contract. We are in the process of proposing for the next round. So, we expect to be pretty successful, their base number we are hearing on, our performance in round one. So, going in the Phase II will be $20 million to $30 million new award depending on way the contract finally ends up. So, we could have a pretty significant increase here in the coming months in terms of the funded backlog as part of government R&D side. So, with some pretty interesting opportunities out there in front us and two other reflection of some of the current programs to reaching the logical conclusion before the next round starts.

Great. So, that would be in the coming next quarter to or just I’m trying to get an idea there, timing when you think it might here something on that?

That would be sometime in the next quarter.

Got you. And, then one final question I could, just following on Peterson’s question looking beyond, are you seeing any other markets that are good potential for you particularly other Asian market outside of Korea?

Well, actually there are couple of things that are going on, we are seeing activity again now in Japan because finally the ability to artificially hold electricity rates its kind of run out in there. So, Japanese partnerships in backlog and that’s a couple of pretty large projects they are doing, we have been approached by people who want to find away to bring our product to other market like, India and Australia. So, when the process is evaluating, which of those make them more centralized where we can be competitor, we’ve already paid actually be able to support them from service standpoint. So, as the result of our cost coming down and just energy prices going up around the world, we started to see other market that’s actually coming to ask, to look at how they can bring the product in country to help adjust some of those issues.

Okay, great thanks very much.

Welcome.

(Operator Instructions). We will go next to David Wilson with Neuberger Berman.

Actually my questions has been answered, thank you.

And with a follow up question, we return to Chris Simmons with Simmons & Company.

Yes. The first question, are you seeing any new competitors emerging in the markets that you are targeting?

Well, what’s interesting is, we have seen united technology actually reengaged in the market but the success that we have been having capturing orders and we got more in backlog right now, when I think they have produce problem last ten years. So, I think when we come to the real market we are seeing them actually look at how they can take FuelCell technology in trying to position it into the market place. So, actually running into they from time-time-time in the market which is good having other players out there help simulate the market, in many other companies they are spending a lot money I am FuelCell technology like seems and another are still several years away from product, they are still doing with quarter technology issues but its pretty clear that we are going to see a lot of players out there in the coming years when they finish their technology development stage and so long product are.

And, then have you had any discussions with any say, solar integrators or companies like that, that are selling solar farms that might be looking space load, clean and noble power generation technology (inaudible) up there?

Yeah, we are seeing that specially, now that we have installations like (inaudible) were it’s actually demonstration of. So, (inaudible) fuel cell based load and with only done the short put there new factory, where they could follow on roof and [chuffers] into base load, we having a couple place like that particularly from high profile customers in operational, people really certain understand. So on FuelCell, we working very well together in terms of what the product attributes are and a kind of loan profile that served. So, those who really certain simulate people looking at more comprehensive solutions.

Great. And then one final question, they have seen a little after all but we got a number of domestic natural gas companies, that have great deal of success and in shale place and natural gas production is growing quite rapidly in the US, and these companies are now actively seeking ways to utilize natural gas, an obviously the (inaudible) plan we see the as on television about utilizing more natural gas, have you had any discussion or given any thought to try tap under this potential incremental supply on the natural gas side?

Absolutely, there is really two place here. First, is to distribute that gas once they produces place right to the direct fuel cell energy recovery generator product that we are now starting to roll out, that we been installed and attract because all those are going be high pressure gas distribution system there ultimately creating an opportunity to put up Fuel Cell in to be with their operating issues to, when they go to the pressure let out station and the other is just, at the gas companies in general are always looking for way they can get into the electricity side of the business because it enables and pick there product and basically generate by -- higher source of revenue by making electricity. So, we are seeing the gas company, the one has actually start to have a bigger role particularly from the independent, one understand more about the product and they are coming to land what we are doing, what are operating experience is there, and look likes products we have offer. So, all this focus on the gas industry is actually really got most people and that’s space looking for some solution that will help address some of the concerns people have about important oil and also the environment. And, our products really fit very nicely into that.

Great, thank you very much.

Thank you.

We will go next to Walter Nasdeo with Ardour Capital.

Thank you, good morning.

Good morning, Walter.

Most of my questions have already been answered, one thing that I was curious about since obviously moving to the megawatt and multi-megawatt, product line. What’s the –do you felt of the sub megawatt unit going forward, I know you clearing some out of the existing, what does is that looking like going forward and how challenging is that if they are significant already in some that area? How challenging is it to get the gross margins, where they need to be from back has you blend them together?

No, if we drive volume by doing megawatt or multi-megawatt, that benefits to the cost basis of the sub megawatt unit. The sub megawatt unit really has two challenges with it. One is, this transaction productivity it doesn’t take longer to sell one or two megawatt unit and does a 300 kilowatt unit. So, we really want to look for ways to do aggregation schemes, where you can take one customer discuss multiple sides, where we can provide 300 kilowatt unit and the other is just the unit cost basis but all those things that we are doing on reducing the cost of the core fuel cell stack, which also module and the volume that comes at the multi-megawatt, all that do help that sub megawatt cost structure. From the business standpoint, what we are basically doing as we’re limiting the number of those, that we put in our production plan, just because most of the opportunity that we see coming our way are megawatt based.

Got you, okay. And, far as capacity goes, you ramped it up to 30 on the run rate of 30, what your expectation on getting at the 50?

