Plug Power Inc. (PLUG) Q4 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the Plug Power’s Fourth Quarter and Year-End 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, John Cococcia. Please go ahead sir.

Thank you. Good morning and welcome to the Plug Power fourth quarter and full year 2016 earnings conference call. This call will include forward-looking statements, including but not limited to, statements regarding 2016 and 2017 objectives including goals related to revenue, sales, bookings, gross margins, and GenKey and GenFuel installations. 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 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, 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 would like to turn the call over to Plug Power’s CEO, Andy Marsh.

Good morning, everyone. Two weeks ago, we held a call to provide our stakeholders our plans for 2017 and beyond. We also provided insights into our preliminary financial information for our fourth quarter and year end 2016. Paul today on the call will provide detailed information which is in line with our presentation two weeks ago. Today on the call, I’ll be quite brief providing highlights for 2016 as well as reiterating our goals for 2017. Paul will then come on again talk about 2016 detailed financial information as well as his thoughts on the upcoming year. We will then open the floor for questions. But let me touch on a few highlights for 2016 and obviously sales and bookings we had continued momentum with both old and new customers. One of our new customers was Carrefour, the second largest retailer in the world, Carrefour will be deploying our largest deployment outside of North America over 150 units and those units were shipped in the fourth quarter. Carrefour has aggressive expansion plans and Plug Power is targeting to become the source of power not only for that fleet but for many fleets beyond that. We had four additional new customers in 2016 and between new and old customers growing supported our contract bookings of $280 million for the year. Had a record unit – record year for shipments over 4000 GenDrive units were shipped. We constructed 18 hydrogen stations and we provide a fueling out of our own systems every seven seconds in the US by far by a factor ten more than everyone else in the country combined. I am also pleased with our ability to drive cost of our products and service offering. For the year, we are reporting over 30% gross margins for GenDrive. Only a few years ago, this margin was negative and Plug’s ability to design and improve our products every 18 months coupled with our ability to globally source components is one of our core competencies. Look, it wasn’t – we did have some disappointment so. Our biggest disappointment has been our ability to develop low-cost financing source. This is our top priority for the business in the coming year and we will be talking more about it to as Paul speaks as well recognized by management and board that this challenge needs to be addressed. So more into 2017, we will ship over 5600 GenDrive units, build 25 fueling stations, this will result in GAAP revenue of over $130 million, a growth of over 50% from 2016. Margins will be between 8% to 12% and the company will be EBITDA breakeven in the fourth quarter. Contract bookings will continue to grow. We expect $325 million. So when I take a step back, you look at gross margin improvements, the company becoming EBITDA positive, our ability to continuing to grow our bookings. I think this is a real statement that this business can provide without the US investment tax credit. And I know there has been an overhang on the company, but I think we are demonstrating that we will be successful with or without the tax credit. As we talked about two weeks ago, like most mobility fuel cell companies we see a large market opportunities in China for industrial and commercial vehicles based on government policies. We have not included any deployments in China in our 2017 plans. We have been conservative because of the speed to deploy new technology, often lags projections, but we are beginning to ship sample units, the test and delivery them for on-road use. We expect those products to be qualified in the August, September timeframe. And then we have projects that are planned targeting deployments in the fourth quarter and if they occur, that will be upside for the business. We also have a number of other activities ongoing in China that we will discuss during the coming months. The plans for China, I think this is really important, because I’ve had a number of investors called me about this, include no additional cash required from our present plans. We’ll be leveraging the financial resources for our partners to grow this business. With or without China, 2017 will be a breakout year. As we stated few years ago, we believe that most vehicles will become electric, electric vehicles or simpler designed, fundamentally lower cost and more reliable and support trends such as asset ownership, plutonomy and society issues like carbon reductions. Fuel cells are the right answers for many electric vehicles. In customers deploying fuel cell electric vehicles will find that if they are deploying fork lift trucks, to on-road vehicles, robots drones, or even electric airplanes in the future. Plug Power will be a company to engage to have a high-performance, reliable, cost-effective solution. Now I say that with a great deal of confidence. I was talking to an officer of one of the largest companies in the world who reports to their CEO. He says they’ve been scanning the fuel cell market on the mobility side for industrial applications for three years and he told me, he has visited all my competitors that no one comes close to what Plug Power has achieved both from a technology as well as a customer perspective about how you put products in the market. So on that note, I am going to turn it over to Paul, so he can dig into the details for 2016. Paul?

