Good day, ladies and gentlemen, and welcome to the FuelCell Energy Reports Fourth Quarter 2010 results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) I would 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 fourth quarter earnings call for FuelCell Energy. Delivering remarks today will be R. Daniel Brdar, Chairman and Chief Executive Officer; and Joseph G. Mahler, Senior Vice President and Chief Financial Officer. The earnings release is posted on our website at www.fuelcellenergy.com and a replay of this call will be posted two hours after its conclusion. The telephone numbers for the replay are listed in our press release. Before proceeding with this 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. Now, I would like to turn the call over to Dan Brdar. Dan?

Thank you for joining us this morning. Ultra-clean, highly efficient and reliable, our FuelCell power plants are operating around the world in a number of diverse end markets ranging from utility grid support in South Korea to universities on both coasts of the U.S., to municipal water treatment plants in California. While the year started slowly due to market pressure from the financial crisis, the fourth quarter ended strong with seven orders totaling 12.7-megawatts. Our pipeline of projects continues to grow as now the largest in company history, due to orders already in backlog, the number of projects currently in negotiation, changes in the broad macroeconomic drivers for our business, our success in product cost reduction and our ability to ramp production in response to these drivers. 2011 looks to be a year of returning to growth for FuelCell Energy. I'll get into more details about these and other results after Joe Mahler, our Chief Financial Officer reviews the financials for the quarter. Joe?

Thank you, Dan, and good morning, everyone. FuelCell Energy reported total revenues for the fourth quarter of $19.7 million compared to $20.4 million in the same period last year. Product sales and revenue in the fourth quarter were $17.2 million compared to $16.7 million in the prior year quarter. The company's product sales backlog including long-term service agreements totaled $154.3 million as of October 31, 2010 compared to $90.7 million as of October 31, 2009 which is the highest commercial backlog total in the history of the company. Product margins improved over the prior year quarter by $2.8 million due to lower product and commissioning costs. The product cost-to-revenue ratio was 1.21 to 1 in the fourth quarter compared to 1.39, 1.39 to one in the fourth quarter of 2009 due to lower product costs. Research and Development contract revenue was $2.5 million for the fourth quarter of 2010 compared to $3.7 million for the fourth quarter of 2009. The company's research and development backlog totaled $9.7 million as of October 31, 2010 compared to $14.2 million as of October 31, 2009. The company recently submitted a $34 million proposal to the Department of Energy for Phase III of the solid oxide FuelCell Development program and expect a decision in early 2011. Total cash and investments in U.S. treasuries were $54.6 million as of October 31, 2010. Net cash used for the fourth quarter was $13.3 million; total cash used in fiscal year 2010 was $42.4 million excluding proceeds of public offerings of common stock, which is inline with our expectations. Capital spending for the fourth quarter was .5 million and depreciation expense was $1.9 million. Turning to full year operating results, FuelCell Energy reported revenue of $69.8 million compared to $88 million for the prior year. Product sales and…

Thank you, Joe. FuelCell Energy strategy is focused on driving down product costs while expanding on our key geographic and vertical markets to grow volume. The combination of these two activities drives our path to profitability. The orders received in 2010 were primarily from the U.S.; specifically California, which we believe, represents a reengagement of domestic market. On several of these projects, we saw a variety of financing structures used including traditional project financing, bonds, grants and tax credits as well as new distribution partners with their own sources of capital. The improved availability of capital was instrumental in the ability to close those orders and appears to be driving a steady increase in our domestic sales pipeline. In the U.S. market, our efforts during the first half of 2010 were concentrated on progressing orders in our pipeline, which produced good order flow in the second half of the year. As I said previously our pipeline is the largest in the company’s history. During the fourth quarter, we received seven orders totaling 12.7-megawatts at FuelCell power plants, a more than three point’s increase over the third quarter. For the year, we received U.S. orders totaling 16.1-megawatts, most of this in California including our first direct utility purchases in the U.S. Our third quarter orders included two 2.8-megawatts DFC3000s which will be our first installations of this product in the U.S. In addition to these orders, there were additional domestic megawatt class projects in negotiation, which we expect to reach closure in the near term. Our recent order flow and sales pipeline indicates the growing recognition of the need for base load renewable power and the need to use our newly found abundant and affordable supply of natural domestic gas as cleanly and as efficiently as possible. BioFuel's Energy, a new…

[Operator Instructions) Our first question comes from Sanjay Shrestha of Lazard Capital Markets. Please go ahead.

