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Plug Power, Inc. (NASDAQ:PLUG)

Q4 2013 Earnings Conference Call

March 13, 2014 at 10:00 a.m. ET

Executives

Teal Vivacqua – Director-Marketing Communications Media and Investor Relations

Andrew J. Marsh – President and Chief Executive Officer

David P. Waldek – Interim Chief Financial Officer

Analysts

Matt Koranda – ROTH Capital Partners LLC

Rob Stone – Cowen & Co. LLC

Alex Blanton – Clear Harbor Asset Management LLC

Jerome Brown – Garcia Venture Capital

Operator

Greetings, and welcome to the Plug Power Fourth Quarter 2013 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Ms. Teal Vivacqua, Director of Marketing Communications for Plug Power. Thank you. You may begin.

Teal Vivacqua

Good morning, everyone, and welcome to the Plug Power 2013 fourth quarter and year-end conference call. This call will include statements that are not historical facts, and are considered forward-looking within the meaning of Securities 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, including but not limited to statements regarding our expectations for 2014 business and financial performance, including expected sales orders, revenue, gross margin, EBITDA, operating cash burn rate, geographic and market expansion, inorganic growth, and our expectations regarding the acceptance, performance, and impact of our GenKey Offering, including a more predictable business model and revenue stream.

These forward-looking statements contain projections of our future results of operations or of our financial position or state other forward-looking information. We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control, and that may cause our actual results to differ materially from the expectations we described in our forward-looking statements.

Investors are cautioned not to unduly rely on forward-looking statements, because they involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors including, but not limited to the risks and uncertainties discussed under item 1A Risk Factors, and Plug Power’s annual report on Form 10-K for the fiscal year ending December 31, 2012 filed with the Securities and Exchange Commission on April 1, 2013; and is amended on April 30, 2013. And the reports Plug Power filed from time-to-time with the SEC.

These forward-looking statements speak only as of the day on which the statements are made, and are not guarantees of future performance except as may be required by law, we do not undertake or intend to update any forward-looking statements after this call.

Andrew J. Marsh

Thank you, Teal. Good morning, everyone. This is Andy Marsh. A lot has happened since our last earnings call. And when I step back and look at it all, I’m more bullish than ever that Plug Power is in the early stages of a very rapid growth market. I’m also bullish that we will make our goal and EBITDAS breakeven in 2014. I really feel that we are now well-positioned that being a long-term profitable market leader, and a driving force in the hydrogen fuel cell market. But viewing this in optimism is the sales and financing momentum we’ve seen since we reported in the third quarter of 2013 earnings in November.

In the fourth quarter, new order bookings are more than $32 million from new and expanding customers including Walmart, Kroger, BMW, and Mercedes fueled that growth. In addition, with strength in our balance sheet from fund raising and the exercising of warrants as a result, we have $66 million in cash at this present time. Also in the fourth quarter, we announced our GenKey suite of hydrogen fuel cell products and services, which I can confidently say is an important product for the future of Plug Power. Our first GenKey order was booked in the fourth quarter from Kroger.

In February, we’ve also received our largest order ever, which was a GenKey order from Walmart. While we’re here to talk primarily about the results from the fourth quarter, and the full year 2013, I wanted to mention that this Walmart agreement helped us to exceed our first quarter 2014 sales booking target of over $32 million.

As some of you know, Walmart has been working together with Plug Power since 2007, entered successful fuel cell beta trials led Walmart to purchase GenDrive units for their food distribution center in Washington Courthouse, Ohio and Walmart Canada facility in Balzac and Cornwall for a total of 535 GenDrive deployments.

Last month was a high point in the first quarter of 2014 when Walmart again demonstrated its trust in Plug Power by ordering an unprecedented 1,738 GenDrive units, more than tripled the total original number deployed for six additional North American Distribution Centers.

However, this milestone order is just not for GenDrive, it’s for Plug Power’s new, all inclusive GenKey solutions, which also includes on-site construction of our GenFuel infrastructure, and a multi-year contract for our GenCare maintenance service agreement at each location.

