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Edited Transcript of PLUG earnings conference call or presentation 8-May-19 2:00pm GMT

Q1 2019 Plug Power Inc Earnings Call

Latham May 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Plug Power Inc earnings conference call or presentation Wednesday, May 8, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew J. Marsh

Plug Power Inc. - President, CEO & Director

* Paul B. Middleton

Plug Power Inc. - Senior VP & CFO

* Teal Vivacqua Hoyos

Plug Power Inc. - Director of Marketing Communications

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Conference Call Participants

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* Amit Dayal

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst

* Colin William Rusch

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* Eric Andrew Stine

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Jeffrey David Osborne

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, greetings, and welcome to Plug Power's first quarter earnings call. (Operator Instructions) As a reminder, this program is being recorded.

It is now my pleasure to introduce your host, Teal Vivacqua Hoyos. Thank you. You may begin.

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Teal Vivacqua Hoyos, Plug Power Inc. - Director of Marketing Communications [2]

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Thank you. Good morning, and welcome to the Plug Power 2019 First Quarter Earnings Call. This call will include forward-looking statements. 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 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, risks and uncertainties discussed under item 1A Risk Factors in our annual report on Form 10-K for the fiscal year ending December 31, 2018, as well as other reports we file from time to time with the SEC. These forward-looking statements speak only as of the day in 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.

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Andrew J. Marsh, Plug Power Inc. - President, CEO & Director [3]

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Thank you for joining the first quarter conference call today. Today we issued our first quarter shareholder letter, which provides details about our first quarter performance as well as our outlook for the remainder of the year.

Let me start by saying that we are disappointed with our gross billing numbers during the first quarter. We shipped 65% more GenDrive units this quarter versus the first quarter 2018. Gross billings were down. It is important to note that the first quarter gross billings declined because of the timing of closing a project financing deal. The deal closed 6 days post the close of the quarter and represented a significant portion of our revenue gap.

A positive in our financials is the improvements of EBITDA versus prior quarter. Even at a lower gross billing level, EBITDA improved by over $3 million based primarily on lower service cost.

Looking forward, we're expecting gross billings of between $55 million to $60 million in the second quarter, reflecting over 100% sequential growth. The first half is in line with our previous guidance of approximately 1/3 of our revenue in the first half.

Today we are reiterating our guidance for the year, $235 million to $240 million in gross bookings, positive EBITDA for the full year 2019 and 4 major announcements during the year. Some of our announcements are tied directly to our ProGen work. In the first quarter, we launched our new 30-kilowatt ProGen hydrogen engine for e-mobility applications. The ProGen product line offers a pre-engineered modular and scalable architecture and makes it simple for use by customer. The offering reiterates Plug Power goal of playing a meaningful role in ongoing vehicle electrification on a global basis.

Our modular ProGen hydrogen engine provides distinct advantage over battery electric vehicles, especially in applications which require high asset utilization as well as long range. The offering is starting to generate considerable customer interest globally. One of the 4 major announcements will be associated with our ProGen line and will be announced in May post our customers announcement. Contracts have already been executed for this program, and we look forward to sharing more information in near future.

Now, I'd like to open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Eric Stine with Craig-Hallum.

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Eric Andrew Stine, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [2]

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Well, I'd love to ask more about the EV announcement that's coming in May, but I suspect that that's one I'll just have to wait on. But maybe just on the other 3 announcements that you had targeted. I believe, in the past you'd talked about a distributor industrial gas company and then the third potentially being stationary. Just maybe -- I know it's been a couple months, but how's your view of those opportunities changed or taken shape and your thoughts about all of those in 2019?

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Andrew J. Marsh, Plug Power Inc. - President, CEO & Director [3]

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Sure. I mean, they're going to -- I think the word distributor is underestimating the partnership. I would expect that, that announcement will be in June. And where we are in the programs and the activities, I've met with them numerous times, and it is someone with a huge global footprint that would give us a reach that we never had in the past. So again, they are -- we are looking to close the first major deal with them, and we're going to use that as the opportunity to make the announcement. So that's proceeding.

