普拉格能源 (PLUG) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third 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 towards the end of today's conference at which time you may key star one to register your question.

(OPERATOR INSTRUCTIONS).

Now I would like to turn the conference over to your initial host for today's event, Ms.

Cathy Yudzevich, Manager, Investor Relations.

Please proceed, Ma'am.

Good morning.

Thank you in joining Plug Power to discuss our third-quarter results for 2007.

Roger Saillant, CEO; Gerry Anderson, CFO; and Mark Sperry, Chief Marketing Officer, will be on this call today.

The call will be archived on our website at PlugPower.com.

This conference call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding our 2007 milestones, adoption of our GenCore and GenDrive products and our growth plans.

These statements are based on current expectations that are subject to certain assumptions, risks and uncertainties, many of which are difficult to predict, are beyond our control and that may cause our actual results to differ materially from the expectations in our forward-looking statement.

These risks include, without limitation, the risk that possible benefits of strategic relationships do not materialize, the timing and quantity of orders, shipments and installations for our GenCore and GenDrive products, our ability to develop commercially viable on-site energy products, the cost and timing of developing our products, market acceptance of our products and our ability to lower the cost of our products and demonstrate their reliability.

Other risks and uncertainties are discussed under item 1A risk factors in Plug Power's annual report on form 10-K for the fiscal year ended December 31, 2006, as filed with the SEC on March 16, 2007, and in the reports we file from time to time with the SEC.

Plug Power does not intend to and undertakes no obligation to update any forward-looking statements as a result of new information or future event.

At this time I would like to turn the call over to Roger.

Thank you, Cathy, and welcome to everyone listening in on the call.

First, as we announced yesterday, I will be retiring from Plug Power effective April 7, 2008, which is my 65th birthday.

As was indicated yesterday, the committee of the Board of Directors has been established to manage the search for my successor.

I will be working closely with the Board and the management team to facilitate an effective and orderly transition over the coming several months.

On a personal note, it has been an honor to work with the Board and the employees of Plug Power over the past seven years.

Retirement at age 65 has been a goal of mine for some time now.

I am very pleased that I am preparing to leave at a point in time when Plug Power is fully engaged in attractive commercial markets on two fronts.

I believe that the collective talent and dedication of the entire Plug Power team will lead to continued success.

Now I will turn to a review of our progress in the third quarter, beginning with our backup power systems.

We continue to install GenCore fuel cells at a more rapid pace than at anytime in our past, nearly doubling our rate of installs for the third quarter and year-to-date 2007 compared with 2006.

Specifically, we installed a total of 157 systems through the first three quarters of 2007 and have an additional 110 units shipped and awaiting installation.

As it stands, I do not believe that we will achieve the goals of installing 400 GenCore systems or reducing GenCore manufacturing costs by 25% by year end.

The pace of installation is gated by a number of factors, including order flow, permitting, sitings and construction, many of which are outside of our direct control.

Manufacturing cost reductions are gated by throughput, which is accordingly less than expected.

While our year-to-date order flow has been slower than expected, our discussions with key customers remain very positive and growth oriented.

And we expect to become a partner to each of our customers going forward.

During the quarter we successfully demonstrated to a key wireless carrier that our GenCore system and support infrastructure could provide backup power to nearly a dozen of their sites for a full seven-day grid outage, simulating the potential need arising from natural disasters, such as hurricanes or ice storms.

This test was specifically conducted to demonstrate that our GenCore systems can meet the new FCC requirements with respect to backup power.

The FCC now requires wireless carriers to maintain emergency backup power for a minimum of 24 hours for assets inside central offices and eight hours for cell sites, remote switches and digital loop carrier system remote terminals that are normally powered from local AC commercial power.

Although the FCC ruling does contain certain exceptions from compliance, we expect that the overall effect will further enhance the economic and operational value that the GenCore fuel cell solution can bring to the nation's wireless carriers.

Of particular interest is a release issued by Sprint on October 12th regarding network reliability and environmentally friendly power sources.

Sprint, which has already deployed fuel cells at more than 200 cell sites across the country states the following: "a proven and reliable technology, hydrogen fuel cells have emerged as an alternative to traditional backup power sources, such as lead-acid batteries and noisy diesel generators." Accordingly, we view broad-scale adoption of our GenCore fuel cell solution as a question of when, not if.

At the end of the quarter we had 294 GenCore systems in backlog, reflecting the removal of 213 GenCore systems from the backlog during the quarter due to actual or expected order cancellation.

Smart Link, our distribution partner in Kuwait, has decided to refocus its business and will no longer be actively distributing fuel cell products.

While we still believe there is substantial opportunity for GenCore in the region, we decided to remove the 200 unit order received from Smart Link in 2006 from the backlog while we reassess our distribution strategy and options for the Middle East.

I will now present the other half of our commercially available product family, GenDrive.

As you know, the second quarter of 2007 was notable for the acquisitions of Cellex and General Hydrogen.

The integration of the two companies into one entity continues according to expectation.

Furthermore, the two companies are now fully operational and have been consolidated into one facility on schedule.

In late September, GenDrive fuel cell units for class 3 lift trucks began rolling off the line at our lean manufacturing facility in Latham, New York and have since been shipped to customers.