Thank you. Good morning, guys. Congratulations on a great looking quarter and the cost reductions. A few questions, how should we think about the Connecticut product at this point in time? Where are we with the sort of the different type of financing arrangement for that and any sense you guys might have on what sort of timing we could expect before that thing turns from profit to backlog?

Hey, Sanjay. It's Joe Mahler. I think we should think about it very positively. I think that the projects are good, the models are good. We're in very active discussions with financiers. Every once in a while you hit a little bit of uncertainty and in this case it's around the tax grant so we were actually moving out of the tax grant process into more tax equity scenario and then now it looks like the tax equity grant may be in play. So that would be a real positive for us in terms of getting movement. It has been a slow process. It's not going away and it should move forward.

Okay. Okay. Now so with the Connecticut opportunity at some 44-megawatts right and I think you guys sort of commented on another multi-megawatt order from POSCO, with the record backlog here how should we think about the volume ramp during next year and given the lead time we should be hearing from POSCO in the very near future, shouldn't we?

Yes, we will. In fact the POSCO management team was here last week and we had several very productive days going through them briefing us on what's going on in their marketplace, what there own view is looking forward for the next two years and what their demand is going to be. Part of the concern that they had was with the Connecticut projects with the significant uptick in order flow that they've seen from us here in the last several months, they want to make sure that we're going to have the capacity that they need to respond to the market demands. So it was a very, very productive discussion that really led immediately towards we have to collectively move pretty quickly towards closure to preserve the capacity they're looking for. As we announced both the coming POSCO order and the other things that we have in the queue that are near term for California, we'll be announcing the production ramp target that we're going to be going to and then we will provide color around that in terms of longer term, what do we need to do beyond the existing capacity.

So one point of clarification if I may? So this 35-megawatt capacity that we went to is just to support the existing backlog and depending on how large the order opportunity from POSCO is, so you guys plan to realize what that capacity need to be like?

You are correct.

Okay, one last question from me, then guys. How do we think about your costs to revenue ratio in your existing backlog? Very nice steady progress there with down to 1.2 to 1.0 now, so in your existing backlog, what that number looks like?

Yes, I think that number continue to improve Sanjay. As you know the units are profitable, thus on an individual basis we're still working off a little bit of that legacy service cost that will continue to exist in 2011 and into 2012 but we should be driving this much closer to one to one.

Okay, that's great. Thanks a lot, guys.

Our next question comes from John Quealy of Canaccord Genuity. Please go ahead.

Hi. Good morning, guys. It's Mark Seagull for John. First, housekeeping one if I may? What was the megawatt number shipped in the quarter and then a little further detail on the backlog and the composition there? Can you talk about the total megawatt number and the breakdown there between full systems and components?

Our megawatts shipped in the quarter was seven megawatts. If you look at the product mix outside of service, it's almost evenly split now between the domestic market and what we're sending to POSCO. So we've come much more into balance between those two.

Okay and then just on the existing backlog, do you have a megawatt number there and a split between systems and components?

Yes, its 33.5-megawatts would bet the total and then the split would be modules and module kits would be about 17 of that.

Okay. Great and then just a follow-up on California, given the pickup in order activity, just trying to get a sense of what the opportunity pipeline looks there? I know you've guys have commented on it in the past and it certainly seems to be improving so can you give us a sense of magnitude of the scale of projects that you're looking at right now?

