Plug Power Inc. (PLUG) Q3 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the Plug Power Third Quarter 2016 Earnings Conference 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. It is now my pleasure to introduce your host, Teal Vivacqua, Director of Marketing for Plug Power. Please go ahead.

Thank you. Good morning and welcome to the Plug Power third quarter 2016 earnings conference call. This call will include forward-looking statements, including but not limited to, statements regarding 2016 objectives for revenue, sales, bookings, gross margins, and GenDrive and GenKey and GenFuel installations, as well as expectations regarding the investment tax credit, the value of PPA deployments, achieving positive cash flow, growing market share, securing the funding of use for Plug Power’s own and fuel cell stack. 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 Section 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 that not to unduly rely on forward-looking statements because they involve risks and uncertainties. Actual results may differ materially from those discussed as a result of various factors, including but not limited to, risks and uncertainties discussed under item 1A, risk factors, in our Annual Report on Form 10-K for the fiscal year ending December 31, 2015, 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 this 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’s third quarter 2016 earnings call. Before I get started, I want to highlight that beginning this quarter, Plug Power’s quarterly financial results will no longer include the non-GAAP measures, adjusted revenue, adjusted gross margin, adjusted EBITDA, or adjusted EPS to reflect the impact of deployed Power Purchase Agreements transactions under alternative financing arrangements. However, we will continue to provide supplemental information to all external stakeholders as we believe it’s important we convey the company’s overall progress in growth and cost-downs and to maintain complete transparency. Now, turning to the third quarter. We’re very pleased with our performance as it validates our ongoing commitment to deliver ongoing improvements through our operating model as driving margin expansion as we move towards sustainable positive cash flow to grow market share among our blue chip customer base, expand the globe for opportunity to grow our customer base, and identify partnerships and other opportunities to expand the market for hydrogen and fuel cell energy solutions, and lastly, to effectively manage our balance sheet. Now, let me go into a little more detail of our third quarter performance, which is indicative of our strong business model and operating fundamentals. We recorded over $170 million in year-to-date contract bookings, which is a third of the pace we saw in the first three quarters of 2015. Our booking mix is healthy, as we closed two new mobility customers, both of whom are perfect fit with our target audience of blue chip customers with a substantial supply chain network. Quarterly activity also included expansion from our existing customer base, including Walmart, Sysco and Home Depot. Looking ahead, we remain encouraged that the trajectory of our booking pace and the pipeline remains robust in the fourth quarter, including ongoing discussions with customers on long-term multi-site agreements. Our booking pipeline is not only critical to our long-term success, but also adds a level of predictability to the business model, which is important to all stakeholders. The underlying success of the business is also translating into tangible top and bottom line returns for our shareholders. Plug Power recognized 14 – $17.6 million as GAAP revenue during the quarter. Activities include the commissioning of four new GenKey sites and it’s a deployment of of 950 GenDrive units. Three of the sites were deployed under PPA arrangements with the latest systems having a value of approximately $17.3 million. And they continue revenue growth, we’re focused on leveraging our scale and controlling costs, which is leading to continued margin improvements. Third quarter GAAP margins were 2.2%, to approximately break-even this time last year, representing a meaningful improvement in our operating model. We anticipate this will improve dramatically as we see a more non-PPA mix in future results. Additionally, systems deployed under the PPA arrangements have values in excess of cost of $5.8 million. We continue to benefit from large margin expansion of our GenDrive products. This margin levels approached 40% during the third quarter. And the latest example of the impressive progress we are making with the product, our newest version the Class 2 model represents a cost reduction nearly 50% from the prior version. Improvements will result switching to a Plug Power stack, which directly lower costs, while greatly reducing the complexity of the system. These changes not only improved margins, but also improved reliability and efficiency of the units. We estimate for the second-half of 2016, over 70% of the units shipped will contain Plug Power stacks. We remain committed to executing on the goals we shared at the beginning of the year. As a result of eliminating certain non-GAAP measures in our reporting process, combined with a heavier than expected mix at PPA deployment, we’ve adjusted our full-year 2016 guidance metrics to more appropriately reflect the long-term health of the business. Execution year-to-date has been on track with our internal expectations. And as I mentioned earlier, our sales pipeline remains robust. As we think about how we see the full-year 2016 shaping up, we anticipate GAAP revenues coming in between $85 million to $95 million, value of PPA deployments coming in between $60 million to $65 million, GAAP gross margins coming in a range of between 6% to 10%. contract bookings coming in at $275 million or better in line with the original guidance and deployed GenDrive units of between 3,800, to 4,000 units. Regarding cash, our goal remains to use less than $20 million in operating cash for 2016. As we saw in the third quarter, the timing of cash collection can impact this metric. We’re maintaining tight control costs and keeping our eye on timing of deployment and our efforts to achieve this goal. ‘ Given the growth