普拉格能源 (PLUG) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2004 Plug Power earnings conference call.

My name is Angela, and I will be your coordinator for today. (OPERATOR INSTRUCTIONS) I would now like to turn the presentation over to your host for today's call, Mrs. Cynthia Mahoney White, Manager of Public Relations and Marketing.

Please proceed, Ma'am.

Good morning, and welcome to Plug Power's fourth-quarter and year-end 2004 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.

Today Roger Saillant will begin with a highlight of our key accomplishments throughout 2004 in addition to our 2005 corporate milestones, followed by Dave Neumann giving a review of our financial results.

We will conclude the call with a question-and-answer session.

To begin the call I would like to first read the Safe Harbor statement.

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 revisions to any forward-looking statement.

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.

Good morning, everyone, and thank you for joining our call.

There are two main messages for today.

The first message is that our 2004 accomplishments and our year-end results have positioned us to increases sales significantly during 2005.

The second message is wrapped up in our milestones for 2005, which show boldness and confidence about our future.

Today's press release did a good job of summarizing our 2004 results.

Again in 2004, we achieved our 2004 milestones established early in the year to guide and gauge our performance, which marks the fourth consecutive year of milestones set and met.

Allow me to call out several highlights.

We have expanded the GenCorp product portfolio to the point where we now have 7 distinct products that are suitable for wireless and wireline, broadband and utility substation backup applications.

These different products underscore our architected design strategy articulated several years ago and enables us to create cost-effective designs.

These products position us at the cusp of large global markets.

We added 9 new distribution agreements in 2004 in order to enter the markets.

We also secured hydrogen gas supply and GenCore's service agreements to support our end customers, all in all we shipped 93 GenCore systems, which brings our total number of GenCores shipped to 112 units since we launched the product in late 2003.

We achieved network equipment building systems, NEBS, Level 3 compliance, which is a key accomplishments for acceptance of GenCore systems in the United States.

This equipment standard assures companies in the telecommunications industry that they can deploy Plug Power backup systems in a wide range of demanding applications and environments.

In addition, the GenCorp product has withstood even more demanding tests beyond the basic NEBS requirements, which include passing high-altitude performance and temperature checks, rail shock, brush fire, and wind-driven rain standards.

These results build confidence in the minds of our customers as they go through their rigorous and extensive testing processes.

We continued to make progress in 2004 in other product development areas as well.

We shipped 56 GenSys combined heat and power units and placed them in agricultural settings, military facilities, college campuses, and various sites in Europe as part of the European Union Virtual Power Plant Project.

Additionally, we shipped our first on-site hydrogen generator product, GenSite, to Detroit Edison Company's Saint Clair Power Plant, where it will be online to provide a significant portion of the plant's daily hydrogen needs.

We also received notification from NYSERDA of their approval of two projects that will incorporate the GenSite product.

We installed the second-generation Home Energy Station with Honda here in Latham, New York.

Testing of the system is being done in conjunction with demonstration of Honda's 2005 FCX fuel cell car on public roads in the northeastern United States.

This program is described in the recently released March issue of Scientific American, which features a lengthy description of automotive fuel cells and describes our Home Energy System.

Before talking about our 2000 milestones, I believe it's important to mention briefly what our employees are doing on behalf of Plug Power that underscores our commitment to be socially responsible.

During 2004, our employees selected the Parsons Child and Family Center, a foster child care center agency in Albany, as their flagship charity.

The employees' efforts to support Parsons drew financial contributions, resident room renovations, and Christmas gifting activities has led to Plug Power being selected as the local Humanitarian Award recipient for 2004.

I am proud that our employees have embraced this charity, as well as what they're done to support many other charitable organizations throughout the past year.

We continue to build a complete Company at Plug Power, which includes a spirit of generosity.

Moving on to our 2005 to milestones, we intend to capitalize on our efforts accomplished in 2004, which laid the foundation for sales growth.

What follows in the form of milestones is what I believe we will accomplish during 2005.

Milestone one -- we expect to triple the number of GenCore orders received this year versus 2004 to at least 300 GenCores.

We were slowed in our material cost reduction efforts in 2004 because of the need to satisfy NEBS testing requirements.

Based on the exact design requirements that we now understand, we can focus on optimizing the design.