On the stationary power front, I actually think that will happen beginning of the third quarter. Again, I've had personal meetings with them and gone through with their CEO, their program. It's a company much larger than Plug Power, who has been active in the fuel cell space. So -- and looking to position products more in the third world and really excited about, being quite impressed with the activity. And there is lots of activities going on in the hydrogen. And I think that third, fourth quarter, we will be making that announcement.

Look, I have a funnel of announcements. So I know I have 4 in my pocket, and I hope that I'd be announcing more. It's a good time to be in the hydrogen industry. It's -- I had Sanjay Shrestha join us recently, and he told me that he was down at the recent AMR, and there were over 1,000 people engaging in hydrogen discussions. And Sanjay pointed to me, it felt like solar in 2007 on the verge of reaching out, talking about going to hydrogen conferences before and how many of -- it felt like a family affair, and it doesn't feel that way to him today. I think that says a lot about the growth and opportunities in the industry.

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Eric Andrew Stine, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [4]

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Got it. And clearly next question here, I mean, not one of the 4 major announcements but just wonders -- or wonder how it helps you, the partnership, I guess, what announced within the last month with CHEM for the stationary piece? And I know it's a little different but it is targeting some of the same markets, third world. So just wondering how that helps you. How you see the opportunity with that partnership?

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Andrew J. Marsh, Plug Power Inc. - President, CEO & Director [5]

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So we -- not only have we -- CHEM is really focused on South Africa and Sub-Sahara Africa, and we have met with the folks in the energy ministry in South Africa over the last week and a half in DC. Not only were they well update on the activity going on in CHEM but kind of outlined their support and their relationship with CHEM, and they see a large opportunity developing and growing in South Africa. We think there will be -- there could be substantial revenue in the back half of the year associated with CHEM in that activity.

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Eric Andrew Stine, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [6]

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Got it. And maybe last one for me just kind of bookkeeping or financial. It looks like R&D this quarter lowest level that we've seen in quite a while. Just curious is that kind of a new run rate as some of your programs in the development has -- you've gotten -- those are more mature? Or is this something that's more of a blip, and we should see it returning to previous levels?

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Andrew J. Marsh, Plug Power Inc. - President, CEO & Director [7]

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Paul, I'll let you answer, but I think primarily it's associated with probably less material used by the R&D association in product development. So I don't expect the run rate for R&D to decrease. Paul, do you have any comment?

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Paul B. Middleton, Plug Power Inc. - Senior VP & CFO [8]

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No, I think that's right, Andy. I think we haven't seen it grow tremendously in the last year or so. It's -- there's ebbs and flows, but I think this is just a bit of a timing thing in the quarter. So I think in the next quarter it will be back to our normal run rate.

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Operator [9]

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Our next question comes from the line of Colin Rusch from Oppenheimer & Co.

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Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [10]

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As you move out of the warehouse business into adjacent markets with material handling, can you talk a little bit about the sales funnel and the pipeline and the cadence of moving that into billings and bookings?

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Andrew J. Marsh, Plug Power Inc. - President, CEO & Director [11]

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Yes. So Colin, we have a Board meeting today and tomorrow, and we're really just beginning the big push on this activity. And quite honestly, I am stunned by the level of activity that we're beginning to see. I think there's probably 10 or 12 programs we're actually talking about at our Board meeting today later in the day. The first announcement, I think, will be somewhere in the $30 million to $35 million range when I look at the opportunity, but it actually could be -- once it grows, it could be significantly larger than that. We -- the funnel is growing.

