普拉格能源 (PLUG) 2004 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to the second quarter 2004 Plug Power financial conference call.

My name is Bill, and I will be your coordinator for today.

At this time all participants are in a listen only mode.

We will be facilitating a question and answer session towards the end of this conference.

If at any time during the call you require assistance please press star followed by zero and a coordinator will be happy to assist you.

I would now like to turn the presentation over to your host for today's call, Ms. Cynthia Mahoney-White, Manager of Public Relations and Marketing.

Please proceed ma'am.

Good morning and welcome to Plug Power's 2004 second quarter financial review.

Participants on the call include Roger Saillant, President and Chief Executive Officer, Dave Neumann, Chief Financial Officer, Greg Silvestri, Chief Operating Officer, and Mark Sperry, Chief Marketing Officer.

During the course of the call, management may make projections or other forward-looking statements regarding the events or future financial performance of the company within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform act of 1995.

These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause Plug Power's actual results to be materially different from the future results expressed or implied in such statements.

Plug Power undertakes no obligation to release any revision to any forward looking statements.

For a detailed discussion of the forward-looking statements, please refer to our press release issued today.

Now I would like to introduce Roger Saillant, President and Chief Executive Officer of Plug Power.

Thank you, Cynthia.

Good morning .

Thank you for taking the time to be with us today for Plug Power's second quarter conference call.

My main message today is that we continue to make progress toward our goal of profitability.

This progress depends on several factors.

First, we must manage our business to meet our financial need.

Second, we have to focus as our efforts to make sure GenCore is a product success.

Third, we must design and develop next generation products which attract new customers and new markets.

First, I will highlight our financials.

The number of units shipped rose to 55 versus 35 for the same quarter last year.

Our total revenue for the quarter has grown year over year to $3.7 million from $3.1 million.

Our deferred revenue is at $6.5 million this year compared to $4.3 million last year at this time.

Our key business measureables are positive.

Shipments have increased.

Revenues have increased.

And our deferred revenue is up significantly.

Next, I will describe our progress on GenCore.

There is enormous focus in Plug Power on GenCore.

We continue to identify customers, understand what they want, and follow our customers processes, which are required for deployment of our new technology.

We're working with end customers as well as distributors and potential OEMs.

During the quarter we signed three GenCore distribution agreements.

One with HM Cragg Company of Minnesota, a Midwest Distributor and Manufacturer's representative of powerware products, batteries, and services.

The second is with J.M.

Schaefer Inc. of New York.

A provider of direct current power for industrial batteries, chargers for forklift trucks, and critical back-up power for computers, emergency a lighting, telecommunications and utility equipment.

The third signed distribution agreement is with PIENTA of Italy.

The first hydrogen system integration company in Italy offering a wide range of services for installation and management of stationary fuel cells and hydrogen production equipment.

PIENTA focuses on project preparation, installation, and management of hydrogen production and storage and distribution equipment.

These additional distributors bring our GenCore distributors to a total of six.

These distribution agreements are foundational to our go to market strategy.

Also during the quarter, Plug Power signed an important agreement with Tyco Electronic Installation Services Inc., a subsidiary of Tyco Electronics.

A leading provider of services in the communications market.

Under the agreement, Tyco technical trainers completed a Plug Power GenCore training program to enable them to install and service Plug Power's GenCore fuel cell systems throughout the United States and its territories.

Tyco Electronics Installation Services Inc. offers DC power installation and maintenance support services to its customers through a nationwide workforce of approximately 300 technicians.

Our work continues with Verizon and FDT Orange.

To date, the Verizon system has exercised through 3463 starts and stops and 946 hours of runtime.

And performed without a failure.

The FDT Orange system has gone through 118 stops and starts and 2116 hours of runtime without failing.

The customer design Bogey is 500 stops and starts and 1500 hours total runtime expected in 10 years.

Thus, we are demonstrating flawless reliability and building confidence in our customers' mind about this new technology.

We're very satisfied with our product performance.

The evaluation at both companies continue.

Since the launch of GenCore in late 2003, over 70 GenCore systems have been shipped to 28 different customers.