Well, thank you, Andy, and good morning, everybody. First, let me start that there has been no material change from what we disclosed on February 22. Second, we are very pleased with our performance in 2016. These results stem from a lot of hard work from the Plug team. And these efforts have created a lot of positive momentum as we head into 2017. With a strong fourth quarter, we set a new record for full year deployments underscoring the mounting demand for our products. This increasing demand has translated to a positive top-line runrate and represents a healthy mix of both existing and new blue chip customers. In turn, this top-line performance combined with increasing focus on design improvements and better supply chain leverage has resulted in measured margin improvements. And lastly, before I move off this slide, let me say that while we demonstrated strong progress in the year on improving operating cash flows, we’ve recognized we still need to make even more progress and this is a key focus for us in 2017. As Andy mentioned, our fourth quarter capped off a record-setting year for deployments. We deployed 1204 GenDrive units in the fourth quarter bringing our total cumulative deployments to over 14,800 units. For the full year, we deployed 4010 total GenDrive units representing a 10% increase over 2015 activity. Turning to installs, we completed another five GenKey sites in the fourth quarter bringing our cumulative sites install to 42 in the past three years. Also note, one of our fourth quarter GenKey sites was our first reformer site completed, where we will generate hydrogen on-site from natural gas. This marks the start of a new product offering that we expect to further develop in 2017 and we believe these kinds of product investments will allow us to continue expanding our addressable market in material handling and over time could help open up new markets. We delivered fourth quarter GAAP revenue of $32.6 million, representing an 85% increase sequentially. Service revenue came in at approximately $5.1 million, a 3% increase over the same period in 2015. Revenues associated with our power purchase agreements or PPA as we refer to them were $4.1 million and fuel delivery revenues came in at $3.4 million, up 92% and 93% from the same period in 2015 respectively. The fourth quarter ended with approximately $383 million in contract backlogs, up from $236 million at the end of 2015. Our contract backlog is a combination of system deployments planned for the near-term as well as the service and hydrogen delivery commitments over the next few years. This backlog provides a strong base as we work towards our 2017 top-line goal of $130 million. In addition to these top-line GAAP results in 2016, we delivered over $66.6 million in system value to PPA customers including $16.6 million in the fourth quarter. As we’ve discussed before, in the first quarter 2016, we began using a different financing approach for our PPA deployments to improve liquidity and long-term customer economics. In 2015, while the financing methodologies provided for revenue recognition, the financial institutions required the company to collateralize these arrangements of cash. In 2016, the new approach not only provided for more upfront liquidity but provided the company longer term ability to extract value by retaining the asset. The alternative financing approach in 2016 however required different accounting treatment as compared to the arrangements used in 2015 and before, which had required upfront revenue recognition of GenDrive shipments and hydrogen infrastructure deployed. As such, we have continued to provide this year some additional information for context of what we deployed in 2016 and the cost of those deployments and to provide some comparability to the prior year. As of December 31, 2016, there were 25 GenKey sites associated with PPAs as compared to 14 at December 31, 2015. As we have conveyed recently, we are working closely with our key PPA customer to improve the financing terms for the company to deploy these systems. This customer is not only excited to continue significantly leveraging the solution, but they are being very collaborative to help the company find substantially improved financing terms. Turning to our GAAP gross margins, our ongoing top-line growth along with design improvement and supply chain leverage is resonating in our performance demonstrated by continued significant margin expansions. As a result of our strong fourth quarter deployments, and ongoing cost focus, we reported fourth quarter GAAP gross margin of $3 million or 9.2% of sales, as compared to GAAP gross margin in fourth quarter 2015 of negative $9.4 million or negative 24.5% of sales. The fourth quarter of 2015 included a $10.1 million charge associated with loss contracts stemming primarily from legacy stack issues which were by in large addressed in 2016 with improved designs and membrane upgrades. Excluding the charge in the fourth quarter 2015, the year-over-year improvement represents a 740 basis point improvement. It’s important to note that we have made tremendous progress in reducing