Greetings, and welcome to the Plug Power Fourth Quarter 2015 Earnings Call. At this time, all participants are in a listen-only mode. A 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 Teal Vivacqua, Director of Marketing for Plug Power. Thank you. You may begin.

Thank you, good morning, and welcome to the Plug Power fourth quarter 2015 earnings call. This call will include forward-looking statements, including but not limited to statements regarding 2016 objectives including those related to revenue, sales, bookings, gross margins, and GenKey and GenFuel installation. We intend these forward-looking statements to be covered by the Safe Harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Sections 21E of the Securities Exchange Act of 1934. We believe that it is important to communicate our future expectations to investors. However, 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, in our annual report on Form 10-K for the fiscal year ending December 31, 2014, as well as other reports we file from time to time with the SEC. These forward-looking statements speak only as of the day on which the statements are made and we do not undertake or intend to update any forward-looking statements after the call. At this point, I’d like to turn the call over to Plug Power’s CEO, Andy Marsh.

Thank you, Teal. Good morning, everyone. Thank you for joining the Plug Power fourth quarter 2015 earnings call. I’d like to start our time together with a recap of our business achievements in 2015 and what those mean for Plug Power in 2016. Following that, CFO, Paul Middleton, will discuss our fourth quarter and year-end 2015 financial results. To start 2015, we set some aggressive growth and operational goals and we discussed these with our shareholders that demonstrate our progress throughout the year. On our January Business Update Call, I shared the news that we met these goals, and now I can disclose the actual numbers with you. Our goal for 2015 revenues was $100 million and we beat that with actual results totaling $103.3 million. Contract bookings, which we predicted would hit $200 million, actually came in at $205 million. Both of these results showed that demand is strong in our core markets and that our value proposition of a more productive and sustainable distribution center has really been experienced by our customers. Also in 2015, we beat our GenKey install goal by installing 16 sites, and we also beat our GenDrive gross margin goal of 25% although we’re a bit conservative in our earlier reporting. Later on, Paul will tell you about the accounting rules that led to a profit deferral of $3.6 million in the fourth quarter that impacted both revenues and margins. Prior to accounting for the profit deferral, our fourth quarter GenDrive gross margins were 35%. I cannot emphasize enough how important of a milestone this is as we continue to drive expansion of margins on all of our product line with the goal of being rapidly growing and profitable company. Finally, we added eight new customers, two more than our goal of six. Now,…

Thank you, Andy, and good morning, everyone. I want to start by discussing some specific accounting topics for which it is important we are very clear. First, let me address the accrual associated with the stack issues. As Andy discussed, proportion of our installed fleet under maintenance contracts, we have identified the design concern in certain stacks provided by our external stack provider that is causing premature failures. In many cases, we have been able to extend these stack lives with system enhancements. But it becomes apparent that these particular stacks will not meet the expected life, which will result in higher than anticipated refurbishment costs. Again, as Andy has conveyed, we are confident that our external stack provider has addressed the issue and that our new Plug design stacks meet our expected life requirements. In regard to the associated legacy stacks and future cost, we’ve updated our cost forecast on these related maintenance agreements. Based on the updated analysis, about two-thirds of the units we have under extended maintenance contract will have projected costs that exceed the residual service revenue. Although collectively, the updated estimates on all open contracts in total would still project the net profitable position. Accounting rules do not allow the netting of all open profitable and loss contract projections. Therefore for the specific agreements where we anticipate a contract loss, we have recorded a loss contract provision of $10.1 million. The majority of this cost will be incurred with refurbishments planned over the next eight quarters with approximate $4 million of it in 2016. As we discussed in our January 2016 Business Update Call, some of our material handling customers accessed our hydrogen and fuel cell solution through a Power Purchase Agreement. In those cases, we have been using a sale-leaseback approach to finance the…

Thank you. At this time, we will be conducting the question-and-answer session. [Operator Instructions] Our first question comes from Eric Stine with Craig-Hallum. Please state your question.

Hi, Andy. Hi, Paul.

Hi, Craig.

Good morning.

Eric – I’m sorry, Eric.

That’s okay. [Multiple Speakers] Maybe just starting on the – on your operating cash burn target, I know you’re targeting sub $20 million, just thoughts on how that trends in terms of the restricted versus unrestricted cash throughout the year?

Well, if you look at it from a pure operating standpoint, Eric, we see – and we continue to see tremendous improvements, particularly if you look at Q4, if you back up those financing transaction out of operating cash flow, less than 5%, I mean, that’s a pretty good baseline to give you some indication of where operating cash is – where we envision that going. Our focus for next year, to be candid, is zero restricted cash. We certainly will have cash freed up from those restricted accounts but one of the primary drivers in us working with these other investors is to develop a more robust solutions so that they yield better financing, liquidity answers and we don’t have to restrict cash. So the forecast for less than $20 million is more than cutting in half what we did from an operating cash flow in 2015. And as we said today, we feel very confident about those predictions and projections as we see the business moving forward.

