普拉格能源 (PLUG) 2003 Q1 法說會逐字稿

Good morning, my name is Tamia and I'll be your conference facilitator. At this time, I'd like to welcome everyone to the Plug Power first quarter financial conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you'd like to withdraw your question, press star then the number two on your telephone keypad. Thank you. Miss Mahoney, you may begin your conference.

Good morning and welcome to Plug Power's first quarter 2003 financial review. Participants on the call include Roger Saillant, President and Chief Executive Officer; Dave Neumann, Chief Financial Officer; Greg Silvestri, Chief Operating Officer; Mark Sperry, Chief Marketing officer; and Ana Galeano, our General Counsel. Today, Roger Salliant will begin with an update on our activities throughout the first quarter ended March 31, 2003, followed by Dave Neumann giving a review of our financial results. We would conclude the call with the question and answer session. To begin the call, I'd like to first read the safe harbor statements. During the course of this conference call, management may make suggestions or other forward-looking statements regarding future events and future financial performance of the company. We wish to caution you that such statements are just predictions, and actual events or results may differ materially. These are forward-looking statements within the meaning of the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. We also refer you to the press release issued by the company this morning and to other documents that the company filed from time to time with the Securities and Exchange Commission specifically in the company's annual report on Form 10-K for the fiscal year ended December 31, 2002 dated March 31, 2003 and filed with the Securities and Exchange Commission on March 31, 2003. These documents contain and identify various risk factors that could cause our actual results to differ materially from those contained in our projections or forward-looking statements. We undertake no obligation to revive or update any such projections or statements or to reflect the occurrence of unanticipated events. Now, I'd like to introduce Roger Saillant, President and Chief Executive Officer of Plug Power.

Thank you Cynthia. Hi and good morning. Thank you for taking the time to be with us today. Our progress in the first quarter was significant on our way to becoming a sustainable business. First, we completed the acquisition of H Power. Second, we added 94 units to our order book, which included the addition of one new customer. Plug Power and the [Inaudible] teams have been evaluating H Power's products and identifying features that may improve our designs and be integrated into our business. We have increased our pattern portfolio from 64 to 93 patterns, which includes 22 patterns from H Power and 7 new patterns from Plug Power. We have been in contact with H Power's customers and partners and our exploring opportunities to carry these relationships forward in a mutually beneficial manner. We improved our cash possessions to the acquisition of H Power to a current total of $81.9m in cash, cash equivalents and marketable securities, which we anticipate will be sufficient to fund our operations in to 2005. We increased our product sales dramatically and we expanded our customer base in the first quarter. We ended the quarter with a strong backlog of 90 systems primarily resulting from orders received from Long Island power authority for 45 systems and by a loss for 44 systems. These partners and customers as well as the others continue to play a key role in developing installation knowledge, obtaining regulatory certification and gaining the field experience needed for further development of our product. We continued to ship installed systems in United States and Europe this past quarter. Systems were shipped to Concurrent Technologies Corporation. The National Fuel Cell Research Center in the West of California provides Logan Energy Corporation and Valliant as part of the virtual power plant project supported by the Commission of the European Union. As systems produced approximately 363,000 Kilowatt-hours electricity during the first quarter, during the last 15 months Plug power systems have generated more than 2m kilowatt-hours or electricity for a variety of applications in many operating environment. We continue to collect valuable data from our systems in the field. The data are evaluated by our science and engineers to create insights, which we use to improve product performance and reliability. We will focus over the next several months on our joint developments efforts with Valliant. 13 systems have been installed during the last three months in locations in Germany, the Netherlands, Austria, and Luxemburg. These systems are supporting both by law customers and the Commission of the European Union virtual power plant program with fuel cell heating up appliances. The appliances produced up to 9 kilowatt's of heat and 4.6 kilowatt's of electricity for multi-family homes and small businesses. We believe that this program represents the largest unit installation of M Base combined eathen (ph) fuel cells in Europe. The virtual power plant program is the network collection of fuel cells connected to the electric grid. These systems will be monitored and controlled in the Central control facility and be managed according to the demands of the electric grid system. Peak Shaving or the ability to reduce total demand on the utility grid are utilizing onsite generation is a significant focus of this program. Partners in this project include DRN Energy (ph) , the world's largest investor owned energy service provider; Lugas (ph) the leading supplier of Natural Gas in Germany and Gas [Inaudible] one of the leading Dutch Gas suppliers. We will begin this summer to install 45 five-kilowatt field cell systems on Long Island. these insulations are part of a $3m contract with the Long Island power authority building on the experience over the past two years of operation of the West Babylon substation and over the past year like the customary locations across Long Island. We appreciate this continued commitment to the fuel cell systems as part of its clean energy initiative. All of us at Plug Power continue to build a corporate culture in which intellectual integrity effects and communication are valued. To help us reach out to you during the quarter, we launched a redesigned website, which incorporates the companies new brand and image. The new site will enhance and redesign to capture the company's current state and future vision. To visit our corporate website go to www. plugpower.com. now I will turn the focus to our first quarter financial performance and hand the call over to David Neumann, our Chief Financial Officer. Dave.