Thus, as our second milestone, we plan to reduce GenCorp's direct material cost by 25 percent from year-end 2004 levels.

Milestone three -- we believe that we will begin field testing our next-generation continuous run product.

Over the past four years we have shipped more than 400 systems based on our current first-generation continuous run product design.

We look forward to describing the replacement next-generation GenSys product later in the year.

And finally, milestone four, we expect to secure another contract with Honda and proceed with Phase III development activities on the Home Energy System.

In conclusion, I believe that we accomplished a lot in 2004 and will see benefits from those efforts in 2005 of more commercial sales.

Now I will turn the presentation over to Dave Neumann, our CFO.

I will be providing a summary of our financial results for the fourth quarter and year ended December 31, 2004.

Starting with our statement of operations, total revenue for the fourth quarter has increased to 4.5 million compared to 3.0 million in the fourth quarter of 2003.

For the year, total revenues increased 16.1 million when compared to 12.5 million during the same period last year.

Products and service revenue, a component of total revenue, was 1.1 million for the fourth quarter of 2004, and compares to 1.4 million in the fourth quarter of 2003.

For the 12 month year-to-date period ended December 31st, product and service revenue was 5.3 million, compared to 7.5 million in '03.

We delivered 32 fuel cell systems during the fourth quarter and 150 systems for the year, including 93 GenCore systems.

Under our accounting policy for revenue recognition, we continue to defer product and service revenue at the time of sale.

And at December 31st we had total deferred revenue of 5.7 million.

We expect to recognize substantially all of this amount in 2005 as our service, maintenance and other contractual obligations expire.

Contract revenue under research and development contracts was 3.4 million for the fourth quarter ended December 31st, as compared to 1.6 million in the fourth quarter of 2003.

Year-to-date contract revenue was 10.8 million compared to 5 million last year.

The increase in contract revenue is the result of increased activity with the Department of Defense and the Department of Energy, which helped fund further development of our GenCore product, and with a National Institute of Standards and Technology, or NIST, which helped fund our high-temperature technology development, as well as funding received from Honda for the development of our Home Energy Station.

Over the next 24 months, we expect to receive approximately 13.7 million in additional net funding for current contract activity.

We also expect to pursue additional government and commercial contracts that are directly related to our currently planned research and development activity.

Our cost of product and service revenues represent the direct material costs of fuel cell systems delivered during the period, combined with the labor and materials associated with servicing all of the systems under contract.

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

In addition to the 32 fuel cell systems delivered during the quarter, we supported approximately 150 systems.

And during the quarter ended December '04, our cost of product and service revenue was 1.5 million, which compares to 2.8 million during the same quarter of 2003.

For the 12 months ended December '04, these costs were 5.4 million and compare to 7.2 million for the same period in 2003.

Our cost of research and development contract revenues represent the fully-burdened cost of research and development contract activity, and was 3.6 million during the fourth quarter of '04, and compares to 2.7 million during the fourth quarter last year.

Year-to-date these costs were 13.5 million in '04 compared to 7 million last year.

Research and development expenses were 9 million during the quarter ended December 31st compared to 9.3 million in the same period of 2003.

And year-to-date research and development costs were 35.2 million compared to 40.1 million in the same year-to-date period last year.

The decrease in research and development expense is the result of additional contract activity mentioned earlier.

And when combining research and development expenses with our cost of contracts, our total spending for research and product development activities has remained relatively flat year-over-year.

Recurring general and administrative expenses were 2.2 million in the quarter ended December 31st compared to 2.1 million in the fourth quarter of 2003.

And year-to-date G&A expenses were 8.4 million compared to 7.2 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 2003 under our employee stock option exchange program.

Our net loss for the quarter was 11.8 million, or 16 cents per share, compared to 14 million, or 21 cents per share, in the same period of 2003.

Year-to-date the net loss was 46.7 million, or 64 cents per share, compared to 53 million, or 88 cents per share, for the same period last year.

The year-to-date loss in 2003 includes a non-cash charge and write-off of in-process research and development expense related to our acquisition of H Power Corp. in the first quarter of 2003.

Our net loss also includes non-cash expenses for items such as depreciation, amortization and stock-based compensation.

