普拉格能源 (PLUG) 2007 Q1 法說會逐字稿

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  • Operator

  • Good day, ladies and gentlemen, and welcome to the first-quarter 2007 Plug Power earnings conference call.

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

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

  • We will conduct a question-and-answer session toward the end of this conference.

  • (OPERATOR INSTRUCTIONS)

  • And now I would like to turn the call over to your initial host for today's presentation, Ms.

  • Cynthia Mahoney White, Director Marketing Communications.

  • Please proceed, ma'am.

  • Cynthia Mahoney White - Director, Marketing Communications

  • Good morning.

  • and welcome to Plug Power's 2007 first-quarter review.

  • Participants on the call include Dr.

  • Roger Saillant, President and Chief Executive Officer; Mark Sperry, Chief Marketing Officer; David Waldek, Interim Chief Financial Officer; Brad Johnson, Vice President of Operations; Allan Greenberg, Vice President of Sales; and Jim Culligan, Investor Relations for Plug Power.

  • Roger will provide a brief overview of first-quarter results followed by Mark's discussion of our recent acquisition of Cellex Power and ongoing negotiations with General Hydrogen, and the associated integration plans.

  • Dave with then provide details on Plug Power's first-quarter financial results.

  • Roger will conclude with a discussion of progress on our sales front and operating successes during the quarter after which we will open the call for questions.

  • Before we begin, you should have the press release that went out today before market open.

  • If you don't, you can find the release on the Company's website at plugpower.com.

  • During the formal presentation and the Q&A portion of this teleconference, we may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including but not limited to our 2007 milestones and statements regarding our growth plans.

  • We believe that it is important to communicate our future expectations to our investors.

  • However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we described in our forward-looking statements, including, without limitation, the risk that General Hydrogen acquisition does not close, is unsuccessful or that the anticipated synergies of the Cellex Power and General Hydrogen acquisitions are not realized; that unit orders will not ship, be installed and/or convert to revenue, in whole or in part; Plug Power's ability to develop commercially viable on-site energy products; the cost and timing of developing Plug Power's on-site energy products; market acceptance of Plug Power's on-site energy products; Plug Power's ability to manufacture on-site energy products on a large-scale commercial basis; competitive factors, such as price competition and competition from other traditional and alternative energy companies; the cost and availability of components and parts for Plug Power's on-site energy products; Plug Power's ability to establish relationships with third parties with respect to product development, manufacturing, distribution and servicing and the supply of key product components; Plug Power's ability to protect its intellectual property; Plug Power's ability to lower the cost of its on-site energy products and demonstrate their reliability; the cost of complying with current and future governmental regulations; the impact of deregulation and restructuring of the electric utility industry on demand for Plug Power's on-site energy products; and other risks and uncertainties discussed under Item 1A, risk factors in Plug Power's annual report on Form 10-K for the fiscal year ended December 31, 2006, filed with the Securities and Exchange Commission on March 16, 2007, and the reports Plug Power files from time to time with the SEC.

  • Plug Power does not intend to and undertakes no duty to update the information contained in this press release.

  • Now I will turn the call over to Roger to start the discussion.

  • Dr. Roger Saillant - President and CEO

  • Thank you, Cynthia, and welcome to everyone joining us on the call today.

  • We made significant progress during the first quarter of 2007.

  • We installed a record number of GenCore systems which provide backup power for wireless and wireline telecommunication providers.

  • As we discussed during our last call, we have shifted our focus from building our order backlog to shipping and installing units in order to drive revenue and increase in application experience in our customer base.

  • We believe that our customers clearly recognize the value of following through on their plans to integrate fuel cell technology into their communication platforms.

  • This, combined with the success of the supporting infrastructure that we developed last year, as well as our ability to manufacture and ship in a timely fashion, is driving us to better align shipments with installations.

  • The agreement to acquire Cellex Power in Q1 2007 and subsequent close in early April is a culmination of a long-held strategy to provide fuel cell based solutions for the material handling industry.

  • Our ongoing negotiations with General Hydrogen further underscore our commitment to this strategy and market opportunity.

  • For those of you who have followed Plug Power over time, you will recognize this fuel cell application as GenDrive, an integral part of our product strategy and projected technology adoption path.

  • This move diversifies our product portfolio and targeted markets as well as provides us greater leverage in manufacturing, supply chain management, and technology development.

  • We believe that we have acquired the leader in providing energy solutions to the material handling industry.

  • With that introduction, on today's call we will further review what I believe to be the three topics that should help you understand our progress.

  • First, Mark Sperry will cover our recent activities with respect to Cellex Power and General Hydrogen including our integration plan going forward.

  • Second, Dave Waldek will review our financial results for the quarter.

  • And finally, I will discuss our execution in the first quarter as well as provide additional detail that I believe illustrates the value we bring to the marketplace.

  • Now, I'll turn the call over to Mark Sperry, Plug Power's Chief Marketing Officer, to discuss our recent acquisitions.