Thank you Roger. I will be providing a summary of our financial results for the first quarter ended March 31st, 2003 including the summary of our accounting for the merger with H power. On March 25th, we consummated the merger with H power and recorded the transaction under the purchase method of accounting. This method of accounting assumes that for financial reporting purposes, we treat both companies as one company beginning March 25th, 2003 the effective date of the merger. The historical financial statements of Plug Power will continue to be the historical financial statements of the combined company following the merger. And H power will be included in the combined companies on going results of operations effective from March 25th. We have recorded the fair value of H power's net asset on our consolidated financial statements. And as recorded the remaining purchase price in excess to fair value of H power's net asset as in process research and development expense, capitalized technology and goodwill. In connection with the transaction, we recorded a non-cash charge for statement of operation in the amount of $3m or $0.6 per share for the write-off of in process research and development expenses. We also recorded intangible assets in the amount of $5.5m, which we will expense ratably over the next 24 months and goodwill of approximately $8.7m. We will periodically evaluate the goodwill for impairment as we continue to evaluate the technology and product line. As Roger mentioned in his remarks, we continue to evaluate H power's product designs in effectual property and continue to explore opportunity to carry forward customer relationships. We are quickly integrating the businesses to conserve capital and we intend to consolidate the facilities and operations at our head quarters in Latham, New York. After giving effect to the merger, our net cash use and operating activity for the first quarter ended March 31st, 2003 was $8.5m including $513,000 spend in the first quarter related to the acquisition of H power. This compares the $7.8m used in operating activity during first quarter of last year. Total revenue for the first quarter was $3m compared to $2.9m last year. Product and service revenue, a component of total revenue was $2m for the quarter, which compares to $2.6m last year. We continue to defer 100% of our product and service revenue to time up sale and recognize this revenue over the period of the underlying service and other contractual obligation. The impact on our statement of our operations is conservative since the cost associated with this production is fully expensed as it is incurred. Contract revenue under research and development contracts for the quarter was $919,000 as compared to $332,000 in the first quarter 2002. Cost of revenues was $1.8m during the first quarter. This compares to $1.7m last year. Our cost of revenues represents the direct material cost of fuel cell systems delivered during the quarter combining with the labor and materials associated with servicing all of the systems under contract. These costs consist primarily of direct material and fees paid to outside suppliers for subcontract the components and conservatives. It does not include any factory labor or overhead expenses. Cost of revenue also include research and development cost and research and development contract activity. Research and development cost were $10.1m during the quarter ended March 31, 2003 compared to $10.9m in the same quarter of 2002. We continued to keep development cost down, by using modeling and stimulation tool to architect a modulus Fuel Cell system. We intent to leverage the resulting design by across multiple products. A benefit of using these modeling stimulation tool is tend to reduced spending on internal [inaudible] evaluation. We also continue to move to an extended enterprise model, whereby our suppliers play a larger role of helping us design and build important parts of our system. This has enabled us to reduce R&D costs without cutting back on product development. Finally, in collaboration with our customers, we are leveraging and learning what we get from our fuel presence to make improvements and modifications to our system. Deferring general administrative expenses decreased in the quarter ended March 31, 2003 to $1.5m compared to $1.8m in the first quarter of 2002. Interest income, consisting an interest turn on our cash, cash equivalent and marketable securities were $202,000 for the first quarter of 2003 compared to $487,000 in the first quarter of 2002. Equity and losses affiliates represent from minority interest in GE Fuel Cell system, which we account from the equity method of accounting. For the quarter ended March 31, 2003, we recorded a loss of $485,000 representing that minority interest including $448,000 of amortization of our original investments. Our net loss for the quarter was $13.8m or $0.27 per share compared to $11.6m or $0.23 per share in the same period of 2002. The amount in 2003, includes the previously mentioned non cash charge of $3m or $0.06 per share for that right after the in-process research and development expenses related to our acquisition of intellectual properties, and certain other assets as a result of the merger with H Power. Weighted average shares outstanding for the first quarter of 2003, were 51.7m compared to 50.3m in 2002. As of March 31, 2003, there were approximately 60.1m shares of our common stock issue than outstanding including the approximately 9m shares issued in connection with the acquisition. Our balance sheet continues to be strong with $81.9m of cash, cash equivalents and marketable securities including $5m of restricted cash with securities bank that are on our facilities. We anticipate that our cash balance will be sufficient to fund operations into 2005. That concludes our prepared remarks. We'd now like to open the meeting for questions. Operator, will you please proceed?