These customers include distribution partners, integrated power solution providers, OEM's, electric utilities and telephone carriers.

Each GenCore system deployed is helping to generate critical inapplication experience needed for deployment in the premium power markets.

Before going on, I need to mention our other commercial product GenSite.

The GenSite verification unit was installed in Apeldoorn in late March.

The GenSite unit is producing hydrogen, 24/7 for use in the laboratory.

We estimate will have an annual savings of about $50,000.

We continue to be on track to meet our milestones of placing initial systems at customer locations this year.

Next, I will discuss our future product, deployments and product development.

Over the past year, we have elected to grow our contract revenue in order to support our future program work.

Our guiding principle is to compete only for monies aligned with our R&D intentions.

This strategy has led to significant support for our early product development work for future GenSys and GenCore products.

Pursuing this strategy during the quarter, Plug Power was awarded government programs under which the company expected supply 43 fuel cell systems for a variety of applications.

The programs are sponsored as follows- Naval Facilities Engineering Service Center for installation of GenSys fuel cell systems at naval bases in New York, California, and Hawaii.

Partners in the project include Sandia National Laboratories and Logan Energy Corporation.

U.S.

Air Force and U.S.

Army Corps of Engineers, common core Power Production Program for delivery of development of GenCore fuel systems.

This program supports the long-term acquisitions of power generation systems including fuel cells for stationary and light mobility applications for the military.

And the New York State Energy Research and Development Authority for three clean energy projects including a rural, remote grid independent project, hybrid fuel cell/battery storage project and feasibility study of high temperature systems.

These projects and related product development and research work has led to the addition of six new patents giving us a total of 113 U.S. patents and eight foreign patents.

In conclusion, we're executing our plan positively and quantifiably toward our goal of profitability.

Our financials are improving.

Our GenCore activity is focused and on track.

Our research and product development work is strong and productive.

Next, Dave Neumann our CFO will take us through the detailed financial results.

Thank you Roger.

I will be providing a summary of our financial results for the quarterly and six month periods ended June 30th, 2004.

Starting with our statement of operations, total revenue for the second quarter ended June 30th has increased to 3.7 million compared to 3.1 million during the second quarter of 2003.

Year-to-date total revenues increased to 7 million when compared to 6.1 million during the same six month period last year.

Product and service revenue a component of total revenue was 1.5 million for the quarter which compares to 2.1 million in '03.

We delivered 55 fuel cell systems during the quarter, including 28 GenCore systems compared to 35 systems delivered during the same quarter last year.

Year-to-date product and service revenue was 2.9 million compared to 4.2 million in 2003.

Under our accounting policy for revenue recognition we continue to defer recognition of product and service revenue at the time of sale, and at June 30th, 2004, we had total deferred revenue of $6.5 million.

We expect to recognize approximately 4.7 million of this deferred balance throughout the remainder of 2004 as our service maintenance and some other contractual obligations expire.

The impact of deferring revenue on our statement of operations is conservative.

Since the costs associated with production are fully expensed as they are incured.

Contract revenue under research and development contracts was 2.2 million for the second quarter ended June 30th, as compared to $1 million in the second quarter 2003.

Year-to-date contract revenue was 4.1 million for the six months ended June 30th, 2004, compared to 1.9 in 2003.

The increase is the result increased contract activity with the Department of Energy, the National Institute of Standards Technology, and others.

We expect to receive approximately 14.4 million in additional net funding over the next 24 months offsetting expenses for existing research and development activities.

Cost of product and service revenues represent the direct material cost of fuel cell systems delivered combined with the labor and materials associated with servicing all of the systems under contracts.

These costs do not include any factory labor or overhead expenses.

In addition to the 55 fuel cells systems delivered we supported more than 250 systems during the second quarter 2004 compared to approximately 150 systems in 2003.

The cost of product and service revenues were 1.8 million in the second quarter compared to $2.1 million during the second quarter of 2003.

Year-to-date, these costs were 2.6 million for both the period ended June 30th '04, and the period ended June 30th, 2003.

Contract revenue represented the fully burdened cost of research and development contract activity was $3.1 million during the second quarter of 04, compared to $1.3 million during the second quarter of 2003.