  • Mark?

  • Mark Sperry - Chief Marketing Officer

  • Thank you, Roger.

  • We recently announced our ongoing negotiations for the acquisition of General Hydrogen, which is based in Richmond, British Columbia, in close proximity to Cellex Power.

  • Much like the purchase of Cellex Power, we believe the potential acquisition of General Hydrogen will leverage our strong cash position to diversify our sources of revenue and enhance our position as a leading provider of clean, reliable on-site energy solutions.

  • As I hope you understand, we cannot disclose the details of in-process negotiations at this time and cannot assure you that the transaction will close as a result of those ongoing negotiations.

  • As Roger has mentioned, we have maintained the view that proton exchange membrane fuel cell solutions would first be adopted in intermittent duty applications where lead acid batteries are the primary incumbent technology.

  • This is true for both our GenCore product line and the solutions being developed by Cellex Power, which are being marketed to material handling equipment manufacturers and end users.

  • The addition of the material handling solutions to our product portfolio will help us to diversify the targeted industries that we serve as a means of leveraging our technology and infrastructure to further move fuel cells into commercialization.

  • We believe that the material handling solution carries a very strong value proposition which is driven by increased productivity and economic return in addition to the obvious environmental benefits.

  • There is a large market available to us as well, with an estimated 3 million electric fork trucks in service today worldwide and 400,000 in annual sales.

  • The corresponding global annual new and replacement industrial motive battery market is estimated at $1.5 billion.

  • Our strategy is to quickly provide a family of products to fully engage this large market opportunity.

  • In addition to market diversification, the Cellex Power acquisition will increase our purchasing power as well as our ability to leverage technological expertise in research and development efforts.

  • British Columbia and the Canadian government have been highly supportive of the commercialization of fuel cell technologies.

  • Both Cellex Power and General Hydrogen have received funding for research and development activities from various government agencies.

  • We are excited about the opportunities provided by having ongoing operations in the Vancouver area especially considering their proximity to Ballard Power Systems Inc., the supplier of our proton exchange membrane stack technology to both Cellex Power and General Hydrogen and our current partner with Plug Power in forward development program sponsored by the United States Department of Defense.

  • I will turn the call back over to Roger now to discuss our integration plan for Plug Power and Cellex Power.

  • Dr. Roger Saillant - President and CEO

  • Thank you, Mark.

  • We have organized an integration team headed by Mark Sperry, which includes personnel from Cellex Power and Plug Power.

  • Our vision is to cultivate the considerable excitement that exists within each company and build one exceptional business based upon organizational learning in transparency.

  • We expect that no significant disruption will occur with respect to the commercialization in product development schedules of any of the operations.

  • In fact, we are already collaborating to accelerate product development and commercialization.

  • In general, our integration plan will focus on creating a single organization in British Columbia dedicated to the development and delivery of fuel cell solutions to the electric lift truck market.

  • It will be managed by Chris Reid, President of the Cellex Power.

  • The Richmond-based organization will have primary responsibility for sales, service and product development for material handling solutions.

  • We intend to leverage Plug Power's existing commercial infrastructure and expect to avoid some of the expenditures typically associated with the transition from a pre-commercial to commercial enterprise.

  • We expect to achieve some level of synergies in human resources, finance, legal, marketing and administrative activities.

  • Further, we expect commercial product manufacturing activities to be brought online in Plug Power's existing Latham, New York manufacturing facility with prototype and initial build activities remaining in Richmond.

  • Now, I'll turn the call over to our Interim Chief Financial Officer, Dave Waldek, for an overview of our current financial outlook.

  • David Waldek - Interim CFO

  • Thank you, Roger, and good morning everyone.

  • Starting with our statement of operations, total revenue for the first quarter was $2.6 million compared with $2.3 million during the first quarter of 2006.

  • Product and service revenue, a component of total revenue for the first quarter this year was $462,000 compared with $857,000 for the first quarter of 2006.

  • As we have previously discussed, we defer recognition of product and service revenue and recognize revenue on a straight line basis over the service period, which is generally 12 to 30 months.

  • The lower revenue in the first quarter of this year reflects the timing of revenue recognition for previously shipped systems and for units shipped and installed during the first quarter of 2007.

  • Our deferred product and service revenue at March 31, 2007 was $2.8 million, up from $2.5 million a year ago and $2.2 million as of December 31, 2006.

  • During the first-quarter of 2007, we shipped 41 GenCore fuel cell systems compared with 15 during the first quarter of 2006.

  • During the trailing fourth quarter of 2006, we shipped 69 GenCore systems, including 32 units on consignment.

  • There were no units shipped on consignment during the first quarter of 2007 or the first quarter of 2006.

  • We installed a record 63 GenCore systems during the first quarter of 2007 compared with 28 during the first quarter of 2006.

  • During the trailing fourth quarter of 2006, we installed 12 GenCore systems.