and margin expansion we’re seeing, coupled with our confidence in the expansion of the investment tax credit, we expect to be cash flow positive in 2017. Our long-term goal of material handling remains to drive industry-leading growth in customer deployments through new sales and long-term engagements with existing customers, while expanding margins across all product lines resulting in a sustainable growing enterprise that is reliably cash flow positive and profitable. As we think about the core business continues to evolve and improve one really exciting initiative or how we’re leveraging the industrial Internet of Things or IOT to improve the overall performance of the systems we deploy to our customers, by allowing all devices to be connected, including GenDrives, hydrogen dispensers, and our GenFuel infrastructures we’re not only able to control these devices remotely, but more importantly can collect and analyze the data when the health for the systems in real-time. Our goal is to be invisible to our customers. This is we want our systems to work and work better than the power solutions they previously utilized. Collecting critical data from our system allow us to more – be more effective in the way we service our customers. First, we can see the data in real-time, allowing us to identify issues early and giving our service team the ability to address problems before they have a chance to cause any disruption to our customers’ operations. Second, we can track and analyze the data over time, allowing our team to predict that there will be an issue before it happens. This allows us to be better managed and spread our service resources to reduce costs and improve performance. This initiative is creating significant value for both Plug Power and our customers one driving lower service costs. As you can see in our third quarter results, service gross margins were positive for the first time. While there may be some variability in the next few quarters based on mix and timing, the reality is the application of these tools and data combined with improvements in product performance and reliability is driving meaningful progress towards our goals of better than 30% gross margins for service in the long-term. This will also be enhanced through leveraging increased customer concentration in certain geography, such as, Chicago and Ohio, where we have new service centers that can spread the cost of service among notable sites in those areas. Two, improving uptime. Over the past three years, the GenDrive fleet is nearly triple and we’re seeing the number of breakdowns per unit dropped by nearly 70%, as a result of improved design in the beginning effects of our IoT strategy. Cost per units deployed to maintain our 97% or better upside for our customers continues to drop, as evidenced in our improving service margins. And lastly, customer service, which is a significant element to our success of expanding our solutions among our existing blue chip customers, folks such as Walmart and Home Depot. Moving on to the future Plug Power, I have a pleasure speaking to you today from just outside of Shanghai, China, which represents a major long-term market opportunity for Plug Power, while we remain focused on the near-term goal of maintaining our growth rate and reaching sustained profitability by applying our technology within the Material Handling segment. We must continually explore new market opportunities in order to both maintaining our industry-leading position in fuel cell technology and a lot and massive opportunity for long-term growth. Our rationale for dedicated resources in this region is based on the following. First, China has made the hydrogen fuel cell vehicles, a key component report on the country’s energy revolution program, which includes over $100 million in investment and runs through. As a result, China is projected to be the largest mobile fuel cell market in the world within the next two to three years. Second, state local governments were committed to significant subsidies to increase user adoption of fuel cell-based technologies. Specifically, the program’s initial focus is on fuel cell power fleet vehicles, including regional and private buses and light-duty trucks, as well as the hydrogen infrastructure required to make the systems work. Third, China hydrogen fuel cell initiative is a perfect complement to Plug Power’s experience, technology, and suite of products. We can enter the market with a technology and cost structure advantage that’s not matched by anyone else. And lastly, our ability to innovate and meet the Chinese market demand will enable us to be more competitive in our existing material handling market as we expect substantial product synergies. While the China’s market – Chinese market opportunity is abundant, we know that we must be prudent in how we address it in order to effectively allocate resources. I’m exploring potential partnerships and customers to facilitate an effective entrance into the market and we look forward to updating you on our progress in the near future. Finally, I’d be remiss, if I didn’t take a moment to address the investment tax credit. As we mentioned on our call last quarter, we fully expect the issue to be resolved by the end of 2016. Given our continued conversations with representatives very close to the situation, support for the bill exist on both sides of the aisle. And we are optimistic that it will be signed during the lame-duck session in December with a resolution is to slip past December there remains a high probability it will be completed after January 1, and we’ll be retroactively applied. Although, we have every reason to believe, we will achieve the desired outcome. We have been judicious in developing a contingency plan, and we’ll continue to drive the business forward in the event the credit is not renewed. The lacerative tax credit will push out our timetable for sustained positive cash flow from 2017 to 2018 but do not impact the growth for the potential we see in the market. We remain committed to executing our strategy of continuous improvement and driving customer value and satisfaction that we believe will yield sustainable growth for our shareholders in the future. And with that, let me now turn this call over to Plug Power’s CFO, Paul Middleton.

