普拉格能源 (PLUG) 2005 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the fourth-quarter 2005 Plug Power earnings conference call.

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

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

We will be conducting a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS).

Now I would like to turn the presentation over to Ms. Cynthia Mahoney White, Manager of public relations and marketing.

Good morning and welcome to Plug Power's fourth-quarter and 2005 year-end review.

Participants on the call include Roger Saillant, President and Chief Executive Officer;

Dave Neumann, Chief Financial Officer;

Gregory Silvestri, Chief Operating Officer and Mark Sperry, Chief Marketing Officer.

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 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.

Good morning, everyone.

There are three primary takeaways from today's call.

One, we met all our public milestones for the fifth year in a row.

This secures our reputation as a company that delivers on its promises.

Two, we generated strong sales momentum.

We will continue to build on this momentum by targeting key accounts with high-volume potential.

Three, we built a strong global network of suppliers, customers and strategic partners.

We will continue to grow our relationships and add more in 2006.

Bottom line, we made major progress in taking hold of a multiproduct opportunity in a very large global market.

I will give you some color on that market when I discuss 2006 but first let's discuss our progress in 2005 as it says as much about where we are going as it does about where we have been.

Milestone one, we pledged to triple our GenCore orders and we did.

In 2004 we received 94 orders, in 2005, 306.

Most of the 2005 systems were destined for telecom and utility customers within our primary markets. 80% came through our global network of 17 channel partners.

These numbers aren't just important as growth metrics they are also a meaningful validation of our progressive market engagement strategy.

To deliver these results we had to develop a suite of product configurations that broadly engaged our global set of target customers and could be deployed in a variety of environmental conditions and applications.

These products had to be rigorously tested and certified to meet the most demanding specifications.

Our shareholders can see the return on these investments in our 116 unit order from a large, wireless carrier and our multiyear award from the International Finance Corporation to support the installation of 400 systems in South Africa.

Milestone two, we pledged to lower GenCore's direct material cost by 25% versus year end 2004 and we lowered costs by 29%.

We accomplished this not via volume discounts but through design improvements, process simplifications and supplier negotiations.

We see design for cost reduction as a core strength that distinguishes our Company in the industry.

Not only has this focus made our product competitive on a first cost basis, it has also resulted in a simpler product with fewer parts which ultimately translates into better reliability, lower maintenance and improved lifecycle economics.

Milestone three, we pledged to begin field testing our next generation continuous run product and we have.

Ten prototype next generation GenSys fuel cell systems are running and our one year field trial at Robins Air Force Base in Georgia.

Here is why this is important; there is tremendous potential in the market product that can provide off grid continuous power with greater reliability and better economics than today's diesel generators.

GenSys is designed to do just that and should open new revenue growth opportunities to our key customer base, wireless telecom carriers and utilities.

Their experience with GenCore has paved the way for acceptance of GenSys allowing us to strengthen key customer relationships with additional product lines.

Milestone four, we pledged to work with Honda to launch based three of the Home Energy Station along with other advanced R&D projects and we did.

This past December a third generation Home Energy Station, HES, was installed at the Honda R&D Americas facility in Torance, California.

It is currently refueling Honda's fleet of fuel cell vehicles there.

HES three represents a 30% size reduction from phase two and an 85% size reduction from phase one.

We concluded 2005 with the fundamental R&D contract in place beside the HES collaboration.

This expansion of our relationship with Honda was evidence of their growing confidence in us as a strategic partner and of the broadened scope of benefits we receive from the relationship.

Two other important comments.

As you know the Energy Policy Act of 2005 included a 30% fuel tax credit which specifically includes telcoms among those who are eligible.

This puts the initial cost of our system roughly on par with and in some cases even below batteries and their incumbent technologies, and other incumbent technologies.

When you consider the overall lifecycle cost savings of Plug Power products offer, this takes our competitive advantage to a whole new level.

Speaking of a whole new level we have begun penetrating a whole new market for our products, federal and state governments.