  • Our GenCore backlog stood at 533 systems on March 31, 2007 compared with 227 as of March 31, 2006 and 571 systems as of December 31, 2006.

  • Research and development contract revenue was $2.2 million for the first quarter ended March 31, 2007 compared with $1.4 million in the first quarter of 2006.

  • Our cost of product and service revenue represents the direct material costs for fuel cell systems shipped during the period combined with the labor and materials associated with servicing all of the fuel cells under warranty.

  • Including the 41 GenCore fuel cell systems shipped during the quarter, we supported 230 systems during the first quarter of 2007 and our cost of product and service revenue was $1.7 million, compared with $1.2 million during the first quarter of 2006.

  • The increase in the cost of product and service revenue was attributable to the increase in fuel cells shipped during the quarter as well as an increase in the overall number of units serviced in the a field.

  • Our cost of research and development contract revenues which represents the fully burdened cost of R&D contract activity was $2.7 million during the first quarter of 2007 compared with $2.5 million last year.

  • R&D expenses were $9.3 million for the first quarter of 2007 compared with $9 million during the same quarter a year ago.

  • The increase was primarily related to increased non-cash stock-based compensation.

  • General and administrative expenses were $4 million for the first quarter of 2007 compared with $2.4 million during the first quarter of 2006.

  • The increase was attributable to an increase in non-cash stock-based compensation costs, increased sales activities and cost related to the corporate reorganization announced earlier in the year.

  • Our net loss for the quarter ended March 31 was $11.2 million or $0.13 per share, compared with $12.1 million or $0.14 per share in the first quarter of 2006.

  • Weighted average shares outstanding were 86.4 million compared with 85.9 million shares during the same period last year.

  • Net cash used in operating activities for the first quarter ended March 31, 2007, was $10.8 million, compared with $11.1 million in the first quarter of 2006.

  • At March 31, 2007, the Company had $251.4 million in cash and marketable securities and $257.5 million in working capital.

  • At this point, I will to the call back over to Roger.

  • Dr. Roger Saillant - President and CEO

  • Thank you, Dave.

  • We stated that our milestone is to install 400 GenCore systems this year.

  • Our Q1 GenCore installs were double that of our previous highest quarter.

  • In March, we installed 34 GenCore systems, which is approximately three times higher than our previous highest month prior to 2007, and is on an annualized pace of more than 400.

  • We believe that the first-quarter results are a strong indicator of our ability to manufacture, ship and install systems in a timely fashion.

  • We continue to strengthen our sales approach.

  • We are bringing in a new class of senior industry players with relevant customer operational experience and relationships, which has begun to catalyze our sales activity.

  • We have developed cross-functional teams that support specific accounts and developed tools that should help our clients quickly and definitively identify the value of leveraging our technology, the experience of our people and our streamlined processes in support of their businesses.

  • We have also recently added an experienced channel/alliance sales team that is building integrated sales plans with our existing channels and establishing new relationships with other players.

  • It is through these relationships that we expect to gain additional points of traction in the wireless and wireline communication marketplace.

  • Our sales activities continue in North and South America, Southern Europe, the Middle East and South Africa.

  • The North American market is currently the strongest, although we expect rapid growth first in Central America and Latin America, followed by Europe, the Middle East and Africa.

  • We have now definitively entered the Indian market with our recently signed agreement with Telecommunications Consultants India Limited, (TCIL).

  • The telecommunications market in India is growing at a rate of more than 4 million subscribers per month, due largely to the rapid expansion of wireless networks.

  • The growth of the market, combined with a relatively fragile utility grid, creates strong opportunities for Plug Power's clean, reliable backup and primary-power fuel cells to support the nation's telecommunications infrastructure.

  • The partnership with the TCIL gives us a tremendous presence on the ground in India with access to a vast network of potential government customers.

  • I believe that the success of our products, combined with a focused and aggressive sales effort, will ultimately deliver sales.

  • As the data grow on GenCore applications that demonstrate higher reliability and lower cost of ownership versus incumbent technology, the decision-makers in our target industries and markets should realize the value proposition we offer them, resulting in successful sales.

  • We have benchmarked our fleet against published reliability data for gensets based on the IEEE Gold Book evaluations, a reference manual used by power systems engineers.

  • And we are confident we can deliver equal, if not greater, reliability at lower cost of ownership.

  • We also have specific examples which demonstrate that we can provide more predictable performance at far greater backup times than can batteries.

  • Recently, for one of our clients, a major Latin America carrier, where grid reliability varied between 40% to 90% availability, we were able to ensure 99.9% availability at a competitive cost of ownership relative to traditional backup power sources.

  • The unit provided more than 250 hours of backup since October 2006.

  • Three occurrences required run times of greater than 24 hours.

  • The longest of the three outages was 52 hours, which included a successful refueling operation.

  • Based on the results of this trial, we are currently working on a more expansive rollout for our customer.