Sure, what's interesting is that with the amount of natural gas that's coming to the market, it's really given natural gas potential customers some visibility towards stable forward pricing. So even some of the projects we've announced, like the Rancho Water District are actually natural gas fueled units. That, combined with the pretty robust activity we've continued to see on the wastewater treatment side, is really making for a nice mix in terms of the opportunities for us. If you look at the 16-megawatt that we closed here in the last half of the year, most of that is California so it's not unreasonable to be thinking about California producing 20 plus megawatts a year going forward and the pipeline is clearly in place to support them.

Okay, that's great color. And then just lastly, how should we think about the cash burn going forward?

Yes. The cash burn, last year we were talking 10 to 12 and we ended up with 42 so we were right on. As we move the production capability up, that should come down. So for example, as we move to say 50-megawatts, the cash flow should be something like six to eight a quarter, or you get to 70-megawatts, it should go down to three to four, three to five. So we can basically move the cash flow down. As orders come in, we'll also get incremental cash. In effect we get some of that, on the deposit we'll get the profit at the front end so that will also put some early cash into play

Okay and a sense of capital layout to move, let's just say from 35 to 50 or whatever the next planned level of production might be?

Yes, it's pretty minimal. We're really doing mostly maintenance capital at this point in time. I mean our projections right now are somewhere, to get to 50 million would be somewhere $4 to $5 million, somewhere in that. So that's really mostly maintenance activities and that's included in the, when we talk about the planned cash use for the quarters, it's included in those numbers.

Okay. Perfect. Thanks a lot, guys.

Our next question comes from Scott Reynolds of Stifel Nicolaus. Please go ahead.

Thanks for taking my questions, guys. I might have missed this but the long-term service portion of the backlog, what's that number?

The long-term service is 67 million.

Okay and of the other part, how should we think about that rolling off in the next 12 months?

It should be within the 12 months.

Okay.

So we basically can deliver in nine to 12 month period.

All right. Sounds good and hw should we think about OpEx on the next couple quarters seeing R&D down the last couple of quarters? Should we see that continuing?

No, well it's basically within, it's within our range. I think for next year we're seeing a little bit of increase in both. In admin and selling, we want to add some sales capacity to that number so that should increase a little bit. And Research and Development probably is closer to what last quarter looked like.

Okay.

On a going forward basis, so it's not big changes in there.

All right. Thanks.

Yes.

Our next question comes from Walter Nasdeo of Ardour Capital. Please go ahead.

Thank you. Good morning.

Morning, Walter.

If we could just touch on the capacity question one more time. So going from 35 to 50, which as I understand, 50 is your current capacity there?

No our current capacity is 70.

70. Okay, so that's going to increase. So then after we go from 70 and above that, that's why it will be more capital intensive on the expenditures side to increase that sort of capacity. Am I correct?

You are correct.

Okay and going from 35 to 50 is that what your expectation is over the next coming quarters or is that like next years expectation?

No, that's our expectation for this fiscal year.

Okay. Very good. Very good. Now if I could just jump over to your hydrogen generation business, which I guess is relatively new to at least in the discussion? Could you give me some understanding of the process that's going to go on? I'm assuming it's from the internal generation and does that have any bearing on the efficiency of the system overall, from the electricity side?

Sure, in terms of the electrical efficiency, there's not much of an impact because when you look at how we're actually producing that hydrogen, we reform whatever fuel we're using, whether it's biogas or natural gas within the fuel cell stack itself. We don't consume all that hydrogen on the anode side of our product so there's literally some hydrogen left over. We've been using it in the process with a catalytic reaction to preheat fuel and water. In this process, what would we would do is working with air products that hydrogen contained in the anode gas would get separated and concentrated can be made available in a high purity stream for an industrial use or refueling so what you end up with, as you look at the total efficiency where your electricity remains relatively constant, you look at the value of the hydrogen co-production stream and the value of the waste heap, you end up with a very high efficiency of combined energy that can be used starting from the biogas or natural gas that you're using as your fuel.