costs. For example, since 2009, our cost for GenDrive unit has fallen nearly 70% driven by increased volumes, supply chain efficiencies, and an intense focus on engineering a simpler and less costly products. To highlight this point, for Q4 2016, gross margins for GenDrive and GenFuel infrastructure improved 13% and 29.4% respectively when compared to the same time period in 2015. We have a similar focus on service revenues. As we expand our utilization of our SiteView data and analytics platform and improve the reliability and performance of the core products. Our ultimate goal remains better than 30% gross margin for each of these major revenue lines. We remain confident that the company has achieved critical mass with regards to its admin and R&D infrastructure. Hence total OpEx cost continue to trend in line and remain relatively consistent overall. However, expansion of our product line and services combined with ongoing focus on product innovation has resulted in slightly elevated run rate for the research and development, particularly in the fourth quarter. We remained focused and prudent about where and when we incrementally will invest in new resources. We expect OpEx cost in total to be at similar levels for the near-term. In keeping these costs in line, we will continue to see greater leverage on this cost base as we go forward. And this will serve as one of the key drivers putting us on the path for EBITDAS breakeven or better later this year. The fourth quarter represented an important milestone for Plug Power as we achieved positive GAAP operating cash flows. It is important to note that this demonstrates we are clearly headed in the right direction, but we still have work to do. As we reflect on 2016, we are most disappointed with our inability to source cheaper cost of capital for project financing and corporate funding solutions. While this situation is common for companies growing into an EBITDAS and cash flow positive enterprise, it does not fit well with us and remains a key focus to improve along. One example, as I mentioned earlier, is that we are developing better financing approaches for our PPA programs, which will result in more choices, better terms, and lower cost for Plug Power. We hope to share more with you on this in our Q1 call. In regards to our corporate funding options, our continued growth, expansion into new blue chip customers, and traction on our margin performance are some of the key drivers that will continue to open up more cost-effective capital solutions. We sit today only nominally leveraged as our debt relates to either specific equipment on a small number of projects that have been deployed or in the case of Green Bank facility; it leverages our restricted cash and will be serviced as that cash is released. We ended the year with over $46 million in unrestricted cash and no minimum cash covenants. The elimination of these covenants provides the company greater flexibility as we support the growth in 2017 and beyond and as we continue to evaluate a range of additional possible capital solutions. These solutions could include options such as a potential working capital facility or a term loan to fund the growth anticipated in the second quarter and beyond. It may also include an at the market equity program that broaden our toolset as we transition to longer term options to fund growth. Although these are just a few examples, as we have conveyed before, our bias were possible is to find solutions that minimize dilution to shareholders. We will be able to share more on these options as we proceed to the year, but we are confident with the options available to us to fund our growth and continue driving down our cost of capital over the long-term. Now turning to our guidance, to add what Andy mentioned earlier, we have a lot of momentum going into 2017. For revenues, we have over $105 million of the 2017 revenue plan currently in backlog giving us confidence on our ability to hit the number for the full year. We continue to target 50% growth and we’ll do it with a higher percentage of non-PPA business. That said, the PPA sites we will deploy in 2017 will represent over $65 million of future revenue and cash flows. In regards to gross margins, despite the loss of the investment tax credit, we are confident we will not only grow sales, but we will be able to grow our margin profile. We anticipate we will see improvements across all product lines and we will stem from similar themes that we have successfully executed on today, increase volume leverage, design enhancements, and supply chain leverage. As we look forward, we have conveyed our expectation for total cash, we anticipate to use for 2017 for both operating cash flows and investing. The continued improvement in our product margins and volumes in the second half of 2017 will drive us to positive cash flow and EBITDAS run rate later this year. To that point, given continued growth forecast we believe in 2018 and forward we will routinely be achieving positive cash flows and EBITDAS. Now this concludes our prepared remarks and I would like to open up the call for any questions.