  • During the first quarter of 2007, we have installed systems across the State of New York in collaboration with the New York Power Authority and the New York State Police at state and municipal communication facilities.

  • These installations have proven timely for our New York State customers and the populations they serve.

  • We experienced harsh storms and lost power several times since January.

  • A GenCore backing up a UPS device at a New York State Energy Research and Development Authority office park in Saratoga County ran for more than 60 hours during a power outage caused by a severe ice storm during this period.

  • Another GenCore, at a New York State Department of Environmental Conservation Communications site, provided on-site power for 17 hours during a severe February storm.

  • The same unit ran again during an April Nor'easter.

  • As the evidence continues to mount from our in application experiences, the value of our GenCore unit for mission critical backup power requirements becomes increasingly compelling.

  • We expect the momentum gained in the first quarter coupled with our strong balance sheet positions us well for the future.

  • Thank you, that concludes our prepared remarks.

  • We now open the call for questions and answers.

  • Operator

  • (OPERATOR INSTRUCTIONS) Steve Sanders, Stephens Corp.

  • Steve Sanders - Analyst

  • Good morning.

  • Roger, I wanted to see if you could start with just a little bit of a discussion on the buy versus build decision for Cellex?

  • Dr. Roger Saillant - President and CEO

  • Well, what I -- do you mean in terms of getting into the lift truck market?

  • Steve Sanders - Analyst

  • Yes.

  • Yes, I mean you guys obviously had GenDrive going for a while and then you backed off, loaded the balance sheet up.

  • And so how did you think about that as you were thinking about the Cellex deal?

  • Dr. Roger Saillant - President and CEO

  • Well, first of all, Cellex is a systems integrator and they've been working at this for quite some time.

  • We've been talking to Cellex for more than four years.

  • We visited them, they visited us.

  • We've been working back and forth.

  • We felt that with the balance sheet we could actually avoid a lot of cost going into the manufacturing phase that Cellex was faced with and we thought that was good for Cellex and for ourselves.

  • We also felt that in terms of the power of the buy, and the relationship developing with Ballard that it was an opportunistic move for us particularly since we've been working with Ballard now for a little over a year in a collaboration where again we're looking at building telecommunications backup systems using their technology.

  • Cellex had a lot of insights into that and I might ask Mark if there is more that you want to add to that?

  • Mark Sperry - Chief Marketing Officer

  • Steve, I might just amplify to say that the reality of our capitalization situation over the past several years had put us in a situation where we really weren't significantly pursuing the GenDrive so our internal efforts were pretty minimal and we looked at when we think that application is going to be adopted in the marketplace and the progress that many other folks especially Cellex had made and determined that the best approach was to actually acquire Cellex.

  • So I think it was the typical types of considerations that you would go through in making that analysis and at the end of the day we were heavily influenced by time to market and felt that Cellex was very well-positioned and it would be a much quicker time to market for us as opposed to a reenergizing and internal effort, if you will.

  • Dr. Roger Saillant - President and CEO

  • And quicker time to market for them as well.

  • Steve Sanders - Analyst

  • Right, right.

  • Okay.

  • In terms of order flow for Cellex over the next year or so, they have obviously had some successful tests.

  • What are we looking for now -- small orders, just a little more detailed there.

  • Mark Sperry - Chief Marketing Officer

  • Yes, Steve.

  • The current outlook is that commercial -- the early commercial shipments would begin out of the Cellex enterprise toward the end of this year just think fourth quarter of this year flows would begin.

  • Clearly we need to understand what that adoption is going to look like.

  • Our current expectation is that the initial flows will go into fleet tests, not single units but multiple dozens of units type tests where they are put in- application and run out through a period of time that we would expect measured in months not days, but not years.

  • So the success of those early tests and the in-application experience that the customer set has will then negate where that order flow goes from there.

  • I can tell you that the customers that I've personally visited, there definitely is a keen interest and a demand pool for the product but the first thing we need to come through is absolutely demonstrating the reliability in the application and that is the work that we expect we'll continue to build on as we move into the latter half of this year.

  • Steve Sanders - Analyst

  • Okay.

  • And then what about the price point relative to where you think you need to be fully commercial?

  • How close are you?

  • Any detail you could provide there would be helpful.

  • Mark Sperry - Chief Marketing Officer

  • Yes, Steve.

  • We are working through establishing the commercial pricing so we haven't done that.

  • The analysis that we are underway is around obviously pricing to value so understanding what the current income and solution represents in terms of cost and productivity and pricing against that.

  • My sense is that we will be at a CapEx premium to what the incumbent technology sets are when you roll together all of the multiple batteries and battery chargers and those types of costs that are embedded in the current solution set.

  • And that we will be in a position pretty quickly to realize margins off of that value proposition.

  • So the exact pricing is not set -- it is being compared if you will to the current battery, battery charger scenarios and we will provide more information as we move that thinking forward.

  • Steve Sanders - Analyst

  • Okay.