The U.S.

General Services Administration has listed GenCore in the federal supply service schedule which allows federal agencies to purchase GenCore under a pre negotiated contract.

We have secured a similar designation supplier of backup power for Florida, Texas, California and New York.

Here is why that is important. 28 states have statewide wireless networks for emergency services.

As an example, New York State anticipates adding approximately 1500 new wireless sites over the next three years.

Clearly there is a significant market opportunity and we believe government customers are highly attuned to the value drivers inherent in GenCore as a solution for backing up critical infrastructure.

We have learned a lot over the past year and continue to expand our relationships with key customers and partners who will help us achieve the results sought by our shareholders.

For this reason it is important that I provide an update regarding our relationship with GE.

As most of you know GE sold all of its shares in Plug Power in two separate transactions during the fourth quarter of 2005.

I see this as a step forward for our company in several respects.

The speed of the liquidation was positive for our investors because it eliminated a significant overhang generally associated with prolonged selling pressure.

Part of the transaction included a single private investor who approached GE to make a large purchase which we also see as a positive event.

The decision to sell was consistent with GE's new strategy under CEO Jeff Immelt.

Perhaps most important details were independent of our strategic relationship with GE.

Separately we have initiated serious discussions with GE partners as to how we might better align our agreements with the real value of the relationship.

Or in other words, how can we recast our relationship to retain the aspects that have really worked well for us while eliminating the less productive elements.

Over the years we have realized significant value from our broad relationship with GE Energy in terms of introductions to key partners worldwide, and from our services agreement under which we have procured highly valuable resources from across the GE organization including GE's global research center.

I'm pleased to report that we are in the process to restructure our relationship and to create a new agreement which will more accurately reflect our current behaviors.

This new agreement will be designed to work better for both Plug Power and GE.

We will continue to advise you of our progress on this important relationship.

That is a quick overview of what we have done.

We will be happy to answer your questions during the Q&A.

Before announcing the Company's 2006 milestones I would like to turn the call over to Dave Neumann, our CFO.

Thank you, Roger.

I will be providing a summary of our financial results for the fourth quarter and year ended December 31, 2005.

Starting with our statement of operations, total revenue for the fourth quarter was 2.7 million compared to 4.5 million during the fourth quarter of 2004.

For the year total revenue was 13.5 million compared to 16.1 million during the same period last year.

Product and service revenue, a component of total revenue was 1.1 million for both the quarterly period ended December 31, 2005 and 2004.

For the twelve-month period ended December 31, 2005 product and service revenue was 4.9 million compared to 5.3 million last year.

We delivered 54 fuel cell systems during the quarter and a total of 135 systems for the year, including 121 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 31, we had total deferred revenue of 3.1 million.

We expect to recognize potentially all of this revenue in 2006 as our service, maintenance and other contractual obligations expired.

Contract revenue under research and development contracts and tested demonstration projects was 1.7 million for the fourth quarter ended December 31, compared to 3.4 million for the fourth quarter of 2004.

Year-to-date contract revenue was 8.6 million compared to 10.8 million last year.

Our cost of product and service revenue continues to represent the direct material costs for fuel cell systems delivered during the period combined with the labor and materials associated with servicing all of the fuel cell systems under warranty.

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

In addition to the 54 fuel cell systems delivered during the quarter we supported close to 200 systems during the fourth quarter of 2005 and our cost of product and service revenue was 1.6 million compared to 1.5 million during the fourth quarter of 2004.

Year-to-date these costs were 4.1 million for the 12 months ended December 31, compared to 5.4 million last year.

Our cost of research and development contract revenues representing the [fully burden] cost of R&D contract activities was 2.5 million during the fourth quarter of 2005 compared to 3.6 million during the fourth quarter of 2004.

Year-to-date these costs were 12.1 million compared to 13.8 million last year.

Research and development expenses were 9.1 million for the fourth quarter of 2005 compared to 9 million during the same quarter a year ago.