The beauty of GenKey is that it enables a smooth transition away from lead acid batteries by giving customers the entire start to finish package needed for incorporating hydrogen fuel cell in the business operations. GenKey has three distinct elements. GenDrive fuel cells. We have a full suite of GenDrive products already developed and match a wide range of forklift and power trucks. And we are constantly working on research improvement and innovations to enhance the products we offer in the market.

GenFuel, hydrogen fueling infrastructure, this puts hydrogen storage and refueling technology right outside, it enables customers to take advantage of Plug Power economics of scale purchasing power to obtain cost-effective, cost-efficient hydrogen fuel. GenCare maintenance service, this provides year-round care to GenDrive units, and hydrogen infrastructure by Plug Power technicians and delivers preventive maintenance, rapid response service, system monitoring and periodic system enhancements.

I strongly believe that our momentous Walmart order lays the foundation for similar GenKey orders in 2014 and beyond for both current and brand new Plug Power customers as the value proposition of a GenKey-based hydrogen fuel cell infrastructure from a single source vendor becomes apparent.

GenKey matters to our customers, because it offers dramatically simplified path to a complete hydrogen fuel cell solution. But GenKey matters to our investors too. GenKey provides a recurring and increasing revenue stream that is expected to give Plug Power a more predictable business model.

And over the last day, and yesterday, we received our first GenKey order from a new auto manufacturing company. In the coming weeks, we’ll provide an update about this win after discussions with the customer’s marketing department.

Now, those of you who are wondering if Plug Power has the ability to fulfill the increasing large number of orders, we expect we’ll be pleased to know that our state-of-the-art manufacturing facility in Latham, New York has the capacity to produce 10,000 GenDrive fuel cells per year so we can readily ramp up for expanded production without missing a beat.

Now, I’d like to provide some guidance by quarter for the remainder of 2014. In the first quarter, we expect to see revenue ranging between $5 million to $6 million with an EBITDAS loss of minus $5 million to minus $6 million. We’ll start to see the impact of our $32 million in fourth quarter bookings in the second quarter.

In the second quarter, our revenue will range between $16 million to $18 million with an EBITDAS range of minus $2 million to breakeven. And during our update call in April, as well as in our earnings call in May, I will be providing a breakdown on shipments to date at that time.

For the entire year, we expect revenue of $70 million, and positive EBITDAS of $1.5 million to $3 million. The company is targeting EBITDAS breakeven in the third quarter, and net income positive in the fourth quarter outside extraordinary events such as the execution of the remaining 4.5 million warrants outstanding. When I think about 2014, I’m really excited at the momentum that Plug Power has built up and the commercial activity we’ll be able to execute on.

2014 marks the first complete year where the business will operate with seamless continuity from the previous year. We have high quality products that customers understand are reliable. We no longer have to prove out the value of GenDrive to customers as a 4,500 units now in the field have shown that this is a viable solution for large scale deployments.

It is our firm belief that, that orders in 2014 will be a clear indicator of how dependable GenDrive product suite is complemented by the GenFuel and GenCare elements. In 2014, we expect about half of our deals to be GenKey in nature. From a quarter perspective in 2014, we’re projecting over $150 million for the year. Our expected company we’re announcing two to three – we’ll be announcing two to three more multi-site customer wins similar to outer mark [ph] set with Walmart contract.

We are executing our plans to reach EBITDAS breakeven this year. Our recent order flow has positioned the company to dramatically increase shipments in 2014, as we turn these orders into sale. We believe we will be able to fully absorb the base load with indirect overhead, and drive efficiency to manufacturing.

I’d like to discuss in some detail the improvements the company is making in reducing material costs, and improving the efficiency of our service business. For the past several months, Plug Power has addressed product-first margins for our entire suite of GenDrive products. By completing a number of sourcing and engineering initiatives that has helped us achieve more than 10% additional margin for our products that are set for delivery in the first half of 2014, an increase in global sourcing, combined with additional leverage from volume was a key driver of our cost improvement.

Additionally, we completed a detailed cost analysis for each of our key components that had allowed us to better understand the raw material mark up, and further negotiate with the suppliers based on our calculation.