Total non-cash expenses were $3 million during the fourth quarter, and year-to-date non-cash expenses have been 13.4 million in 2004.

In each of the last five years we've been able to reduce the amount of cash required in our operations.

And in the fourth quarter of 2004 our net cash used in operating activities decreased to 8.1 million compared to 10.2 million in the fourth quarter of 2003.

Year-to-date our net cash used in operating activities was 33.9 million compared to 34.7 million during the same period last year.

In 2005 we will continue our practice of sound financial management, and as we move closer to commercialization we may utilize more cash in operating activities.

Specifically, we expect to incur expenses associated with increasing the size of our direct sales organization, along with the working capital requirements of executing against our 2005 sales objective.

We also expect to advance the development of our next-generation continuous run product and will continue research and development activities related to future product initiatives.

While we may use more cash in operations, we do not expect that our cash requirements will exceed $40 million in 2005.

Our balance sheet continues to be strong with 71.2 million of cash, cash equivalent, and marketable securities, including 4.3 million of restricted cash securing the debt on our facilities.

That concludes our compared remarks, and we would now like to open meeting for questions.

Angela, can you please proceed?

(OPERATOR INSTRUCTIONS) Steve Sanders, Stephens Inc.

I wanted to talk a little bit about the unit shipments.

They've been down the past few quarters.

But you're obviously feeling pretty good about '05 with the threefold increase in GenCore.

Could you provide us some detail on backlog, order activities, sort of the things that give you confidence in the '05 outlook?

Our current backlog for GenCore is 20 systems, as we sit here this morning.

What I would characterize that is giving us confidence in terms of why we're out there with a order of 300 systems essentially is what we're saying is that we have, as you know, been working very closely with the large telecommunication customers.

We have at this point received notification from two of those customers that GenCore is now approved for deployment into those networks.

And we have made progress in what is generically referred to as the standardization process that essentially gets us approved from deployment status.

So that has happened recently, which gives us some of the optimism that you see.

Also, we're working a few substantial opportunities with respect to telecommunication and utility applications.

So the funnel as I look out is a robust funnel right now, and it does have some large opportunities.

And we are beginning to see traction in the sense that we are moving through what I would characterize as the test-and-qualification processes that we were in much of last year into a position where we're poised now to actually go out and make sales.

And then just a rough estimate of how this should play out throughout the year?

Are you off to a good start in 1Q?

Is it heavily back-end loaded?

Any comments you could make there would be helpful.

Right now I would say in terms of the order flow I suspect it will be back-end loaded.

I don't know about heavily, but certainly I think the back half is going to be more productive in terms of quarter and shipments than the first half of the year.

I don't remember getting an update on this in 3Q, but I thought through 2Q you guys said you had 28 different customers for GenCore.

Can you give us an update on that for the year '04?

I don't have that number at my fingertips, but it's obviously greater than it was in the fourth quarter.

If I had to speculate, I would say on the order of maybe half dozen more.

But it's not doubled.

And then specific to Tyco, I think the formal distribution agreement is four or five months old.

Have you completed the training; seen any orders from them?

Just sort of commentary on the activity with Tyco?

We have seen our first quarter from Tyco.

I would characterize it as the sales training at this point is complete.

And Tyco has actually included a GenCore in their mobile display exhibit, which has been out and used to train the sales force, as well as bring customers in, in the five different regions that Tyco operates in the United States.

So I would say the training is complete and the sales activity really is beginning to take place now.

It is probably slower than I would have liked, Steve, but at the end of the day the training is now starting to take hold, and I think the sales force understands what the system is all about and expect that to begin bearing fruit later in the year.

Then a question for Dave.

Where do you stand on a change in your revenue recognition policy?

Have you sort of completed that review for the year, and can you give us any information on the outlook there?

We did complete it for 2004, and we're not changing the model now.

But that review is ongoing and we continue to evaluate the right time for doing that in relation to what our audit committee's input is and what the SEC's guidance is.

And we will continue to look at that in 2005.

But as we start to get more units out in the field, we will be able to better understand what the warranty obligation is.

And that's really one of the key factors in determining when you flip the model.

So I guess the answer is that we continue to look at that, and we will keep you posted.

And then one final question.

On the GenCores in '05, do you expect pricing to be relatively flat with '04?