Year-to-date these costs of 36.2 million for the twelve-month period ended December 31, 2005 and 35.2 million for the twelve months ended December 31, 2004.

As a result of our efforts to reshape our relationship with GE as Roger discussed a few moments ago, we have recorded a non-cash expense in the amount of $4 million or $0.05 per share to write off our investment in GE's fuel cell systems.

Including this write-off our net loss for the fourth quarter ended December 31, was 16.5 million or $0.19 per share compared to 11.8 million or $0.16 per share in the fourth quarter of 2004.

Year-to-date the net loss was 61.7 million or $0.66 per share compared to 46.7 or $0.64 per share for the same period last year.

Net cash used and operating activities for the fourth-quarter ended December 31, '05 was 9.8 million compared to 8.1 million in 2004.

Year-to-date net cash used in operating activities had been 39.8 million compared to 33.9 million during the same period last year.

The increase is a result of expanding the size of our direct sales organization combined with increased activities associated with advancing development of our next generation continuous run product.

While we have considered strong development of our next generation continuous run product in order to conserve cash and focus on the commercial launch of our GenCore product, we have determined that the market interest in this product is very strong and more than justifies the increased spending contributed to this product for 2005 and our expected investment in 2006.

We continually evaluate the most effective use of our cash resources and as we discussed with you during the third quarter with you we made a decision in '05 to stop development of our GenSite product in order to most effectively utilize the skills of our employees and get the best return for our product development efforts.

As we pursue our aggressive product development plans we make decisions and trade-offs every day in order to make every dollar count.

As we move into 2006 we expect to be continually mindful of our need to regulate spending while at the same time being open to unique opportunities that we believe can best, can offer the best return for our resources.

In 2006 our investors can expect us to continue to practice open communication relative to how we are choosing to invest our cash resources and the benefits we expect to achieve in return for this investment.

At December 31, 2005 the Company had 97.6 million in cash and marketable securities, and 95.5 million in working capital.

I would now like to turn the call back to Roger to discuss our 2006 milestones.

On a superficial level the financial metrics beg the question what's next?

To evaluate our performance accurately however one must look beyond traditional metrics and really understand our markets, the systematic path to long-term adoption and how successfully we are moving down that path.

With that in mind I am excited to announce our milestones for 2006.

Milestone one, last year as we discussed we tripled the number of GenCore orders.

During 2006 we are setting another ambitious goal taking between 500 to 750 total orders.

To reach this goal we must achieve high levels of satisfaction from existing customers while getting approved for deployment status from new customers.

That leads me to milestone two, further expansion of our GenCore productline.

We have learned a great deal during the past two years as we engaged our targeted customers and deployed systems and back up applications around the globe.

Our customers are asking for new and various features and configurations and we intend to enhance our GenCore productline accordingly this year.

Before we go any further let me give you a clearer picture of the market opportunity before us.

We believe that right now of the 2.5 million cellular towers worldwide, at least 10% or over a quarter of one million could use fuel cells for backup power.

Nine companies account for over 50% of the worldwide telcom market and we are in varying stages of engagement with each one of them.

The telcom market is vast, the customers' needs are compelling.

This was our original market assessment when we targeted this segment four years ago.

The fact that other fuel cell companies are following suit only serves to validate our initial market assessment.

Telcoms and utilities are rightfully conservative in the evaluation and deployment of new technologies on their backbone infrastructure.

The task of achieving okay-to-buy or deploy status is tedious and long.

We have made steady progress toward this market opportunity and we will continue to do so in 2006.

For milestone three we will aggressively expand our GenSys product testing to include in application tests with targeted telcom customers.

These real world field trials will provide valuable feedback as we demonstrate reliability, finalize our designs and move closer to product introduction.

For milestone four we will continue to expand and adjust our global network of distributors and strategic partners extending our presence throughout the world into exciting new telcom markets.