At this time, I would like to remind everyone, if you would like to ask a question please press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from David Smith from Smith Barney.

Good morning guys.

Good morning.

Just one quick thing on the acquisition. You mentioned the amortization period on intangibles. Can you just repeat that, I think you said 24 months and then also the amortization on the goodwill?

Yes, good morning David. This is David Neumann. We capitalized 5.5m for the technology, which will be writing rightibly over the next 24 months.

Okay.

Related to the goodwill, we will periodically evaluate that for impairment and adjust to that time based on that evaluation. We are currently in the process of continuing to evaluate the products and other technology that we acquired and under purchased accounting move, we will continue to look at that for the next 12 months.

Okay. So the only incremental impact on the P&L from the deal would be that.

The amortization of that 5.5m straight line over the next 24 months.

Which should offset, I suppose some of the additional, I guess, 99m shares?

Right. We added 9 million to the weighted average.

You mean, on the loss per share basis?

Right.

Okay. One other thing on, you talked about reliability being roughly 95% and as [Inaudible] . Is that pretty much indicative of what you are seeing across all the units? Like that life has gotten everybody else and then secondly, what kind of stack life, you know, daily estimate as to where that is right now and I know that these haven't run for five years, but do you get any indications from these testings or testings that, that would suggest where that's gone?

David it's Greg. Let me talk to you about two pieces. First on the reliability and availability and second we'll talk about stack life. On what you see reference for water [Inaudible] , that's an availability number which has implications for reliability, but it is not the same as you know failures per period of time. What it means is that the 24-hour day, 7-day week basis. What percent of those clock hours was the system up and operating and with the work that was done at Water [Inaudible] , that felicitation required 90% or greater availability. Which meant that for any reason, whether it is planned maintenance or unplanned maintenance, act of God, failure of the grid or failure of the water supply at the hose side it didn't matter. We would be charged for down time and so against that, you know, most challenging set up availability rules if you will. Our performance was as outlined on the DOD website. What we see for availability across the rest of our fleet does vary. In some cases we are higher than that number and in some cases we are lower than that number. We have not characterized that for our customers that is, you know up to them to characterize. There was some work put out in the public domain by Valliant (ph) at the recent show in Hanover where they talked about the fuel cell heating appliances in Europe and for the newest set of products that are being installed there which we referenced in a press release yesterday, they characterize the availability as between 80% and 95% across those sites and though its and that was a positive characterization both by law (ph) as well as by customers. And so the customers with a lot of time have a direct impact on the availability given their management of this business and the managements of this site. Switching over to Stack life, we have not characterized in the public domain what our Stack life is in terms of operating hours and the terms of kilowatt-hours produced. If the issue that's of high importance to the economics and to the development of this industry and what we have done is, taken an approach similar to what we've done on direct material cost and talked about progress that we've made. We openly share where we are in Stack life with our important customer groups and more importantly with the companies that we are doing membrane and other stack development work with. And I would say that when we get to the absolute numbers and show there the maximum amount of data that we are collecting and what the trend lines are, in the degradation mechanisms things like that. Those are all always very positive discussions and so we think that within that community we are receiving very good feedback in terms of where we are relative to the other people that are pursuing the PEM technology but we are not, at this time, going to put out in the public domain any absolute numbers.