Or will you start passing along some of the cost savings in the price?

We do expect to begin passing those savings along in the price.

Thank you very much.

David Smith, Smith Barney.

Just a follow-up on that question.

The two customers that have approved, are they in telecom-related markets?

Yes they are.

I would characterize them as -- obviously they don't want us to share their names, but they are large telecommunication companies.

Where are you finding most interest on the telecom side?

Is it in the US or are there opportunities outside?

I would say it is pretty balanced.

There are substantial opportunities both outside the US, in Europe in particular, and in North America.

We also are seeing a substantial interest with our distributor in South Africa at this point.

I would also add that we are beginning to see, which I didn't articulate earlier, a fair amount of interest in the utility sector as well.

So we just put the utility-targeted product in the market very late last year in terms of the floating ground configurations that Roger referenced in his script.

And we are now beginning to increase the sales activity into that particular sector.

And so far the interest level is pretty good.

Obviously we have less time marketing into that sector, so we need to understand a little bit better what those sales cycle times will look like.

But the early indications in the utility sector are pretty good at this point.

Is that mainly in the US?

That again is pretty balanced.

Most of our activity has been in the US and interest in South Africa at this point.

One thing, and I'm not sure I can read too much into this or not.

Dave, maybe you could tell me.

But on the gross margin side for product, it looks like it's improved year-over-year significantly.

Can I (indiscernible) with the way you do deferred revenue?

Or is there sales mix impact of shipping more GenCores as compared to more GenSys units last year?

As you know, we don't report a gross margin in our financial statements.

The cost of revenue is really just the direct material and all the service support costs.

So there's no factory labor or overhead expenses in those numbers.

So when you talk about a gross margin, the other thing that we do, which is a dynamic that you need to be aware of, is the deferral of revenue.

So trying to really call out gross margin isn't really a fair thing to try and calculate.

But the mix has changed a little bit.

So the GenCores are obviously less expensive than the SU-1s that we had been shipping previously.

But on a cash basis as those units go out the door they are certainly cash accretive.

So the assumption that I could make maybe is that the contribution of a GenCore is better on a mix basis than the GenSys units?

Yes.

The contribution is positive on both of those products, the initial GS-1 and the GenCores.

So as I see more GenCores going out, should it impact profitability more favorably or is it about the same?

It is about the same, I would say.

Roger, you talked I think in the milestones about cost reductions, 25 percent in '05.

Maybe if you could talk about how you get those and what you saw in '04 as well.

Sure, what I'm going to do, David, is have Greg, who is accountable for that speak to it.

I'd like to keep (indiscernible)

I think what I would like to say regarding Roger's comments, in '04 the primary objectives for our design and engineering group were to achieve the product configuration mix which has been referenced several times in this conference call, as well as the performance attributes for the systems.

We had some very aggressive goals in terms of the product configuration for GenCore.

And we set ourselves a very aggressive target to achieve both the NEBS level three certification, as well as some additional certifications beyond that with some very specific customers who were evaluating the GenCore.

So it's not that we ignored the cost reductions in 2004, but they were a second priority to the two things that I already mentioned.

In '05, now that we have sort of secured the starting point in terms of those designs, we now can more effectively go back and take costs out of those designs, working with design changes that will drive here, as well as work being done with our supply chain organizations.

When you go back and look at what we were able to achieve with the SC-1 (ph) or the GenSys 1 product, we have all the confidence and expected to be able to achieve similar types of reductions in the GenCore product line.

Mark mentioned a little bit earlier that we went through the test and qualification process with some of these key customers in the sales funnel, and so our focus in '04 was really on securing the design and the acceptance of the product with these earlier customers.

We are expecting the majority of that cost reduction to come out through designs.

There will be contributions as our volume increases, but we're maintaining the same practice we did with the SC-1, which is design has to lead; the supply chain will be very involved.

And getting to those questions about gross margins, we expect our labor content will drop off as expected in terms of the unit builds for GenCore as some of these design changes are made.

We're also attentive to our factory overhead costs, and expect that those per unit of GenCores built will also drop off during the course of the year.

So we're absolutely focused on getting all the costs down, but we know that direct material cost reductions through design efforts has to lead that effort.