Finally, in milestone five we will execute a contract with Honda for the 4th generation of the Home Energy Station and a second straight year of fundamental R&D work.

The continued work with Honda is a testament of their confidence in our capabilities as a premier developer and collaborator.

The near-term value of this relationship is primarily derived from the advance controls and systems integration work under the program.

Honda continues the aggressive pursuit of a fuel cell vehicle and is positioning the HES as part of the hydrogen infrastructure that will ultimately be required.

Now I would like Mark Sperry to speak to the strategy behind the milestones.

I will address the milestones one at a time as well.

Milestone one, 500 to 750 orders.

Like last year, success against this milestone will be highly dependent upon orders from a few key accounts.

We must execute well as we deliver against our existing backlog in order to secure follow-on orders from our current customers.

This will require an absolute focus on customer satisfaction as we install and commission additional GenCore systems.

We have already received a small follow-on order from our largest customer this year and we do expect to receive additional follow-on orders in 2006 from our largest customers to date.

In addition to repeat business we must also secure significant orders from new accounts.

Accounts we have been working with for many months to obtain network deployment and procurement approval for our GenCore productline.

Based on successful product evaluation trials that are already underway we expect to secure another major wireless customer in 2006.

As Roger mentioned it is all about getting approved for deployment and procurement, and we have strategically deployed our resources to maximize our opportunity in this regard.

This point cannot be overstated; the relatively few systems we sell to new customers for evaluation and field trials may ultimately be more important for the future than the systems we sell to established customers today.

The opportunity within the public sector is also expected to result in orders this year.

The second milestone, further expansion of our GenCore productline.

As Roger indicated we have learned a tremendous amount about the markets, applications and customer requirements for backup power solutions in the telecommunication and utility industry during the past two years.

This knowledge has been translated into new product and feature requests that our development organization is currently working to deliver.

These incremental features in turn will allow us to penetrate additional geographies, offer new solutions and enhance customer satisfaction.

This feedback loop will continue as our telecom and utility customers adopt the enhanced GenCore features, their feedback will drive further improvements in reliability and performance which will build on our competitive advantage.

Milestone three, the expansion of our next generation GenSys testing.

The key here is in application testing of the product.

We will expand beyond the Air Force Base to test GenSys with early adopter wireless telcom carriers.

As a barometer of this opportunity these companies add more than 400,000 wireless base stations every year.

They are limited however by the tether of the electric grid.

GenSys could free them from that tether allowing revenue growth opportunities in rural markets, where the number of subscribers may not justify the substantial expense associated with extending the grid, but might easily justify the clean reliable power that GenSys is expected to provide.

Today's diesel generators are costly to operate for extended periods in these applications so GenSys could actually open an entirely new market.

The fourth milestone, augmenting our GenCore network of distribution and strategic partners.

Partners like Tyco Electronics Power Systems and IST Holdings allow us to more effectively penetrate the global telcom and utility markets.

Sales from our channel partners accounted for more than 80% of our GenCore orders last year.

We expect to further build out our sales and service channel this year and work with our existing channel partners to uncover new areas for continued growth in the telcom and utilities sectors.

Besides distribution and service partners it is critical that we continue to identify and join with strategic partners whose cutting-edge technology can improve our products.

Over the past several years we have collaborated with 3M, Entegris, Honda, PEMEAS and most recently Ballard Power Systems.

Collaborations like these will continue to ensure we are looking outside of ourselves for the best technologies the world has to offer, and integrating these technologies into the best products and solutions that our customers could imagine.

Now I will return the call to Roger for his final comments.

Thanks, Mark, for stressing the importance of strategic partnerships in reaching our future goals.

Generating new ideas through cross discipline collaboration was one of my first goals when taking the CEO post at Plug Power five years ago.

At this juncture in Plug Power's evolution we're developing, evaluating and implementing a number of options for our company some of which take more time to unfold than others.

As we continue to pioneer clean, reliable on-site energy we will simultaneously conduct multiple trials to improve both our products and our understanding of market and environmental realities.