Okay and that’s very good to hear. Thanks for that. Maybe just turning to the margins, I know you took the charge warranty related this quarter. Is that the primary reason that you upped your overall gross margin target for the year or is there something else, something else going on there reason to be more positive? And then just, I mean, how should we think about service gross margins throughout 2016?

Yes. Well, a couple things. One, absolutely, we wanted to be fair and transparent and honest about it. And so, to the extent – and we know that utilizing that provision that we took this quarter, it will benefit next year’s results. So that’s a place holder to kind of given indicative perspective of how that will impact that, but we expect it overall to keep trending the way we have been trending, which is positive. If you look at – we didn’t – you’re looking at the Q4 results in this new format, if you were to look at the full year – over the last four quarters, what you’d see is that service margins, despite these stack issues, we cut the loss in half on a burn rate. So we expect that to continue and certainly by getting these legacy costs behind us that’s going to only continue to improve the margin rates as we go forward.

Got it. And I would…

All that additional gross margin goes into the service business, correct?

Yes.

Okay. And I would assume I believe the air cooled – your own air cooled stacks that those are happening, I mean started in fourth quarter, happening in the first quarter and will increase and also the water cooled I would assume that that is – that’s a benefit to your margin as well?

That is a benefit to the margin. And Eric that was included in our projections from the January update call for 2016.

Okay, all right. Maybe just last one from me. Two relatively new customers Home Depot and Nike, maybe just give some thoughts on how you think those play out, whether there are specific targets in 2016, but then beyond 2016 what are those two look like?

I have to be considered a customer, so let me talk a little bit more generically. A customer like the Home Depot, we’ve started with one site and with many of these customers and you heard maybe during my remarks, Eric that we’re working with them in doing long-term planning, some of them are people like the Home Depot as well as Nike. They really put together roadmaps, just not for 2016 – for 2016, 2017, 2018, as we have with Walmart and a few other customers. And we see – and I have to say the rollout of the Home Depot was probably the best we ever had at that time and we get better continuously. And as some of the bloggers know, we are beginning to make some progress with the Home Depot beyond this first site. And I think you’ll hear more about many of these customers becoming more like Walmart during the coming year. And that’s really where we’re driving the business, Eric. And we want to be able to sit down and write down four or five customers that provide us all the revenue we need to continue to grow 50% per year and that’s been the focus of our sales effort, our product cost-down efforts and I think that when you look at the bookings for the year of over $200 million or $275 million next year, we’re on a path to achieve that goal and obviously we’re driving ourselves much harder.

Okay, thank you very much.

Thanks.

Thank you. [Operator Instructions] Our next question comes from Craig Irwin with ROTH Capital Partners. Please state your question.

Good morning and thank you for taking my questions. Andy…

Craig, I look forward to see you next Tuesday.

Fantastic, we’re looking forward to hosting you at the conference, should be a great time.

Yes.

So looking at the big picture, right.

Hello.

[Operator Instructions]

Is there another question in queue that maybe we can go back to Craig?

This is Craig.

Go ahead Mr. Irwin.

Hi. Sorry about that, Andy. I’ll start my question again.

Sure.

So looking at the big picture, right; coming into 2016, the backlog coverage looks quite a bit better than coming into 2015, basically where – what something like 70% of forecast versus something like 50% at the beginning of last year. Now, I know mix and duration are obviously the key considerations in there. Can you maybe tease that apart a little bit for us and discuss whether or not you’re maybe discounting some potential things that are in backlog as far as maybe being sticky for release. Given what’s happening to some of the other industrial companies out there.

So, Craig, if you look at our backlog and there’s a great slide from the January business update call where Paul presented the 70% backlog, a good deal of the backlog beyond 2016 is in recurring revenue, which will spread out to over a three to five year type period. And so that represents a significant portion of beyond this year. Now, we’re obviously looking to increase our sales beyond what we’re projecting, but we last year came out and put out numbers that we knew we would hit and we were comfortable we could hit $100 million in revenue and $200 million in bookings. And this year we’re very comfortable and have a pipeline and a plan how to do $150 million in revenue, another 50% increase, which is kind of astonishing for an industrial Company. So I think we’re a lot more than an industrial Company. And $275 million in bookings and obviously we have internal goals to drive ourselves beyond that. But we know those numbers we’re very comfortable with and we want to make sure that we meet investors’ expectations. So a lot of work was done to make sure we put those numbers out and we continue to drive this business to grow beyond 50% per year. I mean, I sat back and listen to Paul talk about on a non-GAAP basis that our fourth quarter, fourth quarter was over a 96% growth and I think that’s fairly astonishing. And there is a lot of room to grow in the material handling market, but we’re excited about deploying 3,500 units. There is over 6 million forklift trucks in the world, so there’s a lot of opportunities for this company continue to grow for a long, long time, just as in this segment. And as I’ll talk about at your conference, there’s activities going on in other segments, which may allow us to push this business even farther in the future.