And anymore payback on cost?

Well, the work that we are doing on cost is really send it around the next generation this system that Plug Power will be introducing. So we've written the cost curve on the on the ST1 (ph) about where want to write it. There are subsequent product derivations coming out later this year. Half of the ST1 (ph) we are talking our [Inaudible] about it LPG capable system that we will introduce this year. We have some new products that will come out in the couple of premium power applications, spaces and at that time we'll characterize the cost on those. But those products let's consider them to be a next generation design, those by design, if you will, will be a substantially lower and direct material cost metrics than the current ST-1 fleet (ph) .

And one other thing on the, they want me, on the balance sheet. [Inaudible] so much from March 31?

Well there are still, a number of accrued expenses related to the transactions that weren't paid as of March 31, related to some professional fees.

[Inaudible] ?

Yeah, that's part of the -- that is not the reason for the increase.

And the other part?

The other part -- but that's a 100% of the reason of the increase actually. The rest of that is just normal accrued expenses in our business.

And finally you mentioned Roger, in the beginning, a new customer, is that disclosed within here?

Yeah, we just didn't identify, it's the National Fuel Cell Research Center at the University of California, Irvine.

Your next question comes from Jarrett Carson of RBC Capital Markets.

Hi, good morning.

Good morning

Relative to kind of what you are guiding to, regarding cash that you'd bring over from H Power. I thought it was in the $34m range that's achieved within the -- I believe you have been talking about 85 or greater. Looks like you came in a little less than that, can you give us some thoughts around that?

Hi Jerett, this is Dave Neumann, the $34m I think you are referring to in the terminology that would call net cash in the merger agreement included in addition to cash-cash, real cash. It included other assets that we anticipated, disposing of and realizing cash front, and we have not yet done that, you know for the third - the true cash that we put on the books was about $30m, and our total cash within the quarter is 81.9.

Right.

And we anticipate that that will take us into 2005.

Right, and so you have got a little some dispersement of assets that could help pump that up?

That's right, we don't expected to be a lot but you know, we will get some benefit out of that.

That will help to you, cash, cash account.

Correct.

Okay. Second on the backlog, does that include anything that was brought over from H Power, was that all straight Plug selling?

Jerry, this is Mark Sperry. No that is, nothing came over from H Power, in terms of a backlog, that's all straight plugged.

One other thing that I believed may have been brought it down and what could your thoughts on, and what the outcome was and in your opinion is the stock option exchange, it did that go through and I guess, my concern is one where you are exchanging options that we issued at much higher prices for these restricted shares that would vest over two years and a deal that seems pretty good for employees and perhaps one that may not be eligible for shareholders that could have, then purchased at much higher prices, can you give some thoughts on that?

Hi Jerett, this is Dave again, that that was approved by our shareholders and it's an option exchange program, not a share-for-share exchange program. So, the options that were issued at the higher prices are eligible for a three for one exchange. The benefits that we get out of that are two or three things. One, it's motivational to our employee base. Two, like you mentioned that two- year vesting period, and there is they [Inaudible] of retention associated with that. And third, I guess, it's just eliminated some of the overhang that's out there as well.

There are several things about that. First, this is Roger Saillant, first we think it's been the shareholders interest to retain the knowledge and the practices that's inherent in our workforce. So the closer we can attach them to the success of the company, the better off we are for the shareholders. The second is that the shareholder growth was almost a 100% unanimous in favor of the stock option conversion offering for restricted stock. These are -- missions are really important part of our business. The try to take an industry that is emerging and a company that's emerging and provide success factors that more traditional companies can offer just because of a history of a long time of being in place. There's a lot of uncertainty. So we need to adjust from time to time. the employee incentive package so that it compensates them for the risk that's involved in pretty many years of their carrier into a company where there's a lot of uncertainty.