Year to date, these costs were 5.7 million compared to $2.5 million last year.

Research and develop expenses were 7.9 million during the quarter, compared to $10.4 million in the same quarter last year.

While year to date, research and development costs were $17.6 million compared to 20.5 million in the same year to date period of 2003.

The decrease in R&D expense is the result of the additional R&D activity with the Department of Energy and this, as mentioned previously, which offset expenses associated with previously planned research and development activity.

These related expenses are classified as cost of R&D contract revenue.

When combining research and development expenses with cost of contracts, our spending for total research and development activity has remained relatively flat year over year.

Recurring general and administrative expenses were $2.3 million in the quarter ended June 30th, compared to 1.9 million in the second quarter of 2003.

Year-to-date general and administrative expenses were 4.2 million, compared to 3.4 million in the same period last year.

The increase is primarily the result of stock based compensation associated with the amortization of restricted stock issued in June of 2003 under our employee stock options exchange program.

Our net loss for the quarter was a 11.3 million, or 15 cents per share, compared to $12.8 million or 21 cents per share during the same period last year.

Year-to-date net loss was $23.3 million or 32 cents per share, compared to $26.6 million or 47 cents per share during the same period last year.

The '03 loss includes a non-cash charge of $3 million for the write off of in process research and development expense related to our acquisition of H-Power Corp in the first quarter of 03.

Our non-cash expenses for items such as depreciation, amortization, and stock based compensation was $3.5 million during the second quarter ended June 30, 2004 compared to $2.9 million for the second quarter of 2003.

Year-to-date non-cash expenses were 7.2 million, compared to 5.6 million during the same period last year.

Weighted average shares outstanding for the second quarter were 73.1 million compared to $60.4 million in 2003, and year-to-date weighted average shares outstanding were 73 million shares for the six months ending June 30th compared to 56 million during the same period last year.

The increase is the result of issuing approximately 8.9 million shares in connection with our acquisition of H-Power, and an additional 11.7 million shares in public offering in the fourth quarter of 2003.

As of March 31st, 2004, there were 73.1 million shares issued and outstanding.

Net cash used in operating activities for the second quarter ended June 30th was 9.9 million including 2.1 million spent for working capital.

Primarily increased accounts receivable during the quarter.

That compares with 10.8 million in the second quarter 2003.

The '03 amounts include 2.4 million for acquisition fees and expenses, severance and integration costs related to our acquisition of H-Power.

Year-to-date, net cash used in operating activities was 18.5 million, compared to 19.3 million including 3.1 related to H-Power in 2003.

We continue to expect that net cash used in operating activities for the full year 2004 will be less than the amount spent for 2003. 34.4 million which excludes the 3.6 million for costs related to our acquisition of H-Power.

Our balance sheet continues to be strong with 87.6 million in cash and cash equivalents and marketable securities.

And that includes 4.7 million of restricted cash securing the bank debt on our facility.

That concludes our prepared remarks.

Would now like to open the meeting for questions.

Operator, can you please proceed?

[Operator instructions]

Our first question comes from Michael Hong of Ardour Capital.

Please proceed, sir.

I was wondering if there are any other additional distribution relationships on the pipeline?

Michael, good morning this is Mark Sperry.

We continue to work to augment our distribution agreements.

We are active in conversations with the additional companies.

As they come to fruition, we will certainly let you know about them.

We certainly are not done.

OK.

I have one last question.

You see any additional expenses from the H-Power merger coming up?

Michael, all those integration expenses are behind us now.

Great.

Thank you.

Thank you very much sir, ladies and gentlemen your next question comes from David Smith at Smith Barney.

Please proceed.

Good morning guys.

Good morning David.

Just on that distribution question, can you update us just as to where Tyco might be in terms of a sales agreement?

David, this is Mark.

As you know, we have a joint marketing agreement with Tyco which we have been operating under for some time now.

The continue to jointly engage the market.

We work together against a share at SuperComm.

In their booth.

Our sales people are actually actively working together in a variety accounts today.

We continue to work to turn that marketing agreement into a broader distribution agreement, but that is about all I can comment on at this point.