Lastly, our extensive knowledge of the pricing application has allowed us to complete the design improvement and significantly change our cost structure. A good example of the company’s cost reduction work is the Air Compressor for a high power product line. In this example, we were able to improve the liability, manufacturability and cost all at once.

Due to the increased sales volume, we’re able to shift several of the internal components to a lower cost die-cast process, which yields tight tolerances and reduced machine time. We also helped our supplier utilize our global supply chain to reduce cost for other products internal to the compressor.

Overall, we were able to reduce the compressor cost by 29% and product margins by over 1% for just this year. In all, I expect the gross margins for products in 2014 will be above 25%.

Service margins improved significantly in 2013, but we still have some challenges to improve this part of the business. To achieve profitability on our GenCare service product line, the following factors are critical to driving service margin improvements in 2014.

First, there’s been enhancement to our Class 2 and Class 3 GenDrive products that we’ll be shipping in 2014 that have been updated for improved reliability, and easy field serviceability.

Second, 2014 sales volume will result in a significant shift in product mix for our installed base. The majority of the installed base mix by year-end will be newer models that feature improved reliability over earlier models.

Third, we’ve increased the fuel unit volume service per technician, which has reduced per unit labor cost. Fourth, improved embedded software, case diagnostic and GenDrive units provides a higher degree of diagnostic accuracy. And fifth, ongoing material cost reductions result in lower replacement costs.

We also expect 2014 to bring some significantly new market activity. Although Plug Power’s primary focus has been forklift and pallet trucks in warehouse distribution center, growth opportunities abound in adjacent markets within the material handling market.

Plug Power has already began testing in market expansion projects in three major areas. Transport refrigeration units or TRU, or the air-conditioning units operate inside the trailers pulled by big rigs, which help keep fresh or frozen products chill.

Installation of fuel cells to power these units reduces noise levels, decreases NOx emissions, and cuts operating expenses. Most significant value is, there was a simplification of the logistic models for our potential customers.

Many deliveries cannot occur between 12:00 AM and 7:00 AM because the acoustic noise of the diesel generators. For fuel cells, there is a potential that companies like Cisco could deliver into metropolitan areas at night, thus reducing the number of required trailer.

As many of you know on the call, also, we have exciting programs going on for ground support equipment in airports and vehicle range extenders, which have developed the addition of hydrogen fuel cells, the battery power parts of delivery trucks, mail trucks, taxies and port vehicles to nearly double the distance travel between recharged. This reduces what’s known as range anxiety, where drivers would fear their vehicles will run out of juice where they can be recharged.

This hybrid system is currently under development by Plug Power based on a $3 million project funded by the U.S. Department of Energy and Federal Express for 20 FedEx electric delivery trucks to be deployed in the LA Basin.

With all this, opportunities have in common is they take advantage of Plug Power’s unique position as the premier integrator of hydrogen fuel cell technology. This position has been hard won. Plug Power products operate in very extreme environments, forklift trucks are typically driven more hours in a month than a car is driven in a year, and they are lifting up to three tons and being driven in freezing cold and sweltering heat, through all that GenDrive products have proven reliable.

As we grow our business, we’re looking at two new types of opportunities. First, there’s opportunities adjacent to our current customer base such as transport refrigeration units. These make sense for Plug Power because they potentially provide our present customers more value from their infrastructure investment.

Second, we’re looking for markets where the dynamics are very similar to our existing business. As where customers can cost justify, the fuel cells and infrastructure base and productivity and environmental benefits. Our tugger and hybrid delivery vehicle opportunities fit into this category.

As we explore new geographical markets, we want to find partners that can help us with market entry. Our joint venture with Air Liquide in Europe is starting to bear fruit. We’re also looking at potential partners in Asia, and I hope to have some news for you soon if that opportunity is in that marketplace.

Plug Power has been and remains a premier system integrator in the fuel cell industry. We continue to lead the way in commercializing this technology, specifically in the material handling market by providing a power solution for electric lift trucks that allow for increased productivity, lower operational costs and a reduction in greenhouse emission.

Some may say, we’re pioneers in this space. Many industries have pioneers lead the way as they grow and become every day part of people’s life. And often would our staff compare us to the cable TV industry. Cable operators start up by serving a niche market in rural towns and expanded their leadership to a dominant position in broadband throughout the world. They started the hardware business, and thought to address both hardware and content.