Okay, an out log related to others that I've seen in the industry who've suffered the same kind of press evaluation but have not opted for that [Inaudible] that I guess, I had highlighted in particular. May be one final question. In the legislative front, on the federal level, what are you seeing there and efforts that your making perhaps towards subsidies force on the stationery side? Obviously there's a quite bit of talk going on around [Inaudible] infra structure and the transportation area, what are you seeing there? That will be my final question, thanks.

Sure Dave, Mark Sperry here. There is a substantial amount of activities on both the federal and state level and I would say actually on the international level but specific to your question around the federal level, the Department of Energy recently closed the solicitation for the development demonstration as stationery fuel cells. So they had identified essentially $70m that they would be spending over the next 3 to 5 years in support of moving stationery fuel cell development forward. We did submit against that solicitation. I believe there where on the order of 9 or 10 different topical areas we were involved in, in either a primary or secondary roll and about half of those. We expect that the decision process around that is going to take another couple of months. We also know that in follow on to that, the Department of Energy is also issuing solicitations for hydrogen demonstration, for hydrogen storage in production. We expect they will up in next several months. There was also a large solicitation that is more aligned with global applications that will be coming up, but specific to the questions around stationary there are a number yet to come out. That continues to be -- money is available at federal level through the military agencies or through the army and navy and the core of engineers. There was a recent solicitation of full (ph) demonstration of fuel cell technology on army basis that was closed. We did not directly submit against that but several folks submitted with Plug Power, fuel source embedded in their proposals against that. Again that will probably take another couple of months for those decisions to take place. The National Institute of Science and Technology continues to provide programs in funding for advanced technology movements such as high temperature membranes and the like. And I again mention that there are various state proposals that we are also engaged with especially in the States here in New York, Michigan and Texas our areas where we're particularly active today.

Mark, do you see I have seen a kind of bouncing around at different places these are moving targets and number of these bills and talk about perhaps a $1000 per kilowatt such that on the stationary side?

There are couple of things going on there. Actually it is an existence today, subsidy abide down if you will that is actually administered through cell (ph) but it's part of the energy build at various proposals. They are being considered and I do expect that something will manifest that there are differences between the two houses and what their proposals are but I do think that something will come through and again with respect to the Department of Defense, they do have a climax buy down that is actually been in existence now for 4 to 5 years and many of our customers are qualified to apply against that.

All right, thanks.

We should point out that there is nothing in the way we do our business planning that is predicated on success of tax credit instead of being put in place. That would all be a plus [Inaudible] that we are doing.

Sure. Everyone, We all need a little helping hand in this area right now.

Yeah.

As a reminder, if you would like to ask a question, please press star, then the number one on your telephone keypad. Your next question comes from Chris Kwan of TD Securities.

Hi Gentlemen.

Hi Chris.

Just wondering, can you give an update on your employee count and how many came over from H Power? How many from Plug Power?

Chris, this is Greg. We have in terms of full time employees, just under 350 employees spread between, a vast majority are here in Lapam (ph) . We have some employees in Washington DC, and a number of people in [Inaudible] and Netherlands associated with our fuel processing and catalyst work. Within the activities of H Power, we were successful in tracking a few employees that are particularly well positioned at specific areas of technology that have joined with Plug Power.

And roughly how many was that?

A handful.

Okay. And you are a kind of, a period of time to look at some of H Power's technology, what areas do you see has been focus areas for [Inaudible] ?