  • And as you move into class 2 and class 3 either through acquisition or just further development from the Cellex platform, does it make sense and is the Plug stack well suited for those higher powered applications?

  • Mark Sperry - Chief Marketing Officer

  • Steve, we are looking at that question.

  • Clearly the work that has been done with Cellex today has been with the power stack and that is our go-forward intension in the immediate term.

  • But the Plug technology, clearly we have our own technology and we are looking at what is appropriate there.

  • But it is a little too early to say anything other than in the immediate term I would characterize it as Ballard will be the technology.

  • Steve Sanders - Analyst

  • Okay.

  • Thank you very much.

  • Operator

  • Burt Chao, Simmons & Company International.

  • Burt Chao - Analyst

  • Good morning, guys.

  • Just a quick question on the CFO situation, are there any updates on the search and kind of how that is progressing?

  • I know you really hadn't provided a timeframe before and you just said you were in no rush particularly.

  • But any update on that would be greatly appreciated.

  • Dr. Roger Saillant - President and CEO

  • Sure.

  • First of all we are very pleased that we have David Waldek with us as an interim CEO and as CFO, I guess I've already given it away.

  • He is helping us in the search and we are being extremely methodical about it.

  • We've brought in a number of candidates.

  • We have a number of more candidates to screen.

  • I can't forecast when we will make the decision but it will be a choice made by both the management team and the Board of Directors.

  • And that process as you can imagine takes some time.

  • But we are not going slowly, we are just going carefully.

  • Burt Chao - Analyst

  • Okay, definitely great.

  • Thanks.

  • And kind of touching base on the previous question regarding the Ballard stack and kind of the supply strategy going forward with Cellex and potentially General Hydrogen.

  • Just to double check, all the intentions right now are to stick with the Ballard stack until there is a Plug alternative that you find commercially or viable at that point?

  • Mark Sperry - Chief Marketing Officer

  • Burt, what I would characterize it is that we are staying with the Ballard technology set.

  • Clearly back to the initial question that Steve asked around buy/build on getting to this market, we're asking the same questions around our own internal stack componentry and whether that would make sense.

  • We are well aware of Ballard's technology.

  • We are engaged with them in other development programs so they are a partner of ours and we expect that that will continue and we also expect that we will continue to evaluate our own internal alternatives as well as other stacks that may be out there in the marketplace as they become available.

  • But in the immediate term, the intent here is absolutely to stay with the Ballard technology set.

  • Burt Chao - Analyst

  • Okay, great.

  • And one final question, kind of referring to the release, there is a portion of the release that said orders that certain contingencies, redesign elements and conditions to be satisfied before shipment.

  • Can you provide a little description of what that means specifically?

  • Mark Sperry - Chief Marketing Officer

  • Sure, Burt.

  • When you look at some of the applications that we are going into, there may be third party types of technologies or equipment that need to be deployed in addition to ours.

  • So example, the need for integration into an air-conditioning system.

  • So those are an example that would lead to an order that we have for systems that's tied to us doing some work to integrate into an air-conditioning unit, I think that probably -- those types of considerations are what is being referenced in that particular dialog.

  • Burt Chao - Analyst

  • Okay, great.

  • Thanks so much for your time.

  • Operator

  • (OPERATOR INSTRUCTIONS) Stuart Bush, RBC Capital Markets.

  • Stuart Bush - Analyst

  • Hi, guys, how are you?

  • Dr. Roger Saillant - President and CEO

  • Okay.

  • Stuart Bush - Analyst

  • My first question is how many of the 533 GenCores in backlog do you expect to be installed this year?

  • Dr. Roger Saillant - President and CEO

  • Well our public milestone is that we expect to install 400 units, many of those will come out of our backlog.

  • There's always some uncertainty because as you understand one of our lead customers that has had a large order with us now for almost two years is deploying more slowly than we had ever anticipated.

  • But some of those installations are coming in now.

  • I expect that some will come from new orders and some will come from the backlog itself.

  • Stuart Bush - Analyst

  • I'm just trying to get an idea of how many new orders you expect to -- I guess it would have to be booked, shipped and installed all this year to make it in that number, is that right?

  • Dr. Roger Saillant - President and CEO

  • That is correct.

  • Stuart Bush - Analyst

  • So, can you give us an idea of how many you expect to -- I mean is there any way you can give us some metrics on how many GenCores you expect to either book or to ship this year?

  • What is the time difference between -- the typical time difference between when you book them, when you ship them and then when they get installed?

  • Brad Johnson - VP of Operations

  • Stuart, this is Brad Johnson.

  • It really varies by customer.

  • So we've talked about our traditional U.S.

  • telecom customer that Roger mentioned has through their own reorganization had a slower rollout than we ever anticipated and that has taken multiple quarters into a few years.

  • We've had others where we have received the order late last year in the fourth quarter and have been shipped and installed a number of units.

  • So it varies literally by customer based on how large the order is and their specific rollout plan how diverse the geography is that they are going into.