So while specific timelines are difficult to forecast we anticipate that our efforts will allow for expanded strategic relationships and a more diverse customer base.

My strategy has always been one of under promising and over delivering.

With that being said I'm extremely confident that 2006 will be a vigorous and exciting year for Plug Power.

That concludes our prepared remarks.

We will now open the call to questions.

(OPERATOR INSTRUCTIONS) David Smith, Citigroup.

Can you I guess I'm not completely clear on where you're going with GE.

Does this mean that the micro gen relationship is completely finished and you are rebuilding something else?

Maybe you can just give us a bit more background as to where it is going.

What is really happening we are saying we are in a transition period now while we are trying to recast the relationship.

If you remember that relationship was originally designed to allow us and General Electric to enter the mass residential market which we have contended at least since I have been here, has been quite a bit further out.

We think that the mass market residential market is before the automotive market, but it is certainly not a market that we are going to engage in right away.

The markets that we are engaged in with the telecommunications and the utility companies really have to do with relationships that GE is not expert at.

Although they have been very helpful in trying to guide us toward distributors in those areas it is not part of a natural fit for them.

So we have been looking at ways to benefit from the way they have been able to create relationships with these distribution partners, and at the same time benefit from the R&D work going on throughout the GE system, plastics, appliances and their GE R&D center.

In order to capture those relationships that work best for the intention now of Plug Power and to maintain the strength of the positives, we are redesigning the strategic relationship with GE and that means that ultimately the GE FCS relationship as we know it will probably fall to the side.

So as far as the term goes and everything else like that we should expect similar to what you have got already?

In terms --

I'm not exactly sure what you mean by terms, David?

Muti-year contracts, a very close tight working relationship;

I know that they got people who work in your facility there.

Will that continue?

It will continue on a less, more spot basis; in other words it will be not necessarily the same employees all the time.

But on special projects in terms of the way we are working it could be a different cast of engineers and scientists depending on what is the particular point of emphasis at the time.

Is it more technology related, Roger, or is it more end market related?

It is much more technology related except for the continuing relationship that will bring in strategic distribution partners.

I would amplify a couple of points.

If you think about our existing structures with GE they are really around end market as you indicated, and also around the procurement of certain services many of which are technology oriented.

We expect that those aspects will continue.

At this point we are working that so it is really just speculation but at the end of the day the things that have been very valuable to us that we are working to ensure continue, are the actual introduction by GE to particular distribution partners for existing product sets.

And the services -- you are right to reference that there are people here and that is part of our services agreement where we procure those types of expertise from GE, if you will.

We're looking to maintain those elements and remove some of the elements that really haven't -- we just haven't been executing against like the actual distribution of the product through a joint venture with GE.

Those things are being worked real-time and it is again a little early to say exactly how they will come out, but that is the intent that both companies are working under at this point.

As far as one question we have been asking regularly is the number of validated customers, customers that have given validation.

Can give us an update on commentary there and then talk as well perhaps a bit more about the utility market?

As we went through last year, set an objective to get in excess of 10 customers, and I think we reported earlier that we did achieve that.

We are, can't quote you the exact number but it is somewhere between 10 and 15 that I would characterize that we are on an okay-to-buy status with.

Roughly half in the public sector and half in the private sector.

We continue to make good progress there.

We do expect as I said that that will lead to some orders with what I would characterize as a new customer.

So they have placed an order to do four evaluation systems which they have been evaluating.

But I would say that we are in good position now to get what I would characterize as a first application order out.

We do expect that to happen.

On the utility front we continue to plow the ground of getting okay-to-buy status.

I wouldn't characterize that we have reached that.

We do have systems under test right now with five marquee utilities; so names that you would recognize in the investor-owned utilities space that are evaluating the system in substation application.

So both on the breaker reset and communication at the substation as well as one particular utility that also happens to operate a communications infrastructure and they have a system in test for that application as well.