I think part of the challenge is in the -- and I see the activity more in Europe, quite honestly in Asia than the U.S. I think in U.S. one of the FedEx program has been -- last week in DC, it was probably the star program about the progress the Plug has made. I think one of our challenges is that -- finding the right system integrator, and FedEx has actually made some introductions to us to find someone that not only can build the products. And our uptime in that products is probably close to 99%, and we went through the harsh winters. But I think the real challenge is finding someone who FedEx has worked with who they can count on to provide the aftermarket service. One of our challenges is, quite honestly, Plug has had to provide all the aftermarket service even for the vehicle itself because the partner has been weak in that area.

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Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [12]

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Okay. That's supper helpful. And then just looking at the balance sheet with the new financing, can you just help me understand how the restricted cash is going to trend? And when that gets freed up going forward? It's a pretty sizable amount. Would love to just understand how we start to see that become available for you guys for operational uses?

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Paul B. Middleton, Plug Power Inc. - Senior VP & CFO [13]

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Yes. So it's -- the bulk of it will get released if not majority of it in the next 4 years. Think about it like about a $20 million to $22 million run rate of release. It's -- it parallels the underlying project agreements that are associated with that. And the particular structure we have with the key PPA customer and the bank, it puts on it about a 4-year amortization period. So that's -- we got some legacy programs and we got some new ones and -- but the combination puts them on a blended kind of 4-year amortization program. That money will go to effectively service the principal and interest on our debt facility. Our project vendor generate -- basically looks at that as very interesting project investment opportunity, and they basically look at it as having back-levered existing programs in place and financing that. So -- but it's about $20 million to $22 million this year is the way to think about it.

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Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [14]

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Okay. I'll take some questions around collateralization and a few other things offline.

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Operator [15]

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(Operator Instructions) Our next question comes from the line of Amit Dayal with H.C. Wainwright.

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Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [16]

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So you're maintaining guidance for the year. However, also reading between the lines, you seem very optimistic about the pipeline building, et cetera. So this guidance is not dependent on any of the announcements potentially coming in the next few quarters. And once these announcements hit, do you expect to potentially raise guidance?

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Andrew J. Marsh, Plug Power Inc. - President, CEO & Director [17]

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No, Amit, the answer to your question is our guidance is not based on these announcements. There may be a little bit of the revenue associated with that but look, I think, if you go back historically, we've been really good about meeting our revenue guidance. There is no reason for us to -- this represents 30% growth. If the opportunity comes and we think it makes sense, we'll do that, but I think it'd be premature at this time. And so I've been very cautious about revenue guidance, and I'm not going to become overaggressive. And last year, we bumped a little in the fourth quarter because we saw what we were going to do in the quarter, and we had 3 quarters in our back pocket. If the time comes it make sense to bump it up, we will. But I want to have -- there's ebbs and flows in the world, and I think that it doesn't hurt to have something in our back pocket for a rainy day.

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Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [18]

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Understood. And that's fair. Just looking at sort of the unrecognized portion of the GenDrive shipped this quarter, will inventory, et cetera, normalize going into, say, the second and third quarters? Or do you still expect to maintain certain high levels of inventory for the next few quarters?

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Paul B. Middleton, Plug Power Inc. - Senior VP & CFO [19]

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Yes. I think the combination of the programs that rolled over, there was inventory, finished goods, associated with that. Plus the bills going on for second quarter and the balance of the year is what really drove the investment in inventory in the first quarter. But yes, I expect it to tailor off as we deliver those programs and then that number will come down. And our goal long term is to run it as nimbly as we can. So we'll continue to focus on driving that inventory down, and I expect by year-end it'll be back in the normal range.

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Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [20]

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Understood. Just one last one for me. On the fueling sites, we are at around 72, I think currently. How many should we see maybe added on, on top of this by the end of the year?

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Andrew J. Marsh, Plug Power Inc. - President, CEO & Director [21]

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I think in the 20 to 25 range.

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Amit Dayal, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [22]

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Okay. All right. So we should be touching almost 100 by the end of the year?

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Andrew J. Marsh, Plug Power Inc. - President, CEO & Director [23]

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I think that's good. I haven't been thinking about on that level. You're absolutely right, Amit. I've been just focusing on $235 million to $245 million and EBITDAS breakeven, but I think you're right on the money.