  • So we have examples that are over a year to ones that are less than a quarter.

  • So it really varies by customer.

  • Dr. Roger Saillant - President and CEO

  • Stuart, if your question is how fast can we respond, we generally have an internal order to delivery to install goal of something in the neighborhood of 10 to 12 weeks, for any order.

  • Stuart Bush - Analyst

  • Okay.

  • I guess my core question maybe another way is do you have a projection on what your backlog will look like for GenCores by the end of the year?

  • Dr. Roger Saillant - President and CEO

  • No, we don't.

  • We certainly have goals for sales and we have internal goals in improving efficiency and so forth but we've not stated anything publicly about what those particular goals are.

  • Stuart Bush - Analyst

  • I guess I'm just trying to get at what you see as the prospect for sales basically in '07 versus what you are going to be pulling out of backlog that was booked previously.

  • Dr. Roger Saillant - President and CEO

  • Well, I can say that we are certainly looking to have more sales this year than last year.

  • But in terms of any particular number it really depends.

  • It depends a lot on how we are working with the particular customers who have sets of objectives that sometimes they want to make large orders in order to get the price reductions.

  • They have other deployment issues that influence what they would consider an order or what we would consider a sale.

  • One of the things that we've learned to do over the course of the last two or three years in dealing with the telecommunications industry is that we've learned to be very cautious.

  • Stuart Bush - Analyst

  • Okay, great.

  • My next question is maybe you can clarify again the sort of piggyback off a couple previous questions.

  • Exactly what the thinking is in staying with the Ballard stack for Cellex and potentially General Hydrogen.

  • Is it a technical issue or a cost issue?

  • So what is exactly the advantage of their stack over yours in this application.

  • Mark Sperry - Chief Marketing Officer

  • Stuart, this is Mark.

  • At the end of the day the solution that has been designed incorporated a Ballard stack, so it is fundamentally a time to market all the system engineering work.

  • That has been done, over the past several years evaluating the Ballard technology among others.

  • But at the end of the day the commercial design incorporates Ballard technology.

  • So the amount of time it would take to redesign that system to incorporate either ours or anybody else's technology is really the main driver in our decision to absolutely stay with that in the immediate term.

  • Stuart Bush - Analyst

  • So taking away the design time issue just on the stack versus stack basis, is there a technical concern or a cost difference?

  • Dr. Roger Saillant - President and CEO

  • I think the thing that I would do there, Stuart, is you are asking a fairly intricate question and I'm going to try to go right down to the form factor, the form factor to fit into a battery pack.

  • Cellex has been working to fit in an exact replacement for the batteries.

  • That form factor has been designed and developed very, very rigidly and rigorously with Ballard.

  • Our stack at this time does not have that form factor.

  • So what Mark is really saying it is not as simple as simply saying which one performs better.

  • Which one has been designed to perform better and does it actually go into the replacement form factor of the current lift trucks?

  • Stuart Bush - Analyst

  • Okay.

  • Do you have any projections on what the market outlook is for the number of units that we should expect to see going into the forklift market this year or next year.

  • Mark Sperry - Chief Marketing Officer

  • No, we don't, Stuart.

  • The characterization I provided earlier is one that we do expect early commercial units to be in the flow into the fourth quarter.

  • The uptake of that as you move into next year is clearly going to be driven by the performance of those initial units to go out in the customer set.

  • So if the customers are excited and the technology performs the way we think it is going to perform that will be one ramping of the volume.

  • If there are some hiccups and we need to address issues as we get out there, then that will necessarily yield a different sort of market uptake.

  • So that is clearly as we get experience and we have more ability to predict, we will provide that.

  • But at this point I would tell you that the early units are going to go out and how they perform is going to gauge what next year looks like.

  • Stuart Bush - Analyst

  • Okay.

  • Well we've had some units already out being tested right now, is that right?

  • At some customer sites?

  • Mark Sperry - Chief Marketing Officer

  • There were absolutely units tested over the last couple of years but we have not shipped and run over time the technology into commercial application so that is what's involved, Stuart, when you launch a product and that has not taken place.

  • So we have done tests, we've done tests in labs, in customer applications but we have not sold them and put them out there and had them operate for years.

  • Stuart Bush - Analyst

  • Okay, last question is, what do you guys see for international, what do you think as the best prospects for international markets right now?

  • Dr. Roger Saillant - President and CEO

  • International markets for lift trucks and/or backup?

  • Stuart Bush - Analyst

  • Just for anything you sell.

  • Dr. Roger Saillant - President and CEO

  • Well, we have been very -- I would say very committed to looking at the best opportunities for our technology.

  • We've got quite a few units today installed in South Africa.

  • We've put units in most countries of the world.

  • In fact I think at one point we had our operating units in every continent in the world.

  • There are different situations driven by climate and grid reliability that make the characteristics of fuel cell backup systems much more desirable.

  • And some of those situations are strongly underscored outside the United States.