We are continuing to make good progress in the evaluation.

I do expect we will reach okay-to-buy status with a subset of those by this year and begin to see again what I would characterize as the first in application of orders coming out of that segment.

On GenCore just quickly, you talked about, is that 29% material savings and is there any labor savings component we should be aware?

David, it is Greg.

The 29% that is referenced in the milestones is strictly material and there was even more significant reduction in our labor costs over the course of the year as we pulled down our assembly labor.

We don't publicly quote our labor.

It is a modest fraction of what our material cost is, so then if you look over the last several years we have been consistent around we needed to design costs out of the systems as a primary way of driving down the cost, so that is why our public references were always to material cost only.

It is very safe to say that the direct labor costs are coming down as fast if not faster than the direct material costs.

And last thing is just the backlog if you can give us a sense of where that is; you touched on it briefly, but is there any numbers you can just take on that?

The backlog at the end of the year was 190 GenCores and 4 GenSys systems.

It has grown as we've gone through the first two months of the year and we will be giving you shipment and order numbers here in a month or so as we do our first quarter call.

But I would tell you that it has grown.

We have a pretty substantial backlog right now.

Steve Sanders, Stephens Inc.

I think Roger, in your comments you said that of the 2.5 million cell towers out there you viewed about 10% as being good opportunity for fuel cells, is that correct?

Yes, sir.

Can you walks us through how you get there?

How we get to --?

How you get to 10% of the 2.5 million, what are the key drivers --?

I am going to switch to Mark, but I want to let you know that I kind of have a feeling for this.

Half of them don't have any backup so we figure that they are not eligible so that drops it down to 1.25 million.

The way we go about it is we really walk down through a number of filters and I would say to Roger's point there is a certain set of towers that are out there operated by telecom companies that just don't flat out provide backup, or we don't see it.

So we eliminate a percentage upfront of around what is the likelihood, account by account that they will adopt any technology.

And then we further frag that for what percentage would be fuel cell technology sets, as opposed to some of the incumbents.

And then we further screen that out with respect to power output range.

We have basically an operating window with a 5 kW system, if you have a 3 kWh tower load on up to about 18 to 20 kW, we are in pretty good shape.

So many of these towers are some of them are below that, some are above it, so we scrape out some of the opportunities with that filter.

And then we look at also saying given that that is the resulting amount after you go through all those filters that might be eligible what is a reasonable penetration assumption for Plug Power versus any other fuel cell company.

We actually walk it down and I would say that we are pretty conservative in our outlooks and approach to that as opposed to aggressive.

Then on the milestones for '06 I didn't hear anything about cash burn or further direct material cost reductions.

Can you comment on that?

On the cash burn side we intentionally didn't put a number out there for cash burn.

We have done a great job taking the cash number down year-over-year in the past and we know that we need to continue to be mindful of reducing that further.

We do want to stay open to additional opportunities that may arise throughout the year and may accelerate our pipe development efforts so for that reason we didn't put any kind of number out there.

I would expect that is going to be similar to last year but not putting any kind of target on it.

And then the further material cost reductions?

We have internal goals to continue to work down the material and the labor content in GenCore which we think we will achieve.

The reason we didn't quantify it this year is mainly around the idea of the product changes that we think are going to take place for certain customers.

So in the prepared comments I think you heard in several cases as we go from the trials to the actual deployment, there are certain features that in certain customers' situations are going to be required to put into a system.

So our comparability in terms of having a single standard there is starting to go away essentially.

So we felt that as we progress and give visibility around cost of good sold and other more traditional metrics for GenCore, that is how we will keep people in tune to the progress we are making at cost reduction.

Then a couple of follow-ups and I will just ask them together.

Dave, I assume you undertook a pretty rigorous review of the revenue model at the end of the year.

I just wanted to see if you can bring us up-to-date on that.

And second, can you guys just let us know where you stand in terms of shipments or about the South African order and the Tyco order?