Plug Power has forsaken the ground commercializing our large niche market and material handling. We are growing, and we’ll continue to grow. Plug Power has the right leverage points in place. We’re using the volume and market to reduce our costs like the cable TV providers we’re laser-focused on increasing our customer base and revenue per customer.

Our fuel service offering are now just a content CATV providers, and in one-way which allows us to increase revenue per customer. Our longer-term goals has remained the same for many years, which is replacing batteries in diesel engines in a wide variety of applications with our hydrogen fuel cell solutions, while offering these customers a variety of service. Our work everyday is towards this dream, but to reach that goal, one must take care of the present.

In 2014, our primary focus is building a huge business in material handling market that we’ve already begun to build. Equipped with a strong balance sheet, Plug Power will continue to explore opportunities to grow this market faster. And we’ll provide updates on these activities during our April 17 business call.

I’d now like to turn the discussion over to Dave Waldek for a discussion of our fourth quarter results.

David P. Waldek

Thank you, Andy, and good morning, everyone. The financial information we just released and are discussing this morning consist of preliminary estimates prepared by Plug Power’s management, and as such maybe subject to final adjustment. Therefore actual results may differ from these estimates. The final financial information will be included in our filing of the Form 10-K on or before March 31, 2014.

As Andy noted, we now have approximately $66 million in cash on hand after our 22.4 million registered stock offering, which closed this past Tuesday. We also have had 46.2 million warrants exercised from 2013 to-date, leaving 456,000 warrants outstanding, plus the 4 million warrants issued in January of this year at a $4 stock price.

During the fourth quarter of 2013, we shipped 279 GenDrive units. Our backlog as of December 31, 2013 was over $50 million, and was comprised of 1,445 unit orders, as well as our GenCare and GenFuel service orders. Currently, our unit backlog is over 3,000 units. Product and service revenue for the fourth quarter was $7.8 million compared to $5.7 million for the fourth quarter of 2012.

Research and development contract revenue for the quarter was $267,000 compared to $226,000 during the fourth quarter of 2012. The gross margin for products and services for the fourth quarter 2013 was a loss of $2.8 million, an improvement compared to the gross margin loss of $3.4 million for the fourth quarter of 2012.

The gross margin loss in the fourth quarter of 2013 resulted primarily from fixed overhead costs associated with a number of units shipped compared to our capacity, as well as cost incurred to service the installed base.

In our operating expense categories, selling, general and administrative expenses were $3.5 million for the quarter compared to $4 million in the fourth quarter of 2012. The decline in SG&A expenses from the prior year is attributable to the restructuring plan we had announced back in December of 2012.

Research and development expense for the quarter was $778,000 compared to $1.3 million during the fourth quarter of 2012. Operating loss for the quarter was $8 million compared to an operating loss of $9.5 million in the fourth quarter of 2012.

Our net loss for the quarter included a $20.9 million non-cash charge related to the change in fair value of common stock warrants. Including that charge, the net loss was $28.9 million or $0.28 per share on a basic and diluted basis. Excluding that charge, the adjusted net loss was $8 million or $0.08 per share on a basic and diluted basis.

Based on the increase in our stock price during the first quarter of 2014, we expect to incur additional significant charges related to the change in the fair value of those warrants in our first quarter 2014 financial results.

Please reference the financial tables in the press release for a reconciliation of net loss to the adjusted net loss. The net loss for the fourth quarter of 2012 was $8.5 million or $0.22 per share, and included a $1.1 million non-cash benefit related to the change in fair value of common stock warrants. Excluding that benefit, the adjusted net loss was $9.6 million or $0.25 per share on a basic and diluted basis.

In total, our loss before taxes for the quarter included $22.6 million in non-cash expenses from a combination of depreciation, amortization, non-cash stock compensation and the change in fair value of those stock warrants. Weighted average shares outstanding for the quarter were $103.5 million. EBITDAS loss for the quarter was $6.3 million, compared to an EBITDAS loss of $7.9 million in the fourth quarter of 2012.