Thank you. [Operator Instructions] Our first question today is coming from Eric Stine from Craig-Hallum Capital. Please proceed with your questions.

Good morning everyone. I will stick with some quick modeling questions since you covered this a couple weeks ago. But just want to clarify the OpEx, I mean elevated R&D, maybe some clarity there, I assume that might be related to what you’ve got going in China but you said that you expect it to be similar. Is that similar to the fourth quarter level? Or are you seeing similar year-over-year those would have two different outcomes?

I think, well, the first part of your question, there is some China development, there is also some development on our new reformer product that we just launched. But I think that that, 14 to 14.5 bogie is kind what I would use as our runrate numbers for OpEx.

Okay. Got it. And then maybe just lastly from me, obviously, you made very good progress on the GenDrive systems targeting in the other parts of the business, maybe just some things that are limiting you today whether it’s in the service in fuel part of the business, also in the PPA business and I mean, do you have a thought obviously you’ve got, you mentioned 30%, but any thoughts or a target when you think those can turn positive at the margin line?

I’ll let you take that, Paul, I would just, probably just want to add on the service side, two weeks ago, we talked about, Craig, the work we have going on based on our Gen site facility where we envision, we can see every unit in the field and that’s giving us an opportunity to better manage our work force to better manage, make improvements and reduce failure modes and on those items we have a great deal of activity in place to continue to drive down service costs like we’ve done with product costs over the past two to three years. We have same sort of aggressive program in place. And I’ll let Paul talk on the more financial end of that question.

Yes, I think, well, we already have made obviously been real successful in driving the margin profile of GenDrives. Infrastructure is probably the next biggest thing in our revenue plan and we’ve already made again, good progress there in driving that profit margin profile up. We have a lot of experience in driving cost down on our systems and equipment and we have utmost confidence as we go into this year and programs in place to continue rally ratcheting that up and productizing and streamlining that product offering to get to that 30% profile within a very near period of time. Service, as Andy mentioned, being the kind of the next bucket, we’ve already shown some positive quarters in 2016. I think as we go into 2017, we will continue to focus on that. I’ve never seen as much as attention as we put here recently on reliability and improvement measures on that area and we are really ramping resources to focus on that. And just by passage of time, I think, as we continue to get greater concentration we are able to leverage things we’ve done like opening up the two depot offices in Chicago and Ohio where we are able to kind of pool technicians and leverage those. So, a number of factors are going to drive there, but I think you’ll definitely see continued great progress in our service offering. And those are the big buckets that are going to really contribute to it, but I think that you’ll see more and more progress as we move through the course of this year.

So confidence that gives that the potential near term to get to positive gross margins that are obviously on the way to much larger goals?

Absolutely.

Okay, thanks.

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

Hey, good morning. Just a couple from me. Andy, I know you chatted about on the last call a few weeks ago that China was not in the revenue plan, but can you just talk about the bookings plan for 325 as you have some…?

Good question, good question, Jeff. I actually haven’t put it into bookings plan either and that maybe a little bit conservative. That is very, very conservative. It’s – I think that by the end of April, we’ll have our cost, I’ll be comfortable, Jeff, putting a definitive number out for expected bookings. We are shipping the units, we will be doing the integration April and at that time and I’ll probably spend a good deal of April in China and during that time, I think I’ll be more comfortable putting a number out there, so it’s 325 just material handling.

Got it. That’s…

As a quick point, Jeff, I didn’t bring that up and I should have highlighted that.

Excellent. And then if we go back, maybe 18 months ago, switching gears to your back when the balance sheet was a little bit more robust, you were talking about possibly going down the M&A path for reformation, and here are you want a deal, I assume you didn’t develop your own internally. But I just – how do we think about, A, whose technology are you using? What experience you have building a reformer-based system and then, B, as you install that, what the margins are assuming it’s third-party equipment, I assume it will be a bit of a drag in gross margins, but certainly helps the top-line.