So you talked about the new GenSys coming online.

Is there any guidance you can give us what the new GenSys may cost percentage-wise versus the old one?

Where I would characterize that is I don't want to say too much just to be right upfront about we don't want to give our absolute marketing strategy around the product away.

The price points in the market will vary depending upon the application.

And I would say that our initial application targets here are industrial-commercial as opposed to residential.

So when we go into the market, we will price it where it needs to be relative to the value proposition.

And that will not be a gross margin centric decision.

We will absolutely price to value.

And that will have a pretty distinct a range, actually, as we look at the various applications that are being considered.

And we will absolutely have quite a bit more to say about that as we move through the year.

So I guess there's going to be a bunch of different configuration for the product similar to what you see in GenCore?

As I think the GenCore would indicate, we've been talking about now for a couple years we're very much driven by an architecture and a platform approach.

So you can expect that we will be able to leverage that platform into multiple application and configurations for specific customers.

One thing on the customer approval process.

You mentioned two customers.

What do you see happening in '05 on that front given the number of telecom and other companies out there?

How do you see that progressing?

Do you see -- obviously I am assuming you're going to see more, but any thoughts on how many more?

I think we have set the target for ourselves to be standardized or on an "okay to buy list", as I like to call it, with around 10 accounts this year.

And by an account I would mean the telco, utility, or a public sector account like we're on the okay to buy list for New York or the federal government.

So looking in the kind of range, what we're finding is it really does vary by the customer in terms of how long that takes.

We have instances where we're on the way to two years in and still not there, and we have instances where it was more on the order of nine months.

So it really depends on the customer, somewhat the geography, and certainly which sector the customer is coming from.

What is the hesitation in getting on those lists?

Is it driven by costs or is it just proving the reliability?

It really is the process.

So there are very established processes for any technology to go through before it's approved for deployment.

And those processes, depending on the customer, take a predetermined set of time.

So as we've talked about, typically it would involve an analysis by a technology office where it's in a lab single system; undergoes some testing there; things go well, moves into a limited field deployment sort of test.

And again, each one of these things could range literally from a couple of months to half a year in each of the phases.

And then from there into some sort of stage broader deployment.

And the customer vary in terms of when do they actually say this is okay for broader deployment depending on which one of those phase gates, if you will, you've been through.

Thanks guys.

Walter Nasdeo, Ardour Capital.

I have just a brief couple of things I'd like to get cleared up.

Assuming with all of the cost reductions that you've been able to factor in, what does that bring your current cost per kilowatt to?

We don't really talk about cost per kilowatt in the GenCore application.

It's just not be applicable metric.

What the industry and the customers look at is installed cost per kilowatt, so how much per kilowatt -- if you're going to have a 5 kilowatt solution like GenCore, how much is that costing per kilowatt?

So in our case, our list price for the box is $15,000, is $3000 per kilowatt.

You would compare that to what are you paying for a battery string of equipment.

It's really not a cost per kilowatt hour; it's a metric that's installed cost per kilowatt.

Got you.

Okay, thank you.

And then I just want to briefly touch on the development and how direct sales force is coming together; basically how many folks you've got, what the compensation breakdown is, and how you break them up as far as by geographic area or how you deploy those guys.

We've got really a combination of what I would call geographic or zip code representatives, as well as public sector representatives.

If you look inside of our targeted customer set, we have private sector targeted accounts, as well as public sector.

And keep in mind that our sales force really is designed to augment our primary go-to-market strategy, which is channel.

So we have nine different distribution partners who are targeted at specific geographies or specific market sectors.

And my team is really a support mechanism to them, as well as there are some very specific accounts and customers that they handle directly.

So it's a combination of what I would call account oriented and zip code oriented coverage.

How many of those folks do you have now?

We started the year with about a half a dozen, and we're looking to double that.

Okay.

How do you pay them?

With cash.

Cash?

Do you give them an envelope at the end of the week?

Absolutely.

They are like most reps; they're leveraged, quota-based.

They stand to make the most money when they sell the most units.

So it's a leveraged organization.

Thank you very much guys.

John Quealy, Adams Harkness.

On the outlook for 300 give or take GenCore orders, can you talk about who is sourcing them?

Is it your distribution partners?

Is it the direct sales force?