Interesting. What's the additional cost to package that together then?

We're in a demonstration phase with air products and as we work to actually make sure that the demonstration does work, what we need to do, is actually put forward, what we think the commercial vision of this looks like. It would just be a little premature right now but based on the work that we have been doing under the DOE program and the targets that have been set for the value of hydrogen that we are producing; it looks to be a pretty economical and attractive way to produce distributed hydrogen for the marketplace.

Interesting and then just speaking of demonstration units, anything going on with the fuel cell turbine combination that you were working on for a number of years?

It's really waiting for financing for the Connecticut projects because the first megawatts class version of that is one of the projects that was approved by the Connecticut Public Utility Commission. So as soon as those get further along in being able to get finance we'll actually be doing that first megawatt scale. We had some discussions with POSCO last week around that also because there's certainly an interest for their marketplace in having a high efficiency product. One, because there's a high fuel cost but also because it really is a utility play in the current RPS. So we may explore some other alternatives but right now our immediate path is to do it through the demonstration project in the Connecticut awards.

Okay, thank you very much.

You're welcome.

(Operator Instructions) Our next question comes from Matthew Crews of Noble Financial. Please go ahead.

Thank you. Good morning and thanks for taking my call. What was the LTSA revenue on the quarter?

It was around $2 million.

Okay and just to clear on a previous question, the LTSA in the backlog was around 67 million, what was expected to burn off in the next 12 months of that 67 million?

We would expect, we have some units coming online so we should be able to increase that over the two million quarterly number. So it probably grows to a little over three as you go during the year.

Okay and of the product services total backlog that you gave, the 154 million, what are your expectations that are shippable in fiscal 2011.

Under a year for the product side of that, should be, it should be within our delivery plan so it should be nine to 12 months for that.

Okay. That's good. Thank you. And then lastly just maybe some more details on the research on the smaller sized direct fuel cell. Is it dangerous to assume that might be more in the hundred to 150-kilowatts size range? Any more color there?

Yes. There's not a lot more we can say right now simply because POSCO has been waiting for some public announcements for the awards that they believe they're going to get under this program. But one of the things that they went through in quite a bit of detail with us last week when they were here was they view the RPS really as an early market opportunity. It really starts to drive volume for them but as they look longer term they really believe that the building application is one that is every bit as important in terms of the volume and the opportunity that's there because Korea, in general is moving towards some requirements both in government buildings and then eventually in commercial buildings for the use of clean and renewable energy sources. So if you think about in highly populated areas like Korea where most people live in apartment buildings, a lot of dents, locations of office buildings, they think there's a tremendous market, particularly as places like Seoul continue to grow and need to expand their infrastructure. So we were surprised that they viewed this building application as being every bit an opportunity and every bit as big an opportunity as the RPS. So as a result that's why they're actually going to spend their own money to fund the development of this. It's just, it's really an interesting concept. It's one that we wouldn't have discovered on our own and based on the pre-detail review they've done with us, it looks like they may have found a real winner in their marketplace that we certainly hadn't thought about.

Now is that something that's applicable here in the States as well longer term?

Yes. Absolutely. It's a product that we're going to design that's going to be just like all our other products. It's very standardized in terms of where it can be applied. So as we see volume coming from that Korean marketplace, as we look to other markets like the U.S., like Europe, other parts in Asia, it's a product that we can take there and address applications for building there as well.

Okay, thank you very much.

You're welcome.

I'm showing no further questions and I would like to turn the call back over to management for any closing remarks.

We would just like to thank everybody for joining us and we look forward to updating you on our ramping plans and the additional orders we're going to be adding to backlog in our future call. Thank you very much.

Ladies and gentlemen, that does conclude today’s conference. You may now disconnect and have a wonderful day.