I’ll take the technology question and I’ll turn it over to Paul for the margin question, Jeff. The – we’ve been working with a company for almost the entire time I’ve been here looking reformer technology, it’s a European company, quite capable. And they have 20 to 25 reformers in the field today. We worked closely with them on how to drive down cost and look, I think it’s an relationship that we would like to see for us and as our business becomes stronger, I think opportunity how we make it become closer to us, because certainly a potential. But, look, our main focus has been continue to grow revenue, continue to grow margins and we want to turn this business cash flow positive before we become too aggressive on M&A activities and that’s really we will be kind of the determination when the time to bring technologies such as reformers in-house, we think will make sense. Paul, would like to…

Appreciate the detail. Paul, any thoughts on the margins?

Yes, I think, the good news is, this is largely an equipment and infrastructure sales and like GenDrives and our current infrastructure designs, Plug has tremendous experience in design improvements and cost downs. And so, it took us 15,000 GenDrives to get to 38%. It’s only – it’s not going to take us that many hydrogen infrastructure sites to get to 30% plus profile and if you think about reformers, this is being our first site, there is a lot of learnings that goes on in that and tweaking, but as we launch that solution in our product set, and we do more of them, it will be a fairly steep curve as we continue to tweak that. So, I think, like our other product offerings, we absolutely or extremely confident that we can get that into that 30 plus percent profit profile and then it will be on a faster pace than even the major equipment offerings that we’ve already launched.

Excellent. The last question I had is that, I appreciate the candidness about the challenges that you faced in 2016 with the financing solutions so many companies only talk about the positives and not the negatives. So, again, thank you for that. But to that extent, it sounds like you are still in negotiations as it relates to nailing down a solution for 2017. I get the fact that there is going to be more cash sales this year on a relative basis to third-party PPAs or third-party financing, but just as we look at the guidance, not only the bookings number, but also the unit number that you provided for GenDrive, how do we think about the risk in the event that that solution doesn’t manifest itself over the next couple of months?

Let me – I am going to – Jeff, there is – our close partner in the PPA agreements understands this issue in many ways we’ve been quite frank with them about the issues and we have an understanding in principle and we are trying to work through the details to make sure that it will work for both parties. So, I would expect that, over the next month or so, you will probably be hearing more from the company about some of our business activities. So, it is quite honestly the issue that it takes the Board and management deals real good about 80% of the business and this issue with how to resolve the cash flow issues with the PPAs and make sure we are generating more cash today is an issue that we are completely focus on and I can tell you there is actually meetings going on now as we speak here. As Paul and I will move to after the call and we recognize it’s the two big issues last year that confront the business. And when the ITC issue that I think that we have been able to position greater value with our customers and that helped the great deal on pricing and on the PPA issue and the financing issue, I think we are at the ten yard line, in the right ten yard line.

It’s good to hear. It sounds like you got a busy two months ahead of you then by how you are going to spend the time in China now in that business down and then also getting the PPA. So, I wish you the best of luck with both of those endeavors.

But, Jeff, I suspect I have a busy five years ahead in me, but hopefully, all going in the right direction.

There you go. Good luck.

Thank you. [Operator Instructions] Our next question today is coming from Sameer Joshi from Rodman & Renshaw. Please proceed with your question.

Thanks, good morning, Andy, Paul and John.

Good morning.

Good morning.

So, most of the questions, I guess, and issues were addressed in the last call and this call so far, but just some book-keeping questions. Your net loss was around $19.2 million and so I am trying to reconcile, was there any other corporate debts related to recapitalization cost or warrant liability cost that brought this number down from we are looking that I would expect?

Yes, so, we tried to articulate it in the press release – but this for sake of clarity, I think you are aware that we went through a number of capital initiatives in the fourth quarter to kind of better position our capital structure and our debt terms and we incurred some charges associated with those actions. So there was probably, I think it was – well, it was just close, it was just $0.03 impact, it was $5 million of various charges and write-offs of fees and so forth that were associated with those numerous actions. So that were, in our mind, kind of a one-time event there that impacted results in the fourth quarter, but obviously it wouldn’t be something we would incur every quarter.

Right. Thanks for that clarification. So I had just two more book-keeping questions and then I have a question about China. What is the shares outstanding number at most recent?

It’s 191 million I think, that’s what we have.

Okay, and what is the debt amount? Is it around $40 million?