  • And as we've said in the past, we certainly are active in the Middle East.

  • We were active in sub-Saharan Africa and we are in South America and Mexico.

  • So each one of these is -- has certain unique attributes to it and we are committed with established relationships to rise to the occasion of the opportunity.

  • Stuart Bush - Analyst

  • Okay, thanks a lot.

  • Dr. Roger Saillant - President and CEO

  • Okay.

  • Operator

  • (OPERATOR INSTRUCTIONS) Sam Simone, Sam Simone Real Estate.

  • Sam Simone - Analyst

  • I would like to know what we are doing to market Plug's products to a point where we can see profitability or at least breakeven somewhere down the timeline and horizon?

  • And what about the North American markets?

  • Dr. Roger Saillant - President and CEO

  • Sam, that is a fairly broad question.

  • First of all, again, I assume that you are talking about the telecommunications product, our GenCore product?

  • Sam Simone - Analyst

  • Yes.

  • Dr. Roger Saillant - President and CEO

  • We believe that we have to sell somewhere in the neighborhood of 7000 to 9000 units to achieve breakeven and profitability with that particular product.

  • Each of the accounts that we are working with alone could almost achieve that kind of objective once they decided to deploy it across their system.

  • So, the big question I think that is hidden in all of this is you want to know when that would occur.

  • And I need to tell you that our sales force is very committed to making that happen as quickly as possible.

  • The purchase cycle, the relationship building cycle, the conservativeness of the telecommunications industry lends itself to a lot of uncertainty for us in terms of being able to forecast when we can get the 7000 to 9000 units.

  • But that is clearly what our objective is.

  • And it is clearly a very small subset of the market either in the United States or in the global market.

  • So we see the opportunity as fairly vast.

  • Sam Simone - Analyst

  • So you feel that even though we are in the hundreds like 400, 500 category now, that jumping up to that level is possible in the next few years or whatever?

  • Dr. Roger Saillant - President and CEO

  • Yes, I think what I'm going to do is I'm going to give you a chance to hear Allan Greenberg, who is our Vice President of Sales, speak to that issue based on a lot of experience with the telecommunication industry and providing solutions.

  • Sam Simone - Analyst

  • Okay.

  • Allan Greenberg - VP of Sales

  • I think it's important to understand that backup power is mission critical so this tends to be a very risk adverse environment.

  • So we have successfully completed trials in most of the major carriers in North America and significant carriers in South America, South Africa and Europe.

  • So that was to evaluate how the system works.

  • We are now in the second phase of that evaluation where they are seeing how can we support and they can support a distributor's fleet of these systems?

  • How do you get hydrogen there?

  • What are the uses for siding and regulatory requirements?

  • How does it fit into their operation cycle?

  • So we are in various stages there.

  • The next phase is becoming more of a standard where people will start buying hundreds of these units a year or maybe thousands of those units.

  • So there is a well-defined adoption path that we are working with our clients.

  • We understand the conditions of success but it starts small and moves toward standardization and we are along I think a very positive trajectory.

  • Operator

  • Walter Nasdeo, Ardour Capital.

  • Walter Nasdeo - Analyst

  • Thank you.

  • Good morning.

  • I guess I want to if I could swing back around again to the General Hydrogen/Cellex opportunities that are in front of you guys right now.

  • And can you just clarify a little bit for me the different lines and maybe the different markets that these two companies had been exploring in the past?

  • And I'm assuming that there is a complement to the different marketing strategies and product these guys are putting out?

  • Mark Sperry - Chief Marketing Officer

  • Yes, Walter, this is Mark.

  • Let me just talk generically about the classes of trucks out there and I'll -- I can share a fair amount about Cellex and less about General Hydrogen.

  • If you look at the fork truck industry, we are very focused on electric fork trucks so that the regulatory environment in many countries does not allow you to have combustion driven engines inside of a building, inside of an enterprise where people are working.

  • So in the industry, they talk in terms of classes of trucks.

  • There are many but the class 1, 2 and 3 are all electric classic trucks.

  • And class 1 is if you think about a typical fork truck that you sit down on and ride around and lift goods around, the thing that comes to mind when most people here the term fork truck is really a class 1 truck.

  • Class 2 is referred to as a reach truck, so it is a smaller truck that is intended to go down narrow aisles and lift goods in and out of racks.

  • And then class 3 is sometimes referred to as a palette truck which is just a ride-on truck that is intended to lift palettes really about six or eight inches off the ground and move them to a different spot inside the facility.

  • So those are the three classes of trucks that we would be targeting in roughly the material handling space.

  • Cellex has been very focused on class 3 and class 2.

  • Primarily those are the trucks that are used in very large distribution centers.

  • So if you think about a large retailers like Wal-Mart that have mega distribution centers that are -- think about football fields of space that our under roof, where products are being moved from one end to the other from one tractor-trailer to the other type of enterprise.

  • Throughput is critical and the predominant technology deployed there are palette trucks.