Its really the function of what we see for order flow here in the near term, if you look at if you took just the BSE project that we actually took out of backlog and the current rounding Connecticut that alone is 20 megawatts, once it passes on the grabbed up those contracts did always suddenly better put in the backlog people don’t want, 18 month till every times. So that forces us to ramp and we are expecting to see our Health Care partner. PASCO power partners coming back for what their needs are for 2010. So, under our current planning we are going to be ramping again when we get into the beginning of 2009 and that order flow will drive how high we ramp.

Okay and in which (inaudible) PASCO’s assembly facility is online what is that deal for filing up capacity on year end it’s the whole consider into calculation that you got in, you can actually these capacity assemble it up?

No, it is actually what (inaudible) which we outsourced now and I think we buy the products and then we have package of assemble for us. So, we wanted to make sure that where business ramps and as they have their own facilities that we will be getting the benefit of that volume. So, when we are buying that completed fuel cell module which is from our factory which is what we always been making and there will be a shift to making the outsource balance of plant design.

Thank you so much guys.

You are welcome.

And we go next to [Lord Tom] with Oppenheimer.

Good morning

Good morning.

Two questions, lets think the government (inaudible) you would expect that fuel cells would be bounding over the Pennsylvania, you guys have any sales prospects in Pennsylvania or other states that have renewable energy initiatives?

We haven’t focused having it on Pennsylvania yet simple because we see markets where the current pricing provides a little bit better opportunities, prices like New York state, I will state purely in the North East with Pennsylvania because of their proximity to very cheap dirty coal plants in Mid West and that a lot of old coal plants within the state would be overall cost of electricity is still relatively lower compared to the other northeastern markets but in DCU the state developing their own plans on how they are going to facility, they need the portfolio kind of mandates and is starting to see the price increases. So, it’s a market because of its signs and because it’s moving towards solutions but I would expect (inaudible) after as well and probably some time within the coming year.

Lastly there was article line deteriorating nature of national grid in the times the other day and it would have seem to me unless I have it wrong this was really a add for distributor generation and yet there is no mention of distributor generation in the article. Is there anything am I thinking wrong about this?

No, you are right on target in fact, if you really look at who drives the lot of policy, we spend the lot of time talking with the regulators in California and elsewhere. California actually is starting to move towards distributor generating solutions by mandate because they understand the challenges of building new transmission. Now, here at Connecticut we are in the process of having a 20 mile transmission line its costing $1.2 billion and it’s a [nearest] to get it through over the public approval process, you start looking at more urban areas and even if you wanted to closing transmission its such a lengthy and cost prohibitive activity that the regulators were starting to mandate some of these distributed solutions. Let’s start with California and there is actually programs that are already in discussion out there and we will see that trend to come in.

Thank you

You are welcome.

We will go next to David Wilson with Neuberger Berman.

Hi, could help us understand the effect issue to a greater extent was this an item of manufacturing, or is it component that runs into the fuel cell itself and do you avoid that happening again and is there any potential for recovery either from the supplier that its truly defective component I am not sure I understand it well that’s one of the clarification and/or insurance?

The part that we are talking about is from a long time supplier where they basically make a particular component for us so we expect (inaudible) and what they were producing actually got out of spec and since we have pretty tolerance whole lot of components when you get at components that’s not a spec like that if it flips through their testing we don’t expect every part to come down because its not a practical way to be with quality issues. And in two production it actually got into complete stacks. Now fortunately when we go to actually condition the stack and put it on power test we can see that there is actually a problem there so we don’t have actually something that escapes but there are some parts (inaudible) buy pretty much of a finished piece material that we don’t see the impact of them until they are actually into a completed unit. Now we have gone back to the supplier to make sure that we understand why did that happen in both in terms of how their process went out of spec and then how the part actually got outside of dislodged control procedures themselves and we put corrected actions in place both on our end and their end to ensure that doesn’t happen again. But it is one of those things where because we had worked with the supplier for such a long time and had bought so many of these products with them and sell them over the years. One that I think people just got a little bit lazy on the process side and a lot of things to escape. While billing to recovery from insurance standpoint I think its limited because the impact of that its one of the things we wanted to explain and put into production, the value impact is beyond the magnitude of what the supplier did. So, its one of those things we have it view it from a scrap standpoint and hopefully that’s the robust processes where you can limit to a sort of things from happening.

And is the nature of this component is such that you will continue to deal with the supplier, do you have the second source in the supplier?

One of things that we are doing is now as volume to getting the second source on the supplier so we actually can make sure that not only getting the parts that we need by changing some of the processes that we use for controlling quality but we are not stuck with somebody that might be on underlying supplier in higher volumes.

Can I ask one more not relating to the defect but to the hydrogen side, this has been talked about in your 10-Qs for a while and you chose to make it part of your release, is there a reason and its coming to the slower ground now?

Because we have received it during the contract for further development of that activity so just a factor that’s its – relative significant R&D work on the successful quality and with the reasonable inputs.

Thank you.

You are welcome.

And with that, ladies and gentlemen, we have no further questions on our roster. Therefore, Mr. Brdar I will turn the conference back over to you for any closing remarks.

I want to thank everyone for joining us on today’s conference call and we look forward to speaking with you again in our next quarter. Thank you everyone.

And again, ladies and gentlemen this does conclude the FuelCell Energy third quarter 2008 earnings results conference call. We do appreciate your participation and you may disconnect at this time.