Let me just sort of ballpark or frame, the period of time coming, because this is something that we run into a lot. I think it's important to note that the type of technology evaluation we need to do could not be done until the merger actually closed. So, when you look at what you can find out in the initial conversations or initial reviews, that's all interesting, but it is not necessarily relevant and meaningful and you have to put systems under test, you have to get inside of drawings, you have to be able to tear things down, and that work could only start when the merger closed, which is about four to five weeks ago. So, I just want to frame that, because I think there's a perception that we have been able to do that type of evaluations since last November and frankly, that's not been the case. To answer your question now, we are focusing a lot of attention around our stat technology, and a lot of attention around their smaller kilowatt designs. So, the products that they have, that were up to approximately 5-kilowatt space. We are not doing a lot of detailed looks (ph) in the labs and in engineering and those. I think Mark is going to comment after me a little bit about what is going on the field, because we do expect to get some field operational data from the larger systems. The most of our engineering review and analysis is in both the integrated systems, the systems that we go starting with natural gas to combine the power applications at about a 0.5 kw level that was being worked on for the Japanese market as well as the 500 watt hydrogen fuel that is referred to as an EPAK unit. Those are getting the more detailed look and I would say for a ballpark really meaningful results are probably three months down the road as opposed to three weeks down the road. I think Mark wants to add some things for you Chris.

Yes, Chris just with respect to the 4.5 kw to 5 kw systems that are operating in the field. We have that in contact, we are just about all of those customers are putting together path forward, processes with them. For the most part, our intent is that we will fulfill the obligations of those contracts and then move those units out of the field. In a few instances, the customers have expressed their preference to put in Plug technology directly and we will be doing that in some instances. Again the customer is just asking us to continue to maintain this systems throughout the contract period and we will do that. By and large I would say as Greg has indicated our belief is that the lower size over the EPAK 500 lot or the RCU, the roentgen kilowatt (ph) and a half where we spend a lot of our time and we don't anticipate taking the technology forward directly from the 4500, but clearly we would take some of the IP in the learning’s associated with some of those designs into our forward product activity even in the 5 kw base.

And just a final question on the guidance for remainder of the year in terms of cash burn and what is currently standing right now?

Greg, this is David Neumann again. We are not changing our guidance . So, it remains at 35m to 40m in cash consumes for the year.

Okay. In terms of the G&A and R&D expenses cut, are those pretty good run rates?

Yeah. We haven't given specific guidance on those categories of expenses, but we don't anticipate much of a change from where we are.

Okay, great. Thanks a lot

Your next question comes from David Kurzman of HC Wainwright.

Good morning everyone

Good morning David.

Got a handful of questions. But, let's start off with in relation to FuelCell Energy's announcement this morning that they are going to be becoming a little bit lighter by the account of about 20% on their staff. How would you determine where your leanness is and what do you think your needs are going forward in that area?

Well, first of all we have made considerable adjustments over the past two years, actually two-and-half years to simply and I don't like the word to our headcount to the numbers of employees that we have is really what I prefer looking at it. And if you look at those numbers, it's been a -- it's been significant far more than -- certainly feel so. The way we designed the size of our company is to look at the size of the task in front of us and part of that task in our particular case has to do with building structures that allow us to design, develop, test on the kinds of products that we see having the most potential in the marketplace. And as far as we can see for the time being, we have the right number of people doing the right kinds of jobs in collaboration with our supply base and with our customers in developing the markets and servicing the products in the field and being able to handle this significant increases in the number of units and so forth that we see coming in the next couple of years. So, we are looking for rather stable employee number unless some particular disruptive factor occurs and we will make an adjustment. But for the foreseeable future, I think we are quite satisfied with where we are.

Very good. Let me also ask - can you give an update on your development efforts in your various areas such as the high temperature membrane, the catalyst fuel processor and so forth?

Well, I think that actually they are closely controlled in a process called the technology development process, which is a rigorous and gating evaluation point in the sequence going from pure R& D to product development and then finally linking into for a shuttle process in for a new product development. I have been in sort of this business for various aspects of it in terms of just product development business and the manufacturing business for over 30 years, and my sense of it and the people that we have working in that including Bostenik (ph) and John Eltira (ph) very experienced engineers and with new product introduction experience, we are satisfied that we are gauging ourselves at a pace that keeps us pretty well on track along a new product introduction curve that will be bringing products out at markets that, throughout the rest of this year and this coming next two or three years at a pace that, I think will demonstrate power functioning in terms of getting the costs down, improving the reliability, getting the size down and providing customer satisfaction and good revenue to the company. So if, sort of, I want to be, kind of, careful, you are very clearly, you want to know how we are doing in high temperature, and I can tell you that we are on-track with our high temperature program. We continue to have reviews with that and each time they are meeting our internal milestones. The next generation of products, as Greg said, we basically, we are going to carry out the mild product variations around the SG1 (ph) , but we are not going to be looking to make significant breakthroughs on that product any longer. We are really focused on getting the cost out and the reliability up on the next generation of products. And people are beginning to shift according to that, and it's so orderly, it's like watching the gears of a machine, it doesn't mean that there isn't some mis-step because some uncertainty for things, the discipline is a matter of a few weeks, in some cases one way or the other. And we have catch-up recovery plans and so forth it's a very, I'd say there is a proper amount of tension in the system to have an orderly process that gets it to where we need to be.