Thank you, Andy, and good morning, everyone. As Andy had stated, we deployed 958 fuel cells and commissioned GenKey systems at four new customer sites, bringing the total this year to 2,718 fuel cells deployed and 13 GenKey systems at new customer site so far year-to-date. Third quarter represents another quarter of expanding existing customer relationships and adding new customers with large multi-site platforms. The combination of accelerating commercial momentum in the marketplace, constantly innovating new product offerings, and routinely delivering on our customer commitments is driving our sales pipeline for the near and more importantly longer-term. The third quarter showed continued growth in all aspects of the business. Service revenue came in at approximately $4.5 million, a 34% increase over the same period of 2015. Recurring PPA revenues were $3.9 million and fuel delivery revenues came in at $2.9 million, up 50% and 88% from the same period in 2015, respectively. The strong results in our recurring revenue line items not only reflect the continued growth and new deployments, but highlights the fact that our customers are actively using and creating value from our turnkey solution. The third quarter ended up with approximately $317 million in contract backlog, up from $236 million at the end of 2015. Our contract backlog is a combination of system deployments, plans for the near-term, as well as the service and hydrogen delivery commitments over the next few years. This backlog provides a strong base to deliver on the balance of 2016, and sets a solid foundation as we move into 2017 and beyond. Plug continues to aggressively drive margin improvement and our success is indicative of our ongoing progress in terms of both volume leverage and cost-down initiatives, demonstrating the focus we have on driving all offerings to 30% margin profiles are greater over the longer-term. In the case of GenDrives, we continue to outperform on our expectations and timing on the margin profile. And we plan on driving this even further with leverage on increased volumes, supply chain leverage, improved and simplified product designs, and vertical integration strategies, such as, the continued integration of the Plug Power Stack. The vast majority of GenDrive is being shipped right now have a Plug Stack, which not only directly reduces costs, but allow us for an overall improvement in product design, resulting in a 25% reduction in part count further reducing the cost of both build and maintain units. Given GenDrive’s high percentage of our sales, this product offering will continue making tremendous contributions towards us achieving our gross margin goals for 2016, particularly given the sales ramp anticipated for the fourth quarter. In regards to hydrogen infrastructure, Plug continues to make great progress in streamlining the design, leveraging the supply chain, and improving the local installation cost profile. Infrastructure margin profile should end the year in the high teens and is on track towards our goal of high 30% profiles, as we move into 2017 and beyond. For additional transparency and context, we included a comparison of the value of equipment and systems deployed under PPA contracts versus the costs incurred to deploy them to illustrate the progresses Plug is making on its overall cost profile. The growth in volume leverage, cost-down design, and supply chain leverage is translating across our PPA and direct customer business. As we’ve discussed previously, some of our customers access our solution through Power Purchase Agreement also known as PPA. In previous years, we’ve used a more traditional sale leaseback approach to finance our PPA deployments. Starting in Q1 2016, we began using a new approach to finance our PPA programs to accelerate the deal cash flows and help maximize long-term returns. This new approaches requires a different accounting treatment for revenue and margin recognition. Therefore, to better provide comparability to prior periods and increase transparency to what we are delivering in deployments and cost-downs, we believe it’s important to convey the value and cost of the systems deployed under these PPA arrangements. Three of our GenKey installations in the third quarter were PPA programs, which had a value of $17.3 million for the equipment and systems deployed against cost of $11.5 million. The key takeaway is that, Plug continues to grow both direct customers and PPA programs and continues to drive meaningful cost reductions in each area of the business. Research and development investment for the third quarter increased slightly over the prior year, as a result of investments focused on productizing our hydrogen infrastructure platform, commercializing our stack development, and improving the offering designs. SG&A expense for the third quarter of 2016 was relatively consistent with the prior year. In regards to total administrative expenses, we remain focused and prudent about where and when we incrementally invest in the resources. We expect total administration costs to be at similar levels for the near-term. In regards to operating cash flow, in Q3 2016, we had two direct programs that deployed in the quarter, one of which was recognized in the third quarter and one of which the revenue will be recognized in the fourth quarter, given timing of the customers new Greenfield site commissioning. Together, these deployments represents over $9 million of working capital that converted to cash in the fourth quarter. Outside of that timing impact, Plug achieved another strong performance, given the ramp in sales, improvements in margin and focus on working capital. This year-to-date performance of growing contract backlog and the continued momentum of driving cost down, our strong indication is that, we’re on track to build a profitable long-term enterprise. As we move forward to 2016 and prepare for 2017, we feel more confident than ever on our prospects and our ability to finance the business. But we must stay focused on the fundamentals. Growth in sales and margins while being vigilant on keeping administrative costs in check will enable us to achieve positive cash flows and EBITDAS in 2017. We have a strong financial asset and very restricted cash balances, which began to release to Plug in the third quarter of 2016, and releases will accelerate going forward. We established strong capital partnerships, like Hercules, to ensure adequate working capital and Plug continues to work with market-leading institutions that are collaborating on innovative ways to fund Plug’s deals. So we’re positioned to accelerate cash flows and yield even greater economics for the company in 2016 and beyond. Finally, our commercial success in mobility applications in North America positions us to start leveraging growth in other markets like Europe and Asia, as well as in adjacent market applications. This will enable us to leverage our infrastructure and technology platforms. That concludes our prepared remarks for the call and we will now open up the line for questions.