Net cash used in operating activities for the quarter was $8.9 million. As of December 31, 2013, the company had $5 million in cash and cash equivalents, and $11.1 million in working capital. And this compares to $9.4 million on cash, and $6.9 million in working capital respectively at December 31, 2012.

Let me turn it back to Andy for some final comments.

Andrew J. Marsh

Okay, I think the lines to be opened for questions. Melissa, I guess, we should be pooling for questions.

Question-and-Answer Session

Operator

Yes. Thank you. [Operator Instructions] Our first question comes from the line of Matt Koranda with Roth Capital. Please proceed with your question.

Matt Koranda – ROTH Capital Partners LLC

Good morning, Andy and Dave. Thanks for taking my questions.

Andrew J. Marsh

Good morning, Matt.

Matt Koranda – ROTH Capital Partners LLC

Just wanted to start out with the 3,000 units in your 2014 guidance, can you break out the percentage of the shipments that you expect where the sites for these units have the hydrogen infrastructure already installed versus where it needs to be installed? What percentage of the shipments, how does it break down?

Andrew J. Marsh

Well, it's a good question, Matt, and I don't have – I'm going to give you a rough estimate Matt. And I would say, today, probably in those sites it's probably 25% have the equipment installed already, a good year. We have very strong orders from people like Walmart and Kroger where a large number of units are being shipped which we're building infrastructures as we speak.

Matt Koranda – ROTH Capital Partners LLC

Okay. That's helpful Andy. And then, so you said that you would achieve 25% gross margins, is that for the full year 2014, Andy and can you talk to us about gross margins trend during 2014 as volumes begin to pick up?

Andrew J. Marsh

Sure, Matt. The big – there will be a – I think that from the prod point of view, product margins by the fourth quarter will be over 30%. We've really made some changes, improvements in the product performance. I'd expect product margins in the first quarter to be zero or slightly negative enhancing in the second quarter ramping further in the third. We're in good shape for Q2 and Q3.

One item that I don't know if you caught during the call I promised on the two next update calls in April and on the earnings call in May, I'll really review where we are, with shipments during the quarter and revenue and provide some insights into the best I can into where we view the margins at that time. But our factory at the moment is really beginning to pump out units for the second quarter, so it's pretty exciting time.

Matt Koranda – ROTH Capital Partners LLC

Okay. Great. And then in terms of bookings, you mentioned $150 million in potential new orders in 2014, with about $60 million already booked for the year.

Andrew J. Marsh

I committed to that already. That's not – I had mentioned. I had committed to that, Matt.

Matt Koranda – ROTH Capital Partners LLC

Yes. Just to clarify that, that's why you’d committed. You know when you strip out the $60 million that has already been booked for the year. I'm getting a $90 million potentially in bookings for the remainder of the year. Maybe could you just break out how you expect this to kind of trend between the remaining quarters in 2014?

Andrew J. Marsh

No, Matt. I tried to – that's a good question. I would think about the second quarter being in the $20 million to $25 million range in the third and fourth quarter, increasing to $30 million in the third quarter to $35 million in the fourth quarter. No, I don't – I've been a – as I think people in the call now have been pretty conservative over the last six months about orders.

And these are numbers that we're very, very confident enough and we're – quite frankly, we're targeting to do more large deals like the Walmart deal with customers and like to have a dramatic impact put on the numbers, but we want to give people on the Street a clear view of what's achievable without stretching the company.

Matt Koranda – ROTH Capital Partners LLC

Great. That's it for me, Andy. Thanks.

Andrew J. Marsh

Okay, thanks, Matt.

Operator

Thank you. Our next question comes from the line of Rob Stone with Cowen & Company. Please proceed with your question.

Rob Stone – Cowen & Co. LLC

Good morning guys. Andy, I wonder if you could just spend a minute on helping us to understand the timing difference between booking and shipping – you booked a bunch of business in Q4, shipments remained relatively low and you're guiding for a lower revenue in Q1. So for a new full site order, what's involved, what's the lead time? I mean if you could comment on what amount of your business comes from incremental orders with customers who already have sites and what the lead time is for that sort of thing. Thank you.