Can you give us a flavor of who is bringing that book of business in?

That book is a combination of both the channel and the direct people, obviously.

And inside of that I would just characterize that it's roughly split half and half.

Is there also split mark versus end market?

Is it utility telecom different mixes or is it just spread evenly across that metric?

No, we actually have the precision inside of the sectors, but I'd rather not share that just for competitive reasons.

Sure, that's fair.

On your warranty costs, can you talk about how they have tracked?

What your experience has been in the last year?

And then if you could characterize any improvement you expect going into '05?

Let me talk about two things.

First one is GenCore.

Our work with GenCore and these customers has been meeting everyone's expectations.

So we go through these test and qualifications processes with our customers, and obviously we learn along the way if there's something that needs to be managed or fixed or repaired on the system, we handle that.

I'm not going to give you a quantification of that basically for competitive reasons.

But I would say that the proof is in customer satisfaction as measured by our order book and how that develops.

I would say that a little while ago on this conference call we talked about our service costs on our SC-1 (ph) product when the question came up about the gross margin, and Dave was talking about that.

I do think we can quantify again we are going to not put the numbers out there, but we can show the declining cost of service on our SC-1 and our GenSys products.

So we have proof here that we continue to drive down the service costs year on year for the products that are out in the field.

That comes through what we believe are stack-like numbers that pace and lead this industry and improvements we make to balance the plant and other subsystems in the products.

So we're not going to quantify for a number reasons exactly what the percentages are, but we can stand behind year-over-year practices where we have driven those down.

Can I take from that the assumption is warranty costs and serviceability costs are going down in '05 in your expectation?

We would expect them to go down in 2005.

My last question on Honda; it looks like you're expecting another contract Phase III.

Can you just give us an overview of what that might entail this year and what is behind anything else?

Or does that contract or that relationship need to get rewritten in several years, if you can just give us an update on that relationship?

I would characterize it as the relationship is going quite well.

It is a very strong and healthy relationship between us and Honda.

The activities that we anticipate this year really I would characterize as twofold, one of them being somewhat an iteration of the work that we have been doing that would essentially focus on the next version of the Home Energy Station.

So the first version was put in the field in '03 in Honda's facility in Torrance; the second one late last year here at our facility in Latham.

And the nature of the contract discussions that we are involved with now would say there is a next generation of that continued focus on bringing that technology closer to commercialization, reducing the volume in terms of the physical size of the unit, increasing functionality, so the things you would expect to be focused on as we take technology and ready it for commercial reality.

In addition to that, we're working on what I would characterize as a broader collaboration relationship in the areas of research and development, and I really wouldn't want to go much beyond that.

Okay, great.

Thanks.

Stewart Bush (ph), RBC Capital Markets.

Most of my questions have been answered.

But I wanted to follow up on one thing with regards to the GenCore product.

We've seen some comments from some other players about how they've been having some difficulty getting into the telecom providers because of the higher CapEx costs for backup power.

I just wanted to have you comment a little bit on how you're approaching the higher CapEx versus lower ongoing operating cost equation with the telecom providers.

I would say it is accurate to characterize the telecom industry as being first-cost oriented.

And we're not making apologies; we essentially understand that you need to have a first-cost parity or at least a payback that's measured in two to three years, not six to seven years.

So that is absolutely where we are focused and positioning our product in terms of it does make economic sense when you look at it from a customer perspective in a very short time horizon.

Have you had any push back from the telecoms?

Or how are they responding to -- or was this a change in the way that they usually think about buying backup power systems?

I think our positioning with them has been not to ask them to change the way they think about it, but to look at it as compare this technology sets to the existing technology sets you're using, and use the existing financial modeling you do to choose technologies.

I would say that price has not been a leading objection to this point.

We haven't got to that point.

I absolutely expect we will.

But it's more been one of conditioning the market, the market understanding the technology set -- how is it better, how is it different from what they're used to doing.

Clearly when the large orders come there's going to be a discussion around price, and we fully expect that that will happen.

But to this point it's not really been a push back on price; it's been more of what is a fuel cell, and how is it different, and how is it and advantage, and I need to get myself comfortable that this technology is sound as opposed to it's too expensive or too cheap (ph).

Very good.

Thank you.