In terms of when we can start seeing the first products come out of these various programs are you, at liberty to say at this time?

I think, with respect to our next generation `products` that the guidance I gave in the last call was that specific to the premium products or the products that we are targeting into the back up marketplace specific to telecommunications and broadband, but we are expecting that late this year or early part of next year in terms of delivery to customer.

Right. Dave, a question on your 35 to 40 guidance, I am sure, you have already told us, but I seem to have forgotten, does that include all the integration cost of H Power?

That excludes the integration cost for H Power. So that's operationally within our businesses what we will spend.

Okay in that case if I look at the first quarter, operationally you did about $5m of cash burn. Where should I be looking for the big pick up in cash burn to come from in the next 3 quarters?

I think we explicitly stated in the press release that we sent about $8.5m in the quarter under operation and $500,000 on that was related to the H Power acquisition.

Yes, I misread it, my bad.

Okay.

And also finally Ballard announced the other day that it's going to wind down its fuel processor division after it could not find suitable arrangement to offset the cash burn there. Did you guys take a look at that fuel cell division and if so, what were your thoughts?

Well that's a pretty direct question. Thank you very much. [Laughter] We, actually I am trying to think in the most clever way that I can answer that. The best think to do is to say that, we are always looking for any kind of opportunities that exist that would help us to get where we need to be. One thing I think we have is probably the leading edge with former technology around with the most experienced in small size reformers of any other company and I think that's the real strength that we have. So, just kind of typically for a business perspective, we kind of unlikely that we will be looking for opportunities in hand.

Okay, thank you.

Your next question comes from David Snow of Energy Equities.

Yeah, hi. I was trying to get a little more flavor on the selling these (ph) project after you divided it into separate funding. Is that -- how's that worked out and I think that redirects (ph) some of those overseas facilities. Can you bring us up to date on the details here?

David its Greg. I'm not totally certain of the basis for some of -- some portions of your question. So let me just try and ground you on where I think we are with high temperature and then if that doesn't help, please ask a follow-up question. The work that we are doing on high temperature as you pointed out is primarily done with Sony. So we have a co-development program in place with Sony, it is around their version of a high temperature membrane. There are other activities that can take place looking at other types of high temperature membranes, but our primary thrust and focus is around the joint development program with Sony. As you would expect both Plug Power and Sony put resources into that and therefore both companies incur expense in developing that. Now at the same time there are amidst in other government entities in the United States that put out felicitation for development work in the regime if you will of high temperature because it's clearly an area that a lot of parties want to be on going development made in. And so some portions of the work that we do are connected to contracts that we have competitively bid on and then been awarded. So there is some offset to continue our company for funds that come into our company, be clear about to help us with that work. We have purposely tried to totally quantify which stream of activity to what revenue offsets, etc., come into that, I don't think that has been meaningful in something that we felt we had to put much more detail around. So if that helps you, we'll go ahead to answer your question and if there are still things that you need help on, please ask us to follow-up.

I was referring to the third quarter, I think you had restructured the arrangement and I believe it was back in the third quarter, so that you either separately funded the project than doing it as a single funding.

Your interest is working fine.

Yeah. You are right. I mean we got there a long period of a work when the company periodically needed things how do we continue to work forward. There were some place modifications made in which both companies agreed to and I think that's what you referred.

And what is it that you believe gives you the leading edge in reforming the technology, your field processors or the membrane or what?