  • There are a few reach trucks but for the most part it is predominantly palette trucks in that application.

  • So for that reason that is where Cellex has been focused.

  • It is a high-value application.

  • Productivity is critical so in many cases the operator actually gets paid per pound that he moves so the fact that if you have an electric battery driven truck and you are three hours into your shift, it's not moving as fast as it was when you first got it.

  • And by the end of the shift you have a real issue in terms of keeping that truck moving along.

  • So you limp your way back to a battery room to have the battery lifted out and all that takes time and it is time out of productivity.

  • So, that gives you a little bit of flavor.

  • Clearly in order to penetrate the entire market, you want all three classes of trucks of the electric trucks and that would be the strategy that we are after is how do you get to having all three as fast as possible.

  • Walter Nasdeo - Analyst

  • Okay, so both those companies basically were kind of designing to different classes?

  • Mark Sperry - Chief Marketing Officer

  • That is correct.

  • Walter Nasdeo - Analyst

  • Okay.

  • I would assume now that when you combine these two companies coupled with your balance sheet, you should in my mind be able to accelerate dramatically into these big box retailers, the Wal-Marts, the Best Buys and things like that relatively quick.

  • Because I know both Cellex and General Hydrogen have been pounding away at these markets for a number of years now.

  • Do you have any indication or what your feel is for how quickly you can accelerate this?

  • Mark Sperry - Chief Marketing Officer

  • Walter, I would tell you that we are very optimistic obviously in the fact that we acquired Cellex and we are looking at the potential of General Hydrogen.

  • We are clearly leaning into this so our view is exactly as you are characterizing it, how can we go fast?

  • How can we drive the market adoption?

  • We think having the portfolio of products will absolutely accelerate that so we have a few strategies as to how do we get to that broad portfolio as quickly as possible.

  • I can tell you that my personal experience has been that there definitely is a demand for this application.

  • So the frustrations that are out there in the large retailers and industrial concerns where productivity is important and uptime is important, this solution absolutely carries a value proposition that is compelling.

  • So how do we leverage that?

  • How do we do the right things in terms of introducing the products at the pace that the market wants and make sure that we are demonstrating the reliability and answering all the questions that come along with putting a new technology into application that the customers may have is going to be our opportunity here in the next several months.

  • Walter Nasdeo - Analyst

  • Okay.

  • And if I just briefly -- I will follow up on that.

  • What is your expectation for manufacturing capacity if you were able to combine those two companies up there?

  • Because they are very close together.

  • I know they both have some but assuming that you do accelerate this and orders come and Wal-Mart is not going to order 20 of these from you.

  • If they decide to go, they are going to want a couple hundred to 1000 the day after tomorrow.

  • How do you envision meeting those requirements?

  • Mark Sperry - Chief Marketing Officer

  • Our strategy Walter, is to have what I would characterize as first build prototype and pilot build actually in Vancouver close to where the development organizations are located.

  • So as you begin to fit out and test what is the right set up in your manufacturing operations and make sure that as you are building those first units they are indeed performing as expected and any last minute changes that need to be made can be made with proximity to the engineering.

  • Then we would anticipate the larger commercial volumes being here in Plug Power we have capacity, as Roger had indicated, here in our facilities to handle somewhere between 7000 seven and 8000 things whether they are GenCores or GenDrives or other products we think that we can handle that in this facility.

  • And I'm personally looking forward to the point where we need to figure out how to have more manufacturing capacity.

  • Walter Nasdeo - Analyst

  • Okay.

  • Listen, thank you very much guys.

  • I appreciate it.

  • Operator

  • And, ladies and gentlemen, at this time, this concludes the question-and-answer session.

  • I would now like to turn the presentation back over to Dr.

  • Roger Saillant for the closing remarks.

  • Dr. Roger Saillant - President and CEO

  • Thank you.

  • To wrap up, I want to reiterate that we have a strong balance sheet.

  • We have used some of our cash to effect our strategy through acquisitions and we are continuously improving upon our engineering and operations to drive out costs.

  • The potential of our company will be greatly enhanced through the addition of increasingly viable revenue streams as well as the leverage we now wield in manufacturing, supply chain, sales and intellectual capital.

  • We expect the integration plan to run quite smoothly with Plug Power, Cellex Power and perhaps General Hydrogen.

  • We are all system integrators of PEM fuel cell technologies, which means we all speak the same language.

  • In short, during Q1 2007, Plug Power has further solidified its status as one of the leaders in the emerging hydrogen economy.

  • Cynthia Mahoney White - Director, Marketing Communications

  • Thank you again for joining us here today.

  • I hope you are as excited as we are with the recent strides Plug Power has taken to remain a leading provider of clean, reliable on-site energy solutions.

  • Again, we appreciate your time and interest in Plug Power.

  • Operator

  • Ladies and gentlemen, this concludes today's presentation.

  • You may now disconnect.

  • Thank you and have a wonderful day.