Great. And I would agree that the growth is completely astonishing. So my second question relates to the margin impact from a cut-in of your own air cooled stack you’re making in partnership with 3M. So it was a material chunk of the mix in the fourth quarter. I’m going to assume that there are some costs associated with the initial shipments of the unit that probably don’t repeat and then maybe different contributions to mix over the next couple quarters hopefully rising. But can you frame out for us how the gross margins are likely to see an impact from the cut-in of your new units?

So, on a non-GAAP basis, the gross for GenDrive in the fourth quarter was 35%. And it’s really just not – I think the stack represents a portion of the improvements we’re looking for in – we’ll have in 2016. And Craig, I would phrase it as on a non-GAAP basis we’ll continue to see improvements and I think that we’ve always said the stacks can help margins 3 or 4 points, but there is other activities going on. And we think the gross margins for GenDrive will continue to improve from a variety of activities we have going on. As you know, I’ve worked in the wireless industry providing power for years and I watched those kinds of learning curves with new technology. And quite honestly not only Plug, but other fuel cell companies as one has volumes have the learnings from deployments are continuously driving down costs. And as we collect – and this is – I talked about briefly, but as we have the ability now to really monitor every unit in the field, which will eventually grow to being able to remotely manage every unit in the field, you’ll almost can think of our device as an Internet of Things device that we’re learning more and more of what’s going on. And it allows us to think through the cost and the architectures of our products that continue to drive down the costs. I think we’re just in this industry in general. We’re just starting to get costs where we can eventually get to.

That’s really encouraging. So the next question I wanted to ask is about services. So it was a little bit of a headwind in 2015. You’ve obviously really spent a lot of time and energy focusing on services. Your new product designs eliminate a lot of the moving parts on necessary compressors, power conversion components that were on prior – your prior generation GenDrive systems. Can you talk to us about your expectations for services margins, whether or not you’ve baked in an impact from the lower part count, lower moving parts, lower complexity or if you continue to assume basically a flat line but a handling of discrete let’s just call them issues like the Ballard premature stack failures.

So, Craig, we’ll see not only improvements in the cost associated with stack replacements, but also which you’ll have a dramatic impact on our service margins over the next coming quarter, but also our new units as I talked about the learnings for our Class 3, for example, a little items like how we design for vibration now and how we’ve simplified the architectures associated with issues like that will allow the service improvements to continue. We have an internal plan called service 2020, which actually with the goal of having service to be as profitable long-term as products. And that’s – and you’ll see as we – as our track record has demonstrated with GenDrive, we are on a similar path with our service business. One of the challenges with service is you do have legacy products, but as we have corrected the stack problem, as we continue to make improvements on every unit we ship, you’re going to see the same type of performance over the next years than we’ve experienced in GenDrive and that’s front and center in the business. And I know you know Keith Schmid, our COO, and he probably spends 70% of this time really mapping out long-term, how we design products today, because we want to even make these better and anything that goes out the door after today, but also how we really manage and monitor our systems in the future with a goal of fewer breakdowns, fewer headcount per forklift truck we have in the field and really make this a very, very sophisticated service business, which we think in time that same activity we have going on with service will translate into any other market we enter into because we think we’re developing some rather unique capabilities. The Company is much more focused on software and monitoring and control, really thinking about how this whole Internet of Things world will change, what we do for a living and make this service business better for our customers and give them better products as well as drive our costs down, make this a more profitable business. We probably need to move on to the next call, Teal.

Thank you.

Thanks. If you want to get back and – if you want to get back Craig more than happy to talk some more.

It sounds good.

Thank you. [Operator Instructions] Our next question comes from Carter Driscoll with FBR. Please state your question.

Good morning, gentlemen. Apologize…

Hey, Carter.

How are you?

Good.

So…

Good morning.

Good morning. How are you, Paul? So first of all, obviously, congratulations on a nice solid quarter and good start to the bookings year. Apologize if it’s been asked before. Obviously, secure the financing you guys had talked about. Just talk to me about, maybe about the engagement process on the financing, the size of the customer that you’re hoping to engage with this and pull maybe say across the finish line, is that the right way to think about how you’re going to utilize the new financing vehicle and then maybe expectation for its utilization this year, anything you could share with us.