Andrew J. Marsh

Sure, Rob. So I think I'll use an example of order we received from Kroger, we received in December. And that unit is those systems are being shipped as we – will be – being shipped and delivered in the May timeframe.

And for new sites, and there can't be variations there, Rob, just because sometimes, customers may want to push out some deliveries and have some initially delivered. But I think for new sites, you can think in terms of four to five months from the time of orders. For customers who already have units, I think that it's usually about 13 to 14 weeks, and it can be earlier, depending upon what the mix is. But that's the delivery time.

And I think, Matt – and I think, Rob, that's kind of again why we have these and I know they won't continue forever, the monthly update calls that we're trying to put in place. And I, I personally know during this ramp cycle that the best thing I can do is to have a regular dialogue about what's going on our factory, what's being delivered to customers, what orders are coming in, and that' a commitment I've made to people. We've been doing it since October and we'll continue to do that.

Rob Stone – Cowen & Co. LLC

A follow up, Andy, if I may. You talked a lot about things you're going to do to improve product costs this year. I know one thing you've talked about, this longer range is second-sourcing and also internal stack development.

Andrew J. Marsh

Yes.

Rob Stone – Cowen & Co. LLC

Can you provide any update there?

Andrew J. Marsh

Sure. We have been – we try to give some people guidance. We have a good partnership with Ballard. But we are looking to develop second sourcing and we – our target is to start shipping units in the late 2014 with second source stacks and shipping units with our own stacks during 2015 and that's a current plan internally.

Rob Stone – Cowen & Co. LLC

Okay. Thanks very much. And...

Andrew J. Marsh

You're welcome.

Rob Stone – Cowen & Co. LLC

With respect to the new market, you got three activities there with R&D funding, what are the next milestones we should be looking for in terms of activities this year?

Andrew J. Marsh

Yeah, that's actually good and instead of giving you just a flipped answer, I think I'll promise this in the – that at the update call and I think the key item is to delivery time when there's units delivered and the deployment start. And I think the key item is – the next key item I think is company's decision whether it's an area that more money should be invested in and to help you and I think that's really a different question rather to help you, I'll provide guidance in April on that.

Rob Stone – Cowen & Co. LLC

Okay.

Andrew J. Marsh

I like to sit down with the staff and put it down in writing. So, we all shake our heads, that's right.

Rob Stone – Cowen & Co. LLC

You are affecting some units this year though, to be deployed in each of those series?

Andrew J. Marsh

Oh absolutely. Absolutely, and as a matter of fact I expect you to deploy in all three this year.

Rob Stone – Cowen & Co. LLC

Two quick housekeeping questions for Dave if I may, could you give us the split between product revenue and service revenue?

David P. Waldek

We are actually providing that detailed information will be in our 10-K. We're in the process of breaking that out and you'll look forward and we could follow up on that in next conference call on questions you might have on there but it will be in the 10-K that we filed.

Rob Stone – Cowen & Co. LLC

Okay. And roughly how many shares are outstanding as of now? Given all the foreign exercise and recent offerings and so forth, end of this quarter where might you be on fully diluted shares?

David P. Waldek

Approximately, about $130 million. That will be in the K as well. I believe I don't have that number right in front of me but it should be approximately $130 million.

Rob Stone – Cowen & Co. LLC

Okay. Thanks very much.

Andrew J. Marsh

Thanks, Rob.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Alex Blanton with Clear Harbor Asset Management. Please proceed with your question.

Alex Blanton – Clear Harbor Asset Management LLC

Good morning. I'm new to the stocks. So keep that in mind I might ask some questions that people already know the answers too. But what is the dollar capacity that you mentioned the capacity at 10,000 units a year in your current plant. What's the dollar amount of that?

David P. Waldek

That's $250 million annually.

Alex Blanton – Clear Harbor Asset Management LLC

$250 million? Okay. And did I hear you right that you said that you would, at the volumes you're talking about have a 25% EBITDA margin?

David P. Waldek

No, you did not. You heard that for the year that product gross margins will exceed 25%.

Alex Blanton – Clear Harbor Asset Management LLC

Gross margin. Okay.

David P. Waldek

Right.