Thank you. Now, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Eric Stine from Craig-Hallum. Please proceed with your question.

Hi, Andy and Paul.

Good morning, Eric.

Good morning. Maybe we could just talk about the bookings and you’re maintaining your goal for the year, I mean, that would put bookings for fourth quarter over $100 million. So just curious, the visibility – details on the visibility you’ve got into that and then may be how we should think about that breaking down? Is that some sizable new customer deployments? Is that acceleration with existing? Is it EV programs? Just some details there would be helpful?

Sure. Eric, I have not included any EV programs at this time. And if we do that may adjust – we may adjust the number in the future upwards obviously. But the business we’re looking at, we have clear visibility to, and we will be primarily with customers who have done deployments with Plug in the past.

Got it. And then, I mean, is that – your commentary even though this year pretty heavy PPA, is it fair your commentary that you expect bookings going forward that they are going to kind of swing back and be more skewed towards product sales?

I would say, Eric, that, I would expect that in 2017, approximately 20% to 25% of our output will be associated with PPA agreements.

Okay.

And about 75% with our standard deals.

Okay. Maybe just turning to China, you did touch on that and the opportunity there, and it sounds like maybe a partnership is the most likely scenario there. But can you just talk, there are a number of companies that are taking different approaches just maybe how you’re thinking about that balancing, protecting your IP, but also getting to market as effectively as you can?

Sure. Now, I’m going to kind of walk gently here, because we certainly are negotiating with many parties. I would say few items that there are many, many companies as well as cities that have recognized that what Plug Power has done in the fuel cell industry as unique from our GenDrive units and our ability to actually have deployed 14,000 units into the field, which is quite unique, as well as the fact, by the end of this year, we’ll have deployed over 45 of fueling stations, and at the moment, we’re doing 10,000 fueling a day, that has captured people’s attention. I think we’re giving a good deal. We will certainly develop some partnerships. And additionally, I would say that, there will be some distance between these partnerships and some of the elements that we consider core to our offering. Does that help or…?

Yes. No, that helps. Thanks a lot. All right. Last one for me, maybe, I mean, you’ve got a number of things going on in electric vehicles, maybe just highlight a few that may be more near-term than others with FedEx, or maybe buy application?

Yes, I’m – so one – few items that one, we do have the FedEx deployment, which will be going on in the fourth quarter. The first units will be running in the road in Albany, New York, and we’re quite excited about that. We also refreshed our brand support equipment at the Memphis airport. Additionally, we do have underdevelopment a number of products for EV that I really not in a position to talk about publicly at the moment.

Understood. Okay, thanks a lot.

Okay.

Thank you. Our next question today is coming from Carter Driscoll from FBR. Please proceed with your question.