(OPERATOR INSTRUCTIONS) Brian Gamble, Simmons & Co.

I just had a quick follow-up question on the Honda relationship.

I was wondering if there was any type of timeframe.

I know you guys have mentioned looking towards commercial reality.

Is there any expectation either from your end or from Honda's end as to exactly when that would occur?

I would say no.

The nature of our agreements to this point have not been commercial-oriented agreements; they have been research and technology developments oriented agreements.

Clearly at a future point in time we will have those conversations.

But I think suffice it to say that our focus is in the GenCore product line as our commercial product today and the Honda in the Home Energy Station is clearly a future actively.

I would like to add to what's been said by Mark by pointing out we've said in the past in other calls that one of the important aspects of the relationship with Honda is the ability for us to see all our technologies developed and coexist with technologies from Honda in the Home Energy System.

By that, I mean we've seen some of our stack technology, we see some other technologies that we haven't given any visibility to yet playing out in that product in the sense that it's always a meta (ph) product for us, it's a product that encompasses everything and we get the practice of shared designs, shared technology, and evolve on that substrate in a way that enhances our ability to perform with the various products we have, whether it's GenSite, GenCore, or GenSys past and GenSys future.

That more than answers my question.

I appreciate it.

And I also appreciate all the detailed information on the GenCore line.

That's greatly helpful.

Thanks guys.

Laurie Reilly, WGY Radio.

You are talking about doubling the sales force in 2005.

I am wondering how many employees you had last year versus your projections for 2005 all in total.

I think the number and was 6 going to about 12.

No, I mean all employees total?

We're running around -- in Latham we're running around and 310 or so.

We expect to be somewhere at or near that level throughout the year.

Can you tell me a little bit about the two NYSERDA projects that have been approved?

The two projects were essentially around our hydrogen generation product, so the product we refer to as GenSite.

One of them is in collaboration with the two Honda fuel cell vehicles that are being leased by the State of New York and putting a hydrogen refueling capability together, utilizing our GenSite technology in combination with some third-party technologies.

So Plug Power is a partner in that proposal that went into NYSERDA that was sponsored by Honda.

And there are a number of other parties as well as Plug Power involved in that.

The other proposal involves integrating one of our hydrogen generation systems into the infrastructure over at the Center for Nanotechnology at the University at Albany.

So there's a fair amount of hydrogen used there in that facility today, primarily in and around advancing chip fabrication processes and technology.

And we will integrate into that environment and understand how our hydrogen generation technology can be applicable to that application.

One last question.

Can you say what the market value per unit of the GenCore unit and the GenSys units are that you sold this past year?

I can say that our GenCore product carries a list price for the power generation module of $14,995.

Thank you very much.

Steve Sanders, Stephens Inc.

I just wanted to follow-up on the installed cost discussion.

I think a couple of times you have given the $15,000 number, but also referenced the fact that the key price for the customer is installed cost.

A few calls ago I think you talked about sort of the learning curve there and the progress you were making.

If you could give detail that would be fine, but I'd be at least interested in a discussion of where you're the most competitive, where you're making the most progress by distributor, by end market.

Whatever you can give there would be helpful.

I guess in terms of where we're making the most progress, it really is a lot of parity going on I guess.

If you look at geographies, it's pretty well weighted to the rest of the world versus North America.

If you look at the various segments, they're pretty equally distributed.

If you look at the opportunity, I would say that the opportunity that has our attention the most is in the telecommunications sector.

So from that perspective, I'd say it really isn't leaning one way or another.

From what are we learning about the cost to install these products, we've learned a great deal obviously in signing them as we went through the year what are the applicable codes and standards; how can we standardize around a simple footprint to install.

Obviously with our distributor agreements where we have Tyco as a national service provider, their ability to learn and replicate installations is going to be an extreme advantage.

So I would say that we're learning a lot and have learned a lot relative to what does it takes to get these things cited and installed, and those costs are also melting away.

I did -- we got some crack staff work to one question you asked about customers.

We added six additional customers in the fourth quarter.

Now I would like to turn the call back over to Ms. Mahoney White for closing remarks.

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.

Thank you for your participation in today's conference.

This concludes your presentation.

You may now disconnect.

Everyone have a wonderful day and thank you.