In terms of the reformers, it's simply a matter of getting the size down, getting the cost out, and obviously with size correlates weight and the reliability up, and that relates to an awful lot to the quality of the hydrogen gas that comes out on the demand from the system itself. So, I'd say that we have a lot of experience doing that now. We probably fabricated close to 200 dozen and we have had both in heat following and in electrical following environments. We have had them in buildings, outside of buildings, in dry conditions, at altitude. It has really helped us to put in design robustness that justifies the kind of talent that we had in our original acquisition of GasTech. Those folks coupled with our engineers and with Engelhard, our partner, have really helped us to design develop, release, and practice with very efficient reformer modules.

Would you think that as you get through these as, I hope, you said as your next generation comes out, you might double your stock life or order of magnitude is to what it might do?

We have got - we have got some very challenging internal targets in terms of doubling our percentage improvement. If someone came in to me and said today they improved to stock life ten fold, I'd look at them and say what we are going to do to improve it another ten fold. So, we are relentless in the idea of improvement and everything we do in terms of designing the robustness in our assistance, everything from using Deguchi robustness methodologies right through to understanding the science and modeling at the molecular level of the electrode membrane performance. We are constantly pressing our supply base and ourselves to understand the physical chemical bases, so that we can improve the lifetime. If you want to know what my ultimate lifetime target is, it's 15 years.

Okay. Could you tell me whether you think the high temperature membrane is going to be developed, so that it could be incorporated in the next generation products?

Our architected designs now are flexible enough that when we get to the point where the high temperature membrane or any other technology that we can foresee right now, is production ready. It can be accommodated through software and controls adjustments in our systems. That's one reason why we are using the architected base.

That sounds like you are somewhat optimistic that that will come along and resolve the remaining issues.

Well, I'm working here, I'm very optimistic.

And what about the Engelhard project, is there any further progress that you can give us on that?

I think the collaboration with Engelhard, one of the things that we have tried to really do at Plug, and I want to put this into context, we have tried to focus on developing a supply base with suppliers having the great similar vision of the future as ours. And as with any collaboration, with all our suppliers there are times when you learn how to communicate better and every time you do that you are careful never to retreat from that standard. So, I would say Engelhard among a handful of others are supplier partners. It's part of an improving relationship and it's part of this extensible supply base that allows us to benefit by having a very strong relationship and finding ways to improve it mutually for everybody.

You get proprietary use of those improvements or will they become part of what they can share with others?

Well, I think that that's getting into a kind of a particular any kind of relationship. Each of the relationship is unique that has it's own features and because of their own experience and practices -- I just want to come back because of the fact that we are using -- the fact that we are have so many units in the field allows us to understand the fundamental performance of any modular sub-system component right down to the tiniest component and it can help this supply base by learning with us and we expect them to benefit from that just like we expect to benefit from them making the improvement because we are in this thing together.

Okay thank you very much.

Okay.

Should I believe we have one last question?

Okay, your next question comes from Jarett Carson of RBC Capital Market.

Thanks real quick, Dave regarding H Power's facilities there, correct me if I am wrong, that was an operating lease?

Yeah, they had a couple of different operating leases. They were operating out of three different locations actually, one in Canada, one in the New Jersey, and one in North Carolina. The Canadian facility, we've already been successful in finding a new tenant for us and we are out of that lease. Then New Jersey facility has a short-term left on it, I think it expires in August. And, the North Carolina facility has a 10-year operating lease attached to it.

And then one final thing for modeling and you, probably mentioned it earlier, but what do you kind of see as the go forward, given its range on integration costs?

Well we got, we took care of lot of integration costs at the time of the closing of the merger. Their distribution agreement was handled at that time and some of the other significant costs were handled at that time. The remaining integration costs relate primarily to this North Carolina facility and bringing, consolidating every thing back here at Latham.

So, but less than a million would be there?

We haven't given any guidance on that at this point. I mean, I think it's fair to say that with our ongoing operations we will spend between 35 and 40. And that there is going to be a number of expenses in integrating the two companies, but not that significant.

Okay, thanks.

Yeah.

Thank you very much. This will conclude our call today. We hope that you found this session informative and we look forward to having you join us next quarter for another update.

This concludes today's Plug Power first quarter financial conference call. You may now disconnect.