Good morning, guys.

Good morning, Carter. [ph]

How are you? How are you today?

Okay.

Important day tomorrow, right? Get out and vote.

I’m not going to take a side on this call.

No, no.

But I don’t want you to take side.

There we go.I guess, obviously, the election is important, it seems the very out spoken support for Noble Energy by candidate Clinton. The ITC, obviously, get – talked about a lot, given where you talked about in terms of timing and deployments, do you think the lack of an extension, at least, at this point had any effect on kind of near-term, or any reticence on the part of some people that might be evaluating your technology and do they have maybe any impact on this quarter or kind of the timing of when you think you might be able to pull some of these opportunities through?

I think the answer to your question is that, it’s created uncertainty and uncertainty creates complications for customers. So I think the fact that it creates uncertainty for customers and also quite honestly creates uncertainty for finance years. I believe and what this says from discussions, our bookings would be higher year-to-date if the tax cedit was in place, and that’s necessarily associated with the fact whether the customers will be deploying units, but actually makes the financial considerations a bit more complicated, trying to understand the credit will be in place or not.

Yes.

I think that the second item, which has been challenging is that, we do have a number of tax equity players, who would be interested in participating in our deals, which will be the very beneficial for Plug long-term. And some of them have told us directly that before they dig deep into diligence, they want to know the status of the tax credit. So the government uncertainty has not been beneficial to this business. So that being said, in our prepared remarks, you may have heard me say this that, if the tax credit doesn’t exist – it doesn’t exist, we do have contingency plans. It certainly pushes out our cash flow positive from 2017 into 2018. But as we continue to go down the learning curve with our products and continued drive down costs, we expect that to turn cash flow positive in 2018 and put margins to continue to improve. But we’ve been very straightforward with Congress that we just need a five-year extension to make sure this technology transitions from one that needs government support to one that doesn’t and to allow companies like Plug and many others to become healthy tax payers in the U.S.

Okay. I appreciate that color. Maybe you can talk about, I think, in response to one of the questions, the activity would be more with kind of your existing customers. Can you maybe just talk about the opportunity with some of the potential smaller site deployments, you have that agreement with the small-scale reforming technology company, Hi Gear, and maybe talk about the opportunity there versus some of the larger deployments and your expectations in 2017?

Sure. I expect, we haven’t made any public commitments on the 2017 goals yet. But I do expect that we’ll deploy somewhere between 6 to 10 reformers next year with customer sites. And as you know, we’ve already done one deployment that’s running and operating as we speak, and that we’ll continue to do more deployments in the first and second quarter of next year. So it does have benefits. And one of the major benefits we will have for the company is, it’s one of the methodologies, because some of the deployments we’re looking for reformers are as high as 200 kilograms a day, which is about 150 forklift truck unit site. And those deployments, we believe, it can help us significantly improve the margin of our hydrogen molecule.

Yes. And I think it’s a key for continue to drive down cost in that side of the business. And then maybe just an update on some of the wins you had in Europe, are those still on track, especially with the Carrefour group is still on track to begin this deployment in 4Q, and the maybe just a quick update on logistics as well and just in context of what you said in terms of expecting more of kind of the national type deployments in the U.S.?

So Carrefour is on schedule. We will be deploying 150 units will be heading to Europe in the next few weeks. We’re very excited about that opportunity. FM Logistics, we continue to ship more units. And there are – there’s activity in Europe that continues to grow and expand in the auto industry, which I hope to be able to talk about later, as well as some of the activity in more mobile devices like delivery advantage and others that we talked about here for the Chinese market and the U.S. market.

Okay. I’ll take rest of my questions. [Multiple Speakers]

Okay I have to…

Go ahead.

I have to say this. Look I have, I know it may be difficult for people to understand, but I’ve never been more excited about the fuel cell industry. I think that the recent deployments of cars in the U.S., the acceleration we’re having in material handling, the commitment of China to make fuel cells a key part of their energy policy, as well as all the activity in Europe, I think, bodes well for all the players in this industry for the long run.

No, I agree. I think if the financing uncertainty, as you highlighted, that is obscuring a lot of progress that you guys have made over the last several quarters. I’ll go back in the queue I appreciate taking all my questions, guys.

Okay.

Thank you. Our next question today is coming from Jeff Osborne from Cowen and Company. Please proceed with your question.

Good evening to you, Andy.

Hi, Jeff.