Is that a 2004 goal?

I would not put a time for a month.

What I would say it is we are actually operating quite nicely together with our current arrangement, and we're not in a particular hurry to move on beyond what we're dealing with.

Okay.

How about the backlog, product backlog at the end of the quarter?

Backlog at the end of the quarter was 13 systems.

It is that all GenCore?

The preponderant is GenCore.

But at the end of the quarter it was 10 GenCore systems and 3 GenSys systems.

How about the operating performance?

Can you talk about the operating performance of units in the field?

I realize it is difficult to tack a name onto these, but, I guess what is Verizon?

What are they looking for to step up to bat and go a little further with this?

I think it would echo Rogers' comments in the front end of the conference call that we're very pleased with the performance.

Essentially, we have not failed to perform any aspect of what we and our test customers have asked the system to do.

I think we have characterized it before, that one of the selling challenges here is we're selling a reliability, indoor reliability market and we need to demonstrate that the product will actually come on when it needs to come on, i.e. when the grid fails.

So we're stimulating that and all of that testing continues to go quite well.

With respect to its broader deployment, as you know, we have asked and received nebs level three certification on our product.

In working with Verizon, there are some incremental nebs requirements above level 3 that they're asking that we comply with that we're beginning a set of activities to gain those certifications.

We expect we will come through that between now and the end of the year at this point.

Until we get those certifications with respect to the incremental ones that Verizon is looking for, we don't expect any broader deployment beyond where we are now.

Again, that activity is specific to Verizon.

The level 3 certification is accepted by most of the other telcos, our work continues with those.

It is a long sales cycle as we articulated before.

We're making good progress getting through what I would characterize as the first stage of those tests which is typically conducted by the technology office's of the company's when they get comfortable in the lab or a field setting where the technology works is a six to nine month window.

But the progress is to raise six to nine month limited field deployment, you know, on the order of six or nine type systems that would be actually out connected to the DC busses before you get to the point where you're actually listed as an improved technology.

So we continue to make progress.

It is a long cycle.

So we're happy, we're very happy with the progress we're making with respect to the technology doing what it is intended to do with this test.

As far as Verizon goes, are you saying that you won't be in a position that they can put additional orders in this year?

I know they have a budget period that I think is going now.

Most of the telecommunication company's are doing their budgeting work as it relates to next year's of the capital budget should be in it next year.

We are not at risk yet at missing the window, the real, the next phase beyond this deployment.

What is awaiting the initial work, and I expected if we don't get that later this year, we will not move beyond the early part of next year.

You said 13 systems are backlog.

What about these 43 units in the military, where do they fit in?

Many of those systems have shipped and some of those are reflected in the backlog.

There are a few more actually that are yet to be contracted.

That are under the New York State awards that we got from [inaudible].

So they're actually not present in the backlog as of yet, but the majority of the systems have moved out.

What is the back log today?

13.

You still have 13?

It is not the same 13, but coincidentally the same.

How long does it take to make and ship one of these when you did in the door?

I know it varies between the GenCore and GenSys?

I would say where we are right now today, lead time is not an issue with us.

We're able to return the equipment orders around fairly quickly inside of 30 days at this point.

Our standard lead times are probably six to eight week range, but as David indicated we did bring some more material and so we're in a position to get the product out fairly quickly.

Thanks.

Thank you very much sir.

Your next question comes from Steve Sanders of Stevens Corporation Incorporated.

Please proceed.

Good morning.

Good morning, Steve.

Of the 27 or 28 of the GenCore systems shipped in the quarter, how many of those went to the Air Force if any of that program?

Can you talk about the mix better on sort of commercial industrial and users verses government or military programs?

I would say 11 of those shipped, Steve, are under what we call the C2P2 program internally.

The remainder of those systems primarily went into the channel it self on the way to end user applications.

So, again, the C2P2 number, the government related number was 11 with the balance of them off into the channel and on the way to the end user.

On the performance side, you obviously gave some detail on FDT and Verizon.

Are you finding the field unit performance pretty consistent?

Yes, we are.