I will start with the revenue side and yes, we did take a rigorous look at the accounting policies surrounding revenue and our development stage accounting model in general.

And we continue to defer that revenue time of shipments so our policy did not change in the fourth quarter.

We're starting to get some more field activity and field experience which is going to allow us the learning scale to make the right decision about the timing of flipping that accounting model.

But as Greg mentioned you can expect later in the year that we will give you more color around a cost of goods sold model.

I am not going to tell you what quarter we will do that but we are looking at in 2006 giving you some more information that would be useful for you.

On the shipments around the Tyco orders for the large wireless carrier order, about 50 systems have been shipped to this point against that.

And I would tell you that our approach here is that we are shipping basically to the customers scheduled, so the contract may allow us to go ahead and ship all those, but we don't think that is a prudent thing to do.

We are working closely with the customer and shipping them basically several days to weeks in advance of when we expect that they are going to be installed.

So we are making good progress on the installation front, and I would tell you that about 50 of those have already left here.

There's about 10 systems on the ground in South Africa, so the majority of that order has yet to ship.

And it is the same conversation there as the sites are prepped and readied.

And orders we ship essentially against the expected installation dates as opposed to having things sitting around in warehouses and that type of behavior.

On that front, can we assume that the initial 80 PO represents firm orders, and it is a matter of customer delivery schedules to actually execute on that?

Yes, they are firm orders and to my comment earlier, we actually could ship against that, but we are choosing not to.

Okay, do you think all 80 will be shipped this year?

I do, yes.

Thank you very much.

John Quealy, Canaccord Adams.

Good morning.

Going back to the GE relationship if we could, Roger, you mentioned that really not a lot has gone on at least to the street with the GE relationship over the last five years.

I know you folks have had various amendments even back to April.

What was it now that caused you folks to formally break apart the relationship as it was once, and I know it is getting restarted in another way, but what has happened over the last few months to really move that process forward?

I think that GE is looking at all their strategic investment relationships and Jeff Immelt has just embarked on a strategy that if they don't have controlling interest, he would like people to -- they are selling off the balance of their interest and going to zero.

When that is happening it is a good opportunity for us to look at the total relationship and to figure out how to make it real compared to the vision that was once there.

It is just a matter of evolution if nothing else.

Okay, let me move onto the bookings outlook.

The 5 to 750 range that you gave, how much in there is related to the IST?

I thought that whole opportunity over three years was like 400 units and we talked about the 80 already.

How much of the '06 number is IST do you think?

You're right, the first order against the 400 is the 80 unit order that is currently on the books and in the backlog.

What I would tell you is we would expect to have another follow-on order to that in this particular calendar year.

The program as outlined it was a three-year program so if you roughly said half of what is remaining this year, half the following year that would be a good planning assumption.

There is not a hard and fast schedule against that.

It is really driven by when are the end-users, what is their uptake look like?

But for planning purposes I would say roughly if you take in something in the low 100 range again this year that would probably be a good planning number.

And then if I can get you on the revenue side, I know we talked in previous calls about ASP's for the systems, right in that give or take $15,000 number which is pretty much at market with incumbent technologies.

What are your customers saying and what are your plans around the ASP's in '06?

Do you think you need to adjust those any as you look in that visibility for orders?

What I would tell you is we will look at that geography by geography so we are looking to understand the motivation power behind the tax credit here in the states and obviously there is significant incentives going against the systems going to South Africa.

Those things taken alone lead me to a position right now where I would say we are going to be pretty firm on price.

And let those incentives do the work for us and kind of see how that plays out early part of the year and then if we need to make adjustments as we go towards the end of the year then we will do that.

But the general sense I have right now is it is still not about price.

It is about acceptance of the technology and getting more direct field experience under the belt.

Price will come, there will be a time where they rollup the newspaper and start wacking us about price.

But I think with the incentives we have in place right now we are in pretty good shape to protect our price.

My last one on Honda in the Home Energy Station, looks like we're getting close to the fourth iteration of that relationship.