Just a quick question on Q4. Can you just talk about the dynamics either one of you maybe, Paul, just gross margin and implied guidance would imply a pretty significant mix shift, given the 6% to 10% GAAP gross margin guidance and given you’ve been running one to two in the first three quarters. Is there any kind of license revenue, or any extraordinary items flowing through to P&L that we need to know about?

Andy, you want me to take that, or you want to take it.

You take it Paul. It’s a numbers question. You’re the man.

Well, I think it’s just volume, to be honest with you, Jeff, it’s – if we look at the profile we have on GenDrives and our hydrogen infrastructure, we certainly expect a pretty healthy fourth quarter, particularly on direct customer programs. And when you see that mix coming through in context of the full-year guidance that we shared on a GAAP basis, I think, you’re going to see that start to really be reflected in our GAAP result. So nothing unusual in terms of license revenue, or any kind of other extraordinary items other than just increased volume and direct customer programs, which will start to show in our reported results the progress that we’ve been seeing on our cost-downs and margin profile that we’re tracking all year.

That’s great to hear.

I think, Paul, it’s fair to say too is that, the mix of PPA versus non-PPA is much more geared towards non-PPA in the fourth quarter?

Yes. And that really, as we start thinking about GenDrive at 40% gross margins and infrastructure 20% gross margins, that has a significant impact.

Got it. That’s helpful. And just so I’m clear, as it relates to kind of how you’re entering the year in the original non-GAAP guidance, if we just simply add the 85 to 95 of GAAP plus the value of PPAs 60 to 65, in essence, you’re sort of raising guidance, at least, at the midpoint of the range. Is that a fair statement to some of the headlines have you missing results and guiding down and things like that, I just want to make sure that is clear that the 150 target is still on track if the SEC hadn’t crack down on non-GAAP usage?

You want to take that, Paul?

Yes, I think, well, so the direct answer to your question, we’re on track with what we anticipated in terms of deployments and systems and nothing has changed in our optimism that we’re going to hit the numbers that we anticipated in terms of the planned deployments and so your statement is correct.

Got it. And the last question I had is just in terms of putting something in backlog or bookings, does that mean that there’s a predetermined delivery expectation in terms of time and price that’s already negotiated and there wouldn’t be any causes like the extension of the ITC included. Just trying to get a sense of your backlog. Is there any kind of subtle nuances that the ITC has to be in place for that to flow through, or it’s immediately cancelable? And the same question will be true for the $100 million or so bookings, which you characterized as predominantly with existing customers. Is there any kind of expectation that that would have to be done before December 31, to be included, or could we see that flip into January or February, if there’s retroactive extension next year?

I’ll take that, Paul. The backlog does not have any cancelations associated with the ITC. I would say that $100 million bookings for fourth quarter will – may have some caveats where it could – the value of a booking maybe slightly less, if the ITC is not in place. But the number, we report and we feel comfortable with the $100 million number will be – will not have any cancelation associated with the ITC. Is that clear, Jeff, I know it’s...

No, that’s helpful.

I was having a little more doubt there.

Yes. No, I mean, whether it’s – being a public company whether it comes in in December, or whether it comes in in January, February, assuming and moves forward, I agree with you, there seems to be support for it. So the same that happens in the $100 million of business in your pipeline is still there, just maybe a timing issue, I think, is that a fair statement?

I think that’s a fair statement.

Perfect.

But I also believe, Jeff, let me be clear with or without the ITC, we believe we will hit to $75 million in bookings for the year.

Okay, excellent. Safe travels. Take care.

Okay. Thanks, Jeff.

Thank you. [Operator Instructions] Our next question today is coming from Craig Irwin from ROTH Capital Partners. Please proceed with your question.

Good morning and thank you for taking my questions. So, Andy, when I look really close at the numbers, it looks like you were down couple of million sequentially, if we add back the PPAs to revenue. But then adding back the gross margin from PPAs were up almost 200 basis points sequentially. Your disclosures in the press release are great. But it looks like the strength is coming in the systems and infrastructure. Can you maybe talk about whether or not this is a mix issue or if there’s an improvement on margins in the hydrogen infrastructure that you’re installing at your customer sites. And any other factors that you think will impact this as we sort of look down the run way and how this is going to take shape?