We will as our customers are willing to provide additional insight as to how those systems are operating.

But for the most part, they are out there under nondisclosure type of agreement that prohibits us from really giving color with the systems with FDT and Verizon.

Clearly we have been talking about it, and we have the permission of our customers to do that, but in general I would characterize it as the systems are performing as the systems are at Verizon and and at FDT and Orange.

In terms of the Tyco Services agreement, I guess you've essentially trained the trainers?

Do you know what percentage of the 300 field technicians have actually been trained on your system?

I would say is somewhere around 10% at this point.

Have been trained and we are working the rollout plan.

Clearly, we want the training to occur closest to the point where the technicians are going to need it.

We're actively, now that that agreement is signed and working with the folks at Tyco working to determine the best way of rolling our that training.

But it is train the trainer.

It is training that will ultimately be delivered to the Tyco technicians by Tyco employees.

With that training being developed, a curriculum, and the documentation provided from [inaudible].

Okay.

On the Gen site products, you made some comments that seem to be consistent with earlier guidance on that.

Can you talk a little bit more about the level of interest and/or sort of your outlook for that product line?

I guess it would be primarily in '05.

Steve, your questions are GenSite?

Yes.

We continue to anticipate making our initial customer placements later this year.

I would characterize that again as being a limited engagement of the market.

We only anticipate doing it, it will be in less than 10 sort of placement into the field.

We are looking to put those into specific applications that are of interest to us and into specific geographies, so we are executing against that strategy.

We continue to be on track.

Primarily here we are getting those systems out into the customer hands.

And as to happen there GenSys one product, we will absolutely gather all the market and product data applications so we can drive those improvements, and then now it is back into our future version.

Thank you.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from Dave Kurzman of Needham and Company.

Good morning.

In his Mark Grzymski for David.

Hi Mark.

A quick question and most might have been answered.

First according the GenCore systems, that looks like you had a shipment in the second quarter.

I was wondering if you had any visibility to the second half of the year?

What you're estimating your shipments will be there?

My second question is regarding GenSite, a bit more detail as far as economics or how well, how quickly the system is generating hydrogen?

Mark, this is Mark.

Let me handle the first part with respect to division on GenCore and the second half, Greg will speak to you about GenSite.

Essentially we haven't and continue not to provide guidance in terms of specific unit counts as a go through the year.

I would say, historically, our business had been somewhat back end loaded.

Our view really is incorporated in the comments David made about the cash burn, so that the revenue numbers we anticipate are reflected in that comment.

From that, you can't do the division of how many units, but we do not provide unit count guidance going forward.

Thank you.

Mark, its Greg Silvestri.

The questions on GenSite, a couple of points.

First is we are working for the initial units to go both into North American locations and European locations.

So our interest in the target markets for generator cooling, metal processing, and some other areas for high use of hydrogen, are taking place in both of those geographic markets.

We're also working directly with end users.

Some people would justify this capital expense, at their point of use, and directly own the product, as well as working with some industrial gas company which you know in the industry there is a handful of significant players that have worldwide presence in industrial gas.

Basically, the value proposition is to come into areas where there is a high cost of hydrogen.

Making hydrogen at the point of use gives much better economics to the end user because they are now not incurring the transportation cost associated with centralized production of hydrogen than having it transported.

In the U.S. that means that you must pursue locations that are currently consuming hydrogen out of metal cylinders.

In Europe, there is more of a likelihood your going after point of use when they're consuming it out of it to trailers.

That is as differences in how hydrogen is generated and transported in Europe versus in America.

In each case, we are doing a classical economic justification for a piece of capital equipment where there is an initial cost of the system there is very low operating costs and over a cost of ownership period of several years.

The end user looks at their total all in cost of hydrogen.

So we know we need to be competitive with the payback is measured in a few years, not 5 or 10 years.

In all the cases that we're pursuing, we're able to demonstrate that to the end users, so it's mostly around economics.

There is some additional benefits in terms of security of supply and stuff like that.

I would say all those get discussions but the cells are absolutely anchored on improving the purchasing economics for hydrogen for the end users for the provider of the hydrogen to the end users in the case of industrial gas companies.