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Operator [24]

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(Operator Instructions) Our next question comes from the line of Jeff Osborne with Cowen and Company.

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Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [25]

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A couple questions on my end, Andy. Maybe just following up with Amit's question on the hydrogen sites. I thought it was flat. Were all your shipments to existing sites this quarter, no new distribution centers built out?

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Andrew J. Marsh, Plug Power Inc. - President, CEO & Director [26]

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We have a couple that we're in the process, and I think they were -- I think there's about 3 that kind of we'll roll into the second quarter. So there weren't any new builds, Jeff, but there were, if you know what I mean, there's WIP.

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Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [27]

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Got it. And then is there a way to quantify the 6-day lag with the financing? What -- if that had been in place by March 31 what that unit number would have been or revenue exposed to that, A? And then the B part of the question is, what happened with the prior facility? Are these better terms for your customer? Or was the prior facility expired and followed the dynamics there?

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Paul B. Middleton, Plug Power Inc. - Senior VP & CFO [28]

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Yes. I think, well, first of all, on your question, there was a couple programs and then collectively it was about $10 million. This was the biggest of it and was the majority of it, kind of, $7-plus million range. Some of the other ones closed on the heels of that as well. But in terms of really the driver, these -- overall, there's many factors that drive this, timing, construction, delivery, the customer needs and what their -- going on in their facilities and then you got the banks and other players in the market. So it's just -- sometimes these are a little long lead cycles, 3, 4 months, and sometimes it's just hard to corral everything to happen at one time. So I don't know that there's necessarily one particular driver, but we continue to push and push to try and make those processes more nimble and more efficient so we can drive them with shorter lead times.

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Andrew J. Marsh, Plug Power Inc. - President, CEO & Director [29]

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So to be straightforward, Paul, I think we started to work this in early March.

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Paul B. Middleton, Plug Power Inc. - Senior VP & CFO [30]

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Yes.

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Andrew J. Marsh, Plug Power Inc. - President, CEO & Director [31]

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And it was -- I think the bank administratively, just because maybe of some of the other issues they had, had nothing to do with Plug. It just slowed down the internal processes. We actually gave it the normal lead time, Jeff, and we would have thought we would have been closed by the third week in March. It just didn't happen.

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Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [32]

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Okay. But for the rest of the year for -- to hit the delivery guidance or the revenue guidance, is there any major new structures or financing partners that are needed for that delivery cadence?

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Paul B. Middleton, Plug Power Inc. - Senior VP & CFO [33]

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No, we're working with the same partners that we have, and I think -- yes.

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Andrew J. Marsh, Plug Power Inc. - President, CEO & Director [34]

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We got -- I think this quarter had a little bit of a hump, but we were -- we have a clear view of how it plays out for the remainder of the year.

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Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [35]

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That's good to hear. Few other ones on my end, if you don't mind. On the fuel side, gross margins certainly have deteriorated. Can you just talk about what's transpiring on the fuel segment? Is that also just the WIP that you were referring to in the quarter that you had purchased a bunch of fuel and hadn't been paid for it because the sites weren't built out or -- and more of a timing issue? Or is there something structurally that's going on, on the fuel delivery side?

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Paul B. Middleton, Plug Power Inc. - Senior VP & CFO [36]

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No, I think there's ebbs and flows. I think directionally our efficiencies continue to grow, and I think you're just going to see some ebbs and flows as time goes on. We are investing in an incremental equipment to drive some of that efficiencies. So you see some noncash depreciation starting to kick in which might have affected some of the timing of it, but then you have timing of ebbs and flows with the customers in terms of usage and leverage on those exiting assets. But even though, it's down, I expect it will continue to trend overall in the right direction. And I think as the year goes on, you'll see that continue to improve.