Alex Blanton – Clear Harbor Asset Management LLC

All right. And let me just check some numbers that you gave earlier. You said for the year, $70 million in sales as your guidance and was it $1.5 million to $3 million in EBITDA?

David P. Waldek

That is correct.

Alex Blanton – Clear Harbor Asset Management LLC

Okay. And the D&A part of that is about $4 million in the year correct?

David P. Waldek

I'm sorry. I didn't hear the last question.

Alex Blanton – Clear Harbor Asset Management LLC

The depreciation and amortization is about $4 million?

Andrew J. Marsh

That is correct.

Alex Blanton – Clear Harbor Asset Management LLC

Thank you, Dave. I think, Dave – let me get it right, Dave. I think it may be a little higher than that, correct, when you take the stock comp?

David P. Waldek

Yeah. Just the depreciation, amortization is about the $4 million, but with the stock compensation, yeah, that's up to about $6 million.

Andrew J. Marsh

Yeah $5.5 million to $6 million.

Alex Blanton – Clear Harbor Asset Management LLC

Yeah. But the one that's half the $3 million, does that include stock compensation?

David P. Waldek

No. So let me...

Alex Blanton – Clear Harbor Asset Management LLC

It's before that?

David P. Waldek

It's about – it's $4 million with depreciation, amortization and about I believe the number is actually between $5.5 million to $6 million with – when you add in stock compensation.

Alex Blanton – Clear Harbor Asset Management LLC

I guess what I should ask really is what the EBIT alone?

David P. Waldek

Okay. So EBITDAS will be between $1.5 million to $3 million on $70 million this year and we've guided people that we expect that if you think about $100 million business, it'll be in the 10% to 11% range.

Alex Blanton – Clear Harbor Asset Management LLC

10% to 11% on...

David P. Waldek

Right.

Alex Blanton – Clear Harbor Asset Management LLC

Okay.

David P. Waldek

On a $100 million and approximately 17% on $1.50 million is the guidance we told you.

Alex Blanton – Clear Harbor Asset Management LLC

17% on $150 million.

David P. Waldek

Right.

Alex Blanton – Clear Harbor Asset Management LLC

Okay. Good. And you said about $8 million loss in the first half...

David P. Waldek

I'm sorry.

Alex Blanton – Clear Harbor Asset Management LLC

And so you'd have something like $11 million in the second half, correct?

David P. Waldek

I'm sorry. Could you ask that question again?

Alex Blanton – Clear Harbor Asset Management LLC

Yeah. You said – I think you said for the first half, the first two quarters of the year and about an $8 million loss in total.

David P. Waldek

Yes.

Alex Blanton – Clear Harbor Asset Management LLC

And then for the year, say $3 million so you'd have a profit of $11 million the second half on $47 million of sales.

David P. Waldek

That is correct.

Alex Blanton – Clear Harbor Asset Management LLC

Okay. Good. One other question. I'm sure lots of people know the answer to this but what is it about the lift truck business that got you started there? Obviously, there are lots of other markets for fuel cells in mobile equipment. But what are the characteristics of the lift truck business that made you go in that direction at the beginning?

Andrew J. Marsh

It's actually pretty simple. I'm a firm believer that when it comes to alternative energy products, you have to find a way to save customers' money. And because of – in the forklift truck business, their batteries have to be changed every six hours by people like Walmart. That can take up to 15 minutes.

Batteries decline in performance by 12% per shift that we can help eliminate the battery room and customers can see payback times in less than six months per new construction and less than two years for old construction.

And it's a large market since there's over six million trucks worldwide. So we are able to offer the customer a value proposition that made sense and that's why we've been able to convince people like the number one and number two food retailers, Walmart and Kroger; the number one consumer product company in the world, P&G has four sites so that's why people have done it.

They're good questions and boy, I know there's other people on the line who have questions and we'd be happy to talk to you more if you contact Teal. I'm sure we can set up a call and talk more.

Alex Blanton – Clear Harbor Asset Management LLC

Thanks.

Andrew J. Marsh

Okay.

Alex Blanton – Clear Harbor Asset Management LLC

Thank you.

Operator

Thank you. Our next question comes from the line of Rob Stone with Cowen & Company. Please proceed with your question.