Great.

Thank you.

That is all for me.

Thanks Mark.

Thank you very much, sir.

Your next question comes from Bill Cable with TD Securities.

Please proceed.

Just a question on the GenCore, has the pricing changed from the $3,000 per kilo watt range?

No, it hasn't Bill.

Just a general question on your understanding of the status of the energy bill any new incentives proposed for stationary power that you see coming?

The bill that passed in the Senate, actually had some tax credit legislation for fuel cells.

The parallel bill that went through the House did not have that language.

Our current understanding is that that issue will be discussed in conference clearly at this point given its recesses started, it won't happen until they get back towards the end of this summer.

But we are hopeful and conference the language that is currently in the Senate bill will be the language that is adopted as it moves forward.

Thank you very much.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from Jarrett Carsonof our RBC Capital.

Please proceed, sir.

Good morning.

I apologize in advance.

We are hopping between a lot of calls here.

If I cover something you talked about.

Mark.

We already have said that Jarrett.

All of my questions have been answered, probably.

But I will reask.

Mark, can you give kind of a range on say a 5 kilowatt installation on the backup power side?

Just kind of a range of the overall installation costs?

I know you were saying that would be 15ish thousand dollars for your equipment, and just kind of the overall installation cost?

The hydrogen supply in terms of the actual equipment that may be mounted into will vary from literally something on the order of 800 to $1,000 if you're looking for something that I would characterize as not elegant, but safe, up to something like $5,000 if you wanted cabinetry that would meet nebs certification and understand how much supply is there.

The actual physical installation cost is really a wide range.

Again measured in something in the thousand to $1,500 on up depending whether you are mounting this on a roof.

If you're mounting it on the actual and environment of the hut that you might be trying to put outside, what does that look like?

Do you have space constrains?

Jarrett, we are targeting that to be in the $1500 range for the actual installation.

Once the site has been prepped and ready, it is a very pretty straight forward installation, I mean, we can get that done in less than a day in terms of taking it from there is a pad to the systems delivered up and operational.

Thanks.

Another question.

It seems -- like to talk to a little bit about your for but budgeting cycles, for some of the telecom guys, but in general, do you feel that competition with their product and the one or two private guys that are trying to deliver some telecom backup products.

Are you seeing a little bit and my question is directed toward, you know, competition theoretically suggests that, you know, you've got the industry going, and are seeing some of that a little bit, and you believe that?

It is kind of helpful for the telecom guys in that they have a little bit of a choice to make.

I very much see that as helpful.

It is absolutely the case that this large telco end users are not interested in being in a sole source situation.

They want to make sure that they can get this technology from a variety of suppliers, so we still need the industry to succeed here.

But the industry is beginning to punch through the wall here.

So there is evidence of other manufacturers being out there and having conversations about why this technology makes sense as a face off to valve regulated batteries, and to some extent generators sets.

Last question, to Dave.

I don't know if you talked about, it looks like you are kind of on pace for the 35 to 40 and cash burn for the year which is kind of norm.

Is that fair?

Yes.

We said we're going to hold our guidance which is to spend less than we did last year. 34 and change.

So he should be pulling back a bit in the second half?

Yes.

With the higher recognition of deferred revenue?

Well that, and combined with the fact that we spent a little bit more in the second quarter on working capital items which is more or less a timing difference.

Can speak a little bit about you guys recently filed a shelf offering which is I believe it is for 100 million?

You seem to have a fairly decent cash position.

At least on this run rate would get to a 8 to 10 quarters.

I wanted to and put that up there now and potentially create a little more overhang.

Well we put it out there now to give us the most flexibility for the company, if a meaningful opportunity did arise.

So, we wanted to be able to move quickly if indeed something did come about that could accelerate market adoption or commercialization.

We felt like now was the right time to do that.

And get all the legal SEC and other administrative processes out of the way.

Thank you.

You're welcome.

Thank you very much, sir.

Our last question today comes from David Snow of Energy Equities.

Please proceed.

I was trying to go back to the economics of installing a 5 kilowatt system at a price of 15,000 and your installation costs was to 1,500, and in hardware, between 800 and 5,000, it sounds like your gross margin is positive out of the chute.