Okay. I’ll give the first answer, but then I’m going to hand it over to Paul. I think that the gross margins of – what I think about the business, the gross margins of GenDrive, the gross margins of the infrastructure have been in the 40% for GenDrive, 20% for infrastructure, that – the service business had a dramatic improvement this quarter. And as I mentioned, we may see some fluctuations, but directionally the service business, which has repeatedly been quite negative, is beginning to turn. Our challenge today when I think about margins is more associated with the hydrogen molecule. We’ve been improving the efficiency of our systems, as well as beginning the process of deploying reformers, as well as which will help us improve the margins on that line, as well as some of the contractual negotiations going on with some of the leading industrial gas companies. So, I see the trends on all those lines as positive. So the revenue line, when I think about it, Paul mentioned that one large customers was $6 million deal slipped into the fourth quarter, but that would have stayed in the third quarter, the numbers for the third quarter would have been dramatically different on the top line. And the margin improvements would have been reflective also because of the mix of GenDrives and infrastructure. But I’ll let Paul dig into more of the mathematical details, but that’s how I think about it, Craig. Paul?

Yes, and I think you’ve covered actually pretty well, Andy. So I think there’s no whole lot to echo there, other than to say, as we move into fourth quarter into 2017, and you see growth and volume particularly with direct customers, non-PPA, you’re going to see more and more of those trends showing up in our reported results. Again, the kind of profile and cost-down that we’ve been saying all year and then trying to communicate make transparent to our stakeholders. But now we’ll start to really start to show in our reported results as well, which is – which will make it much more transparent.

Great. Then my second question is the internally produced stack as a portion of your total stacks used has increased sequentially over the last few quarters. I understand what happened this quarter around 40%. Over the last couple of quarters, we’ve seen the mix in of your own production help lift margins fairly significantly. Is this the factor that continues to play over the next couple of quarters, or do we need to wait for your next internal cost-down for the really continued lifting margins?

Okay. Well, Craig, I think that, look, this company is on – it’s a technology company and we’re on a learning curve. And when I look at our learning curve, we probably have every time we doubled the number of units in this field. Our costs go down by about 25%. And so, we’re continuing driving down costs. We’re still in very, very early stages. We have some exciting work going on. I think that – I don’t – I think it’s fair to say that GenDrives next year won’t be 50%, but they’ll will be somewhere between 40% to 50%. And the margins for infrastructure will continue to improve and service will continue to improve. So we’re doing all the right things. And we’re doing in a way and I think it’s really important is that, the methodology we’re using our service business not only makes that service business potentially very profitable, but also makes our customers experience much, much – much more pleasant. This idea of never having a unit sale, I can see, it can become a reality some day in 2020. So our units just work all the time and this plays to 97% uptime, it’s thrown out the window when it’s a much, much higher number.

Thank you for that. My last question is about the ITC. So you mentioned in your prepared remarks that if we do not get the ITC, do have contingency plans, and the impact is basically push out of sustainable positive cash flows by about a year. Can you talk through the contribution of your cost-out plan to remediating the profit outlook for the company, or if this is really an assumption of volume or other factors that go into your outlook of improved profitability 2018 over 2017, that would allow you a positive outcome in the scenario where ITC is not renewed?

Well, I think, Craig, it’s a – it’s very straightforward. We do expect that the reason cash flow gets pushed out is, because we believe the price of units moves will decline some, not completely 30%. We brought that more of factors. One factor is that, the value we create for our customers would suggest, we don’t have to share all that decrease in the tax credit. I think another element that comes into play is, the fact that, if the tax credit in place, the financers actually expect higher rates of returns, because they take a – maybe a disproportionate of share with tax credit versus the customer. And so, it’s really a combination of three items. Prices will be slightly lower. The credit to costs would be slightly lower also on an overall perspective. The value we create is greater. In a company, quite honestly, what I think no one can doubt, when one looks at the history of this company that we know how to drive cost out of products. And when I look at, that’s why it puts us in a very unique position to move into other mobility markets outside material handling. And that’s why I’m sitting in China and helping our team here without the right business model, right strategy to move the business forward.

Great. Thanks again for taking my questions.

Okay, Craig.

Thank you. We’ve reached the end of our question-and-answer session. I’d like to turn the floor back over to management for any further or closing comments.

I’d just like to thank everyone for joining our third quarter 2016 conference call and that’s at Plug, we’re looking forward to a very exciting fourth quarter. Thank you, everyone.

Thank you. That does conclude today’s teleconference. You may disconnect your lines at this time.