Rob Stone – Cowen & Co. LLC

Hi. Andy, my follow-up question is with respect to the benefit from investment tax credits, obviously that applies only to your U.S. customers but can you help us understand how much that factors into the current business and how you see addressing that change at the end of 2016 if the ITC goes right? Thank you.

Andrew J. Marsh

Rob, first it's about 70% of our customers leverage the ITC in the U.S. today. We mentioned that there's two sites with Walmart, there is sites with IT and France at the moment with BMW in Germany, also we don't use – we don't have access to the ITC. And there's a lot of international companies in the states who haven't used it but I would say that's 70% has leveraged it.

We've always ran this business assuming that it would go away and we've been dramatically reducing our product cost. I think the people are going to be surprised from the fourth quarter where we are with product cost but we see our product cost declining 10% to 12% per year and we'll be in a very strong position when the ITC is done. It's one of the reasons quite frankly; we're doing our own stack development at the moment because it can help us reduce the cost.

Rob Stone – Cowen & Co. LLC

How much do you think internal stack development could help you on margins for high power stacks?

Andrew J. Marsh

Our estimate show that you're making me give away too much information here, Rob, but...

Rob Stone – Cowen & Co. LLC

Okay.

Andrew J. Marsh

It's significant. So it is important to us.

Operator

Thank you. Our next question comes from the line of Jerome Brown with Garcia Venture Capital. Please proceed with your question.

Jerome Brown – Garcia Venture Capital

Good morning, Andy.

Andrew J. Marsh

Good morning, Jerome. How are you today?

Jerome Brown – Garcia Venture Capital

Congratulations, I'm doing great. I'm doing great. How are you today?

Andrew J. Marsh

Very good.

Jerome Brown – Garcia Venture Capital

Excellent. Excellent. Congratulations on the new GenKey customer with a major auto company. Huge, so huge.

Andrew J. Marsh

I think it is important because it's actually convincing manufacturers to make the change to a very, very process oriented and we went through a long due diligent process. And when I announce the name, people are going to just shake their heads saying, yeah, these are guys who wouldn't do it unless it really makes sense. And when you can convince somebody like we convinced to turn their system over us as a turnkey deal, I think it says a lot about the company.

Jerome Brown – Garcia Venture Capital

Absolutely great, Andy. And my question involves another Andy. Andy Left, and really feel bad for him today. It was great news and I'm kind of glad it's going to suffer for it. But my question is, he said the Walmart deal that you're giving them the service for free. Is that true or you're receiving revenue for the service, for the Walmart deal?

Andrew J. Marsh

Yeah. We are receiving revenue for the service for the Walmart deal. I've never talked to Andrew, so I really don't know where he got that information. But we are receiving payment for the product, the service, the hydrogen infrastructure and hydrogen fuel. And now it is a separate deal, I mean we had as I mentioned in the talk that we've already deployed 500 and plus units with Walmart. This is a brand new order, brand new opportunity. They're paying for everything and it's paying at fair market value of the product and it's over 1,700 units.

Jerome Brown – Garcia Venture Capital

Excellent. It was a great deal, it is a huge success story for Plug Power. We haven't got any financials on the Walmart deal. When do you think that they will be available?

Andrew J. Marsh

I think you'll be able to see them incorporating the second and third quarter results. So we're giving guidance to the second and third quarter, I mean, I don't think customers probably want – I think I'm being asked, the guidance I've given people is that the margins and profitabilities of the deal were in line with other customers in the second and third quarter.

Operator

Thank you. Mr. Marsh, we've come to the end of our time for questions and I'd like to turn the floor back to you for any closing comments.

Andrew J. Marsh

Thank you. I appreciate everyone joining the call today. I am looking forward to talking to you again on April 17 and at our May earnings call, as well as our shareholders' meeting in May. In what I continue to commit to the Street is that this company will be extremely transparent during this ramp because it's a – as you're growing as fast as we are it's difficult to keep track of everything and for investors and we will continue to have regular updates and provide insights and we appreciate everyone taking the time of listening to our call today. So thank you everyone.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines and have a wonderful day.

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