We really only have – the debt right now, we have this facility with Green Bank, which is around $25 million associated with the leveraging of our restricted cash that will get serviced as that cash releases. The only other financing we have on our books is, we have capital leases which, as I mentioned were very specific to some projects that got deployed last year. But the limitation of collateral is focused on those, that capital lease is unique and specific to those projects. It’s not broader than that. So, we are sitting in a pretty good position and I think in terms of flexibility and ability to move forward with additional options.

So, Paul when I look at just make – so the Green Bank, it’s paid back as restricted cash comes off our balance sheet.

Yes.

And the project debt is actually paid for by the PPA stream come into the business.

That’s right.

Understood. Yes, no, that was my understanding as well. So that sort of brings us a question about – in absence of project financing partnership, I know it is imminent and it probably will happen, but if that doesn’t come through, would you be able to use any of your own cash or are there plans to – I know you mentioned, Paul, to fund growth, but does this fall in that category?

I am going to take this one. I think I address it with Jeff before is that, we are – it’s a specific customer that we are focused on which represents the project financing and look, my ability to fund project financing at the right rate is obviously not as strong as some of the blue chip customers I have. And that our confidence level that this we will resolve before the next conference call is extremely high. We recognize that we can’t finance projects long-term the way we have done in 2016 as well as our key customer understands that.

Okay. I think on the last – thanks for that answer. Moving on to China, on the last call, it was – we got a impression that the ProGen though you are targeting to deliver the first 100 units during the year, there is a possibility that that number might be higher. Has there been any more clarity that you have gained in the last month?

Over the last two weeks…

Two weeks, sorry.

We’ve had, even yesterday, I had meetings here in – with our partners in China and the business could be significantly larger than the 100 units being deployed. But as I mentioned that, I’ve been – projects for new technologies sometimes often there is delays and instead of sitting here in fourth quarter discussing the delays in the programs, we thought it would be better for investors and let them know that that there is a certain risk profile that says they would help fast deployments occur, look, we are going into trucks, we are going on-road testing, there will be first time flexing even though the supply chain looks almost identical. There will be the first time flexing that supply chain. I think when you start thinking about project risk and timing, we think it’s prudent to think about this is a 2018 activity. That being said, if everything went perfect, the numbers could be significantly higher than just a 100. But I can tell you, I’ve been on very few programs in my life from the first wireless deployments to broadband deployments to GenDrive deployments, that everything went off perfectly. And so, I am really excited about the market potential. I am really pleased not only with the partner we have with Fury but other partners we will be talking about, I am just cautious until those first couple hundred units are running on the road and everything is running fine and everyone is pleased and we just want to make sure the time risk and as you would have the time risk, not a opportunity risk, people put into their thinking so that they have a fair perspective of what will happen. That being said, China is the place the electric vehicle market is going to explode. Plug is a company that’s going to be there.

It is great actually and just to clarify, the $130 million target doesn’t include these revenues. Am I right?

That is correct. It includes zero revenue from China including it does not includes the 100 units.

Great. Thanks a lot, Andy. Thanks, Paul.

Okay.

Thank you.

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

Hey guys. Good morning.

Hey, Carter. Good morning.

Can I just, maybe start, Paul reiterate some of the commentary you gave with guidance, if I heard correctly is that 105 of the expected 130 was in backlog? You are expecting a higher percentage in non-PPA revenue this year and then the third was – what, $65 million of future cash flows in 2017 associated with that line item? Are those correct?

Yes, the third bullet thought that you mentioned, just for clarity, those programs that we’ll deploy with those PPAS this year and what we have in the plan that we’ve shared in our goals, would generate $65 million of future revenue and cash flows. Obviously, some of that would get recognized this year as in our plan. We are just trying to provide additional color as to what those programs will translate into. And that’s predominantly the PPA revenues we generate out of that, but there is some fuel component as well that we generate for those sites. So that’s the $65 million is kind of a holistic view as to what that would generate in terms of future cash flows.

Okay, but you are not specifying what percentage in 2017 versus beyond 2015, correct?