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Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [37]

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Got it. And then two other quick ones here. In the shareholder letter, there's reference to the cash flow guidance coming down due to receivables that you call out. Is that due to what Colin was asking in the $20 million to $22 million, amortizing over 4 years and just the collection of that? I'm just trying to understand what the moving pieces are on receivables that would impact cash flows. Is that from the financing structure or some new terms with your customers? That was unclear.

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Paul B. Middleton, Plug Power Inc. - Senior VP & CFO [38]

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Yes, I don't think we've actually -- just to be honest, Jeff, we haven't given operating cash flow guidance before. This was an attempt to try and provide some color around that particularly given some advice and help with the SEC in terms of how to talk about our results. And so I think we were given some flavor around that. What I do think is, is that as we've seen that the timing of deployments and the collection of cash can play havoc on our quarterly numbers, and our goal and effort is as it always has been, to drive to close those things as timely as we can. And so that's why we're just saying that the timing of that can affect it. The restricted cash doesn't really play into it because that doesn't necessarily show up in our operating cash flow. So with the new presentation, it started about a year ago, it shows up in cash overall. And whether it gets released, it doesn't get released it shows up in my cash position. So that's not necessarily the issue, but it's really just a factor of timing between collections. And so I think that's why we're given the range that we are, if you put it in context with our EBITDAS numbers just to give you some reference there.

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Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [39]

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Got it. And then the last one, if I could, Andy for you. Just on the mobility side, certainly you highlighted FedEx and sort of the delivery van market. Can you just talk about the level of enthusiasm you're seeing? Is it all in that sort of sub-150 mile range return to base the Class 4 to 6 market? Or you're seeing any development efforts on your end for Class 8? I was just curious on the long-haul side.

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Andrew J. Marsh, Plug Power Inc. - President, CEO & Director [40]

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Sure, Jeff. I am focused today on Class 4 to 6. But as our plants have rolling out offerings that would address Class 8 trucks, we do think there is a -- look, where do fuel cells make sense? It makes sense in heavy asset utilization applications where payload is important. I know in these delivery vans, we have some data that shows the payload can be 50% to 60% more versus battery electric vehicles. We're seeing a good deal of interest there more globally than I would say domestically at the moment. Our offering will continue to expand. Our metal plate stack using our own membranes is what we've been putting into these delivery van products, and we don't see any issues how to scale it up. There's actually own -- it's actually not to stack it up. It's items like compressors and other items that we spend the most time on, the forest product development to really have a simple package for people to use.

So we do see interest there. And look, like other folks, we are looking at a variety of different applications, trying to leverage scalable modules to make it simpler for customers. And one highlight, I actually started -- I'm going to say, we actually started with the most difficult market first. I am amazed by how simple these Class 4 to 6 delivery vans are versus going into material handling equipment where it's minus 40-degree F or actually minus 30-degree F where it's no shock and vibe on the unit, where you're driving outside from cold to warm and you're putting on as many hours as the car will see in a year. This act is actually ideal and the learning we've had over the years has made this a much simpler experience than I ever had in material handling. But all that work, all that value, I can see translating easily into these other markets versus my previous experience.

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Operator [41]

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Ladies and gentlemen, we have no further questions in queue at this time. I'd like to turn the floor back over to Andy Marsh for closing.

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Andrew J. Marsh, Plug Power Inc. - President, CEO & Director [42]

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Sure. Just a reminder, our shareholder meeting will be held tomorrow at 10:00 at Goodwin Procter's office at 620 Eighth Avenue in New York. So New York Times Building. And during the shareholder meeting, I look forward to giving a presentation in detail which revise our full year guidance as well as our expected growth in material handling and also the exciting work we have ongoing in the electrification of transportation. For those who cannot attend in person, it is webcast and it can be -- it's available at www.plugpower.com, and I hope you find the opportunity to stream the proceedings. So thank you, everyone.

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Operator [43]

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Thank you, ladies and gentlemen. This does conclude the teleconference for today. You may now disconnect your line at this time and log off your computer. Thank you for your participation, and have a wonderful day.