Well, I think I would hedge at the front end with and I apologize you missed some of the earlier comments that we shared a lot, but we’re going to continue to be able to share more as these unfold. But I think the key really is that Plug is moving into a platform of working with a different pool of investors.

Yes.

And these investors just have a different – they don’t have the same regulatory restrictions and kind of risk tolerance restrictions if you will that traditional leasing institutions have. And so if you think about solar and wind and some of the different models that they’ve used and some of the investors they’ve been able to access, I think those are good examples of the way to think about some of the platforms that we’re considering. And the goal still in those project financings are focused on monetizing the tax benefits and providing financing liquidity. Today, we’ve been doing a really good job at that, particularly monetizing the tax benefits, but we need to do better at working with a broader range of investors who can help us with both. And that’s really the goal. So I think as we continue this year, you’re going to see more on that and working with partners like the one we just aligned with.

Thank you for that. Again, I apologize for not being able to vet all the prepared remarks as well. In terms of the new format, reporting format, did you break out maybe the hydrogen installation margins that had something that you think will be something that we can focus on as you continue to report on this new structure?

We didn’t break that out specifically in our press release or in our filings. I think we’ve talked about GenDrive really as a proxy to kind of illustrate what we’ve accomplished as well as what we think we feel confident, we will accomplish on other businesses. But I guess the way I would characterize the hydrogen infrastructure is it’s a new business. I mean, we’ve done 25 of them. And we’ve made tremendous strides in terms of the way we’ve been focused on productizing that that offering and some of the things that we’ve done to tighten that up. And this year we’re going to more than double the installed base. So with that volume, you get the learnings that we’ve gotten with GenDrive. You get the volume like we’ve been able to leverage in GenDrive. You get the design simplification over time. There’s lots of things that we’re already seeing that we’re starting to reap benefits for. So, I think the way I would think about that is that as with any kind of new business, and I think in the chart we showed in – back in January business update at least gave some color that as a new product offering, not surprisingly – it’s in that – it’s not in a margin position yet, but it’s definitely moving in that north direction and we absolutely believe by this year we’re going to move into the north position and in the near-term it will be in that mid-30s range just like GenDrives. There’s no reason why it can’t be. So I think we’ll be – as we continue to nurture that and grow that we’ll be able to give you more color, but that’s a business that as we’ve improved tremendously and we continue to really focusing on.

What is the – I mean, what do you think the biggest other than just scale, what do you think the biggest component of driving that margin is? I mean is it getting better fuel pricing? Is it engaging with more vendors in terms of the equipment? If you could kind of give me your high level thoughts about what specifically is going to drive that other than obviously just more deployments?

So few items, we do have a simplification of the architecture. And just like GenDrive, Carter, one of the reasons GenDrive is lower cost today than it was two or three years ago. One, your first goal is to make a product work reliably. Your second goal then becomes how to integrate functions. So, we have plans to integrate functions within our hydrogen system, which will drive down costs. Two, we have [indiscernible] the installation costs at sites; there’s still costs there that we have a very clear roadmap of how to bring those cost down considerably during the coming year and it’s a rather large focus. And third that it’s not just new suppliers. It’s also working with your present suppliers to make modifications and changes to their components, which drive down costs as you learn more and more in the field. So I look at it, how have we made GenDrive gross margins 35% from minus 22% over three years. And with the hydrogen infrastructure, we were actually 0% in the fourth quarter. It’s a same sort of activity, design simplification, integration of components, working with suppliers to simplify their designs, and then getting better costs. So I think that we have a history now that we can say we know how to do that.

I mean, it’s similar to what you have [indiscernible] exactly, but it’s similar to what you’ve done on the stack side as well is in terms of the continuous improvements. I mean, it’s an exact analogy. And then maybe just lastly, I know I tend to ask this and maybe I go ahead of myself. But of the backlog figures, anyway you can handicap what is geared towards kind of say geographically Europe versus U.S.?

This year we as I’ve said, we went out with numbers. We knew we could make and we are primarily 95% focused on North America for the numbers for this year.

Got it.

So we see Europe developing. As you’ll hear, we’re actually at tradeshows today. We’re engaged with all the large auto companies in Europe and have a real, real focus there at the moment. So, more to talk about during the year in Europe.

Yes, okay. I appreciate. I’ll take the rest offline. Thank you very much.

Okay.

Thank you. [Operator Instructions]

Okay, I think it’s probably everybody probably has to get back to work, so I’d just like to close today with a reminder about some of the industry appearances Plug Power will be making in the coming months. Next Tuesday I’ll be presenting at the ROTH Conference on March 15, additionally we’ll be at MODEX in April, UTC in May, and CeMAT speaking to our international customers the first week of June. We welcome you come out, visit us, and speak directly with your team. Thank you.

Thank you. This concludes today’s call. All parties may disconnect. Have a great day.