Can you talk to how long-term you think that is?

How many more iterations do we have with that relationship as it is envisioned?

Thanks.

First of all I can't talk to Honda's side of that.

I do know that the general strategic intention -- Mark and I were at the Tokyo Auto Show and it was very clear there that the president of Honda is making this statement that he is planning to deploy home energy system devices with some of their fuel cell vehicles as a long-term strategy.

My guess is that from a strategic perspective in the way they have been playing this up -- they also did this at the Detroit Auto Show that they expect this to go on for some time.

I can't and I do this just because that DNA thing inside of me says be more conservative.

I can't speak for Honda, but it looks to us from our side that there are other things happening that are going to cause us to stay engaged for quite some time.

I would add a little bit to Roger's comments.

What we do know is that I think the pace of the deployment of the cars themselves is going to be heavily influenced by what is going on in California.

If the zero emission vehicle legislation that is being considered this year and probably into next year, will sort of determine I think the pace of deployment.

There may be legislation that actually says based on the number of cars you are selling in California, X number need to be zero emissions.

And if that happens obviously there are going to deliver at one pace; if it doesn't happen I would expect the pace to be more technology driven as opposed to regulatory driven.

So I would say keep an eye on that legislation as it is being discussed in California throughout this year.

And that I think would be the barometer in terms of how fast is Honda and other fuel cell or other automobile manufacturers that want to operate in California going to go.

Obviously as the car goes, goes the infrastructure that you need to refuel it.

We don't see that as being thousands of units in the next couple of years but I think that legislation is something that will absolutely guide the pace of which the technology is going to be deployed.

One other thing we are signaling to you carefully in the last year or so that the relationship is going beyond the Home Energy Systems and the Home Energy Station.

And when we talk about a broader research and development contract and relationship that has a lot of implications for us in terms of the longer-term, not necessarily being anchored on the Home Energy System itself.

(OPERATOR INSTRUCTIONS) [Brian Gamble] Simmons & Company.

Just a couple quick questions.

First of all, back to the GenCore orders, was wondering if you have gotten any feel for from your existing customers what they are looking for as follow-up orders versus what percentage of these 500 to 750 you see as being completely new accounts for this coming year?

If I had to take a swag at that John, I would say probably 50 to 60% would be follow-on type orders and 40 to 50 being new business.

And in new business what I would characterize as pretty much all of these customers have placed at least an order for a single system but that system would be more of an evaluation.

So I wouldn't classify the initial order for an evaluation system as an order.

So when I am talking about new business I am saying we have got somebody who really hasn't gone through the okay, I am going to order 50 or 100 to begin deployment.

I have ordered one or two so if they move from one or two to 50 or 100, I would call that new business as opposed to somebody that we have already sold 10's or 100's of systems to.

Secondly, when you talk about one of your '06 milestones being expanding your distribution and partnership agreements, does that entail anything specific as far as key markets or key geography that you guys are focused on?

Or is that just a general statement saying that you would like to have more partners to create more opportunities?

There are very specific geographies that we are targeting and that we are in actual negotiations with currently around distribution agreements, so there are very specific geographies that we targeting.

Any type of detail you want to provide for that?

You're trying to get a milestone out of this.

Let's just say that our theme is we are going to be cautious and we are going to achieve our objectives and our milestones.

And there is a whole array of factors that are going to come together at varying times during the year and we don't know how many of those are going to happen in 2006 for certainty.

And what ones will spill into 2007 but let's just say that there is ample room to believe that we are going to achieve our milestone in a satisfactory way.

In terms of particular geographies I would rather just remain silent on that.

What I would tell you is if you go in and you look at the 9 to 12 major carriers we have coverage probably in about half of those, and clearly we would want to have coverage in all of them.

That is fair enough.

Thank you, guys.

At this time I have no further questions within the queue.

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

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 does conclude your presentation and you may now disconnect.

Have a wonderful day.