We didn’t break that out, no. I think, these are on average, six seven year terms, so you can –if you think about a – I think we have nine sites, but we’ve talked about in our goals. So you can kind of do some averaging math of how that might play, but in terms of this year if you assume, kind of evenly spread through the year would probably the best way to think about that.

Okay, that’s helpful. Thank you. Andy, I realize there is a not a lot you can add to what you talked about in terms of addressing with your large PPA partner. Can I at least ask, are you in discussions talking about just trying to improve the cash flow terms for future deployments or is there any potential of reworking existing PPAs?

So, let me watch how I answer this. I think the main goal is to make sure we receive the maximum cash upfront.

Okay.

So, that’s – so I think, we quite honestly, aren’t real good in the financing business and other people, especially the blue chip customers are better and how we escape the financing business and fund it upfront is really the focus of the discussion. And quite honestly, the very, very simplistic term, make sure we get more cash today than its costly to put it out the door.

Right. Okay, that’s fair. Thank you for that. The – I guess, the next question I have is, the service margin surprised me a little bit on the downside, was there anything particular in the fourth quarter to make it, at least a percent of sales I realize it’s a low number now, but as a percent of sales why it went up, because it’s coming off a positive number in 3Q as I am trying to get a sense of the run rate has obviously tied and you are hitting your volume goals and things of that nature and then, better utilization of the existing resources. Is there anything specific in 4Q that was a one-off?

I think that, if you look at the usage of our equipment at sites, during the Christmas season, Thanksgiving season, and I think it’s a probably a bit of a learning here. I know, you see 40% of the usage of the equipment during the year, 50% probably during the last three months.

Got it.

And you just get more wear and tear on the equipment and I think that’s probably a learning we need to kind of evolve into our model to make sure those costs are – maybe average down or project what’s going to happen in the fourth. But that’s primarily the driver. I mean, I think the positive is, one of our customers moved a lot more goods with our products than they did ever before and they wore the equipment out a little harder, the first three quarters were just a little bit less – it’s a lot easier on the equipment.

And then, just my last question is, so similar to I think your commentary about, maybe using your partner’s balance sheet a little bit more and their better access to capital or at more attractive terms, is that a similar approach in the way you are targeting China? You’ve talked about a low – I guess, initial CapEx. But are you getting a clarity in how you expect those plans to evolve in terms of maybe establishing local supply chain in China? Would you directly participate in that be a supplier of technology? How do you see that specifically evolving, I guess, I am trying to compare and contrast it with one of your competitors Ballard and what they had set up and just trying to get a sense of – is that a similar type of strategy you are going to utilize?

So, I would say, first, talking about the immediate deployments in 2017, though we shift out of this factory here and the working capital to support that activity as well as some of the development expense will come from those partners. In 2018, and I would say, agreements will be cut in 2017 we see probably joint venture structures slightly different than our competitor. We are much more interested in larger ownership positions and thinking in terms of higher ownership positions, liaisoning positions, and we will probably focus on a few partners, not just a single partner. But looking at people, especially for all the critical partners, someone with deep, deep balance sheet that can support this business in the long run. So, I do see it’s evolving similar to our competitor. But some differences in how we may be thinking about how to achieve longer-term value.

And then, my last question. I believe, Andy, you, during the update call alluded to winning some additional deployment that non-Wal-Mart customers in North America, if you can talk about maybe who specifically, can you confirm that these were repeat wins and then maybe characterize their end-market business, if you can identify them?

Some of them are – I think during their last earnings call, I kind of threw them into street categories, traditional customers, traditional customers, new customers and customers who did their first deployments in 2016. The majority of the bookings for the fourth quarter were for customers who kind of fell in that category is they did their first deployment in 2016 and now they are doing more.

I’ll take the rest of mine off-line. Thanks guys.

Okay.

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

I like to thank people for the call today. It was – we are looking forward to communicating more and more with our investors and this is really a bit of a difference in structure here today. We try to use the earnings call as a time for, Paul, really to kind of dominate the financial discussion. We have to have a few more events during the year, which are more strategic in nature, like our call two weeks ago to keep investors abreast not only of the financial trend, but the long-term strategic trends for Plug Power for 2018 and beyond. So thank you everyone. I appreciate the time.

Thank you. That does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.