Except for ongoing R&D and overhead.

Is that fair to say?

David, this is Mark.

What we said regarding the margins on our box it is that we're in a cash accretive position with respect to the box at $15,000.

The particulars of who makes what margin on the install, again our strategy is not to be a customer facing the most of this installations would be done by Tyco.

Their pricing structure, I really don't want to comment on.

At what point do they make margin?

I just don't know that.

Our emphasis is on the GenCore product and our hydrogen generation module as we call it to put that into the market where we're cash accretive.

Is the expectation that your GenSite products will go cash accretive from the start as well or do you have to get back.

Driven up from your field to know?

That is also our desired strategy to be cash accretive on a product.

One last question .

It had a reference to a high temperature and a hybrid system had your working on with New York.

Could you elaborate on that?

But they were limited to lower temperatures with technology, for example?

This is Roger.

The reference to high-temperature is we have an exclusive agreement with the PEMEAS.

Which is now an independent company from Celanese so that carried over technology and its relationship with us is something as follows.

What we call high-temperature is not solid oxide high temperatures, or molten carbonate high temperature.

It reflects a temperature around 180 degrees centigrade.

And that particular technology is coming along with the intention that is specific applications for low temperature systems which would be less than 80 degrees centigrade might not be ideal.

High temperature systems, which is in this 180 degree range could be a perfect solution.

It would simplify the complexity of the system design and it would also create options, for example, the quality of the heat could be such that we could use it for cooling so the feature could go up.

So we look at it as a longer-range development program that we think will have a significant impact on the market.

OK .

What about the hybrid?

How is that going to work.

I'm not quite sure what was said about hybrid.

I thought that is what I heard.

I think we were just talking about next generation GenCore and next generation GenSite.

OK.

Thank you.

Thanks very much sir.

Ladies and gentlemen, I do apologize.

We are going to take one more final question from John Quealy of Adams Hockness.

Please proceed sir.

Hi.

Good morning.

I was wondering if you could outline for us, you mentioned six 6 GenCore distributors, could you talk about the other three that are in the release?

Who they are?

They were announced during the first quarter.

We have SIGEN Limited, that operated in the United Kingdom.

Hidrener that operates in Turkey.

The company IST that operates in South Africa.

Mark, of those three, have they mostly been Plug Power sourced, or are some of these distributors starting to wrap up and also replace product now.

At this point have mostly been Plug Power sourced, but there are a fair number of units now moving through the channel and they are beginning, in particular the ones that we signed up in the first quarter are beginning to order more product and we expected that traction will accelerate as we move through the year.

In terms of any financial incentives, obviously there is a technological incentive for these folks to distribute the product.

But in terms of the financial incentive, is there any financial incentive for these folks to move these on your behalf other the than the margin that they make?

Primarily, the financial incentives are in the margin that they make.

In terms of the distributors interested in doing that.

There is a fair amount of value to what I would characterize as ancillary services some of the consulting services, the engineering services, that go along with that, the installation services, I would say it is where a lot of the interest from the channel is being driven.

I would also say that there is the end user pull.

It's coming into the mix as it relates to distributors being interested in moving the product.

They do have a customer for a variety reasons, primarily for the value proposition.

When compared against the incumbent technologies as well as some of the issues that are embedded in the incumbant technologies are getting end users to knock on their door.

And the last financial question, maybe for David.

David, with regards to the overall R&D constant dollars moving towards the back half of this year, another several moving pieces there.

If the 7.9 roughly a decent run rate for the back half for that line item.

Could you just talk about that a little bit?

What I tried to say in our prepared remarks is that when you combine the cost of contract and that R&D figure, we are at a run rate of about 10 to $11 million in R&D.

That is probably a consistent number.

Great.

Thanks.

Thanks.

Thank you very much, sir.

This concludes the question and answer session.

I would like to turn the call back over to Ms. Cynthia Mahoney-White.

For her closing remarks.

Please proceed ma'am.

Thank you very much.

This will conclude our call today.

We hope that you found this session informative and look for to having you join us next quarter for another update.