Our confidence in the value that GenDrive holds for the material handling industry continues to be bolstered by good news.

Customer feedback has been very positive.

Our customers have experienced productivity gains that we believe will enable them to use less equipment and fewer personnel, as well as free up valuable floor space as adoption of the GenDrive solution continues.

As was announced earlier this week, Wal-Mart has issued a purchase order for GenDrive units for a facility in Washington Court House, Ohio.

This is our largest single order to date since the acquisition of Cellex in the spring, and we believe that this will constitute the world's largest fleet of fuel cell powered lift trucks.

It will be an important demonstration of our product's capabilities, not just for Wal-Mart, but for the entire material handling industry.

We expect that success with this fleet will further boost the commercial trajectory of the GenDrive fuel cell solution.

As I previously mentioned, manufacturing of GenDrive fuel cell units has been successfully transferred to our Latham facility.

Administrative, sales and marketing support functions, as well as IT systems, are almost fully integrated, as well.

As mentioned earlier, the entire Richmond operation is now in one facility.

We are focusing on expanding and upgrading our sales force and adding technical personnel to support our GenDrive business with the expectation that we will achieve further market engagement of the material handling sector in the near-term.

Increasingly, Plug Power has been focusing on customer-facing activities and on designing and developing systems that meet our customers' requirements.

We expect to add more value by developing and integrating systems into our customers' operations.

Accordingly, we believe this will only enhance our leadership position in the fuel cell industry.

I will now turn the call over to our CFO, Gerry Anderson, to present Plug Power's third quarter financial results.

Gerry.

Thank you Roger, and good morning, everyone.

In opening, please note that our third quarter is our first full quarter of operation with combined Plug Power, Cellex and General Hydrogen businesses.

I will focus most of my comments on our third quarter results and year-to-date performance inclusive of Cellex and General Hydrogen, which as noted in last quarter's call, were purchased in April and May, respectively.

In terms of metrics for our product portfolio, during the third quarter of 2007 we had 48 unit shipments comprised of 25 GenCore systems and 23 GenDrive power units.

On a year-to-date basis we have shipped 128 GenCores and 33 GenDrives.

As we have stated in the past, product orders include firm orders, stocking orders and orders that require certain conditions or contingencies and certain redesign elements to be satisfied prior to shipment, some of which are outside Plug Power's control.

The time periods from order receipt to shipment date and from shipment date to installation vary widely and are determined by a number factors, including the customer contract terms and deployment plan, as well as siting, permitting and construction.

During quarter three, we installed 53 GenCore systems, bringing our year-to-date total to 157 installs.

Importantly, as it relates to our 2007 GenCore milestone of 400 installs, and as Roger previously noted, we do not expect to achieve this goal by year end.

As of September 30, 2007 our combined backlog stood at 340 units, 294 GenCore systems and 46 GenDrive power units.

Turning to our statement of operations, total revenue for the third quarter was $4.5 million, of which $1.2 million was derived from products and services.

$845,000 from GenCore activities and $355,000 from GenDrive.

The remaining $3.3 million in revenue for the quarter was attributable to research and development contracts.

Year-to-date our total revenue was $11.2 million, largely driven by $8.8 million in R&D contract revenue.

As we have previously stated, we defer recognition of product and service revenue and recognize revenue on a straight-line basis over the service period of each sold system.

At September 30th our deferred product revenue stood at $3.6 million, and we expect to recognize substantially all of this revenue over the next 27 months.

Our total cost of sales for the third order was $7.2 million and was comprised of $2 million for product and service revenue and $5.2 million for R&D contract revenue.

Year-to-date our cost of sales for product and service revenue and R&D contract revenue was $8 million and $12.6 million, respectively.

Our cost of sales for products and services includes the direct material cost for fuel cells systems shipped during the period combined with the labor and materials associated with servicing all of the installed base, whereas our cost of sales for R&D contracts is a fully burdened materials, labor and overhead amount.

Consolidated research and development expenses, costs incurred for internally funded R&D programs, were $9.4 million for the third quarter of 2007 and $27.4 million on a year-to-date basis.

The quarterly results for our Latham operation were favorably impacted, as was also the case last quarter, by the amount of engineering costs absorbed in our R&D contract work, which is reflected in cost of sales, just discussed.

R&D expense for our acquired companies was up from the prior quarter by $1 million due in part to being a member of the Plug family for the full quarter versus only a partial quarter in quarter two and additional materials expensed related to the Class 1 forklift fuel cell product.

General and administrative expenses were $5.7 million for the third quarter of 2007 and $15.2 million on a year-to-date basis.

The quarterly number represents about a $300,000 increase over quarter two, which again is attributable primarily to a full quarter run rate for the acquired companies.

Our net loss for the quarter ended September 30th was $15.2 million or $0.17 per share, and year-to-date was $43.1 million or $0.50 per share.

For the quarter our Latham operation resulted in a net loss of $10 million, and our Richmond operation net loss was $5.2 million.

Weighted average shares outstanding were 86.9 million for the quarter and 86.7 million on a year-to-date basis.

Net cash used in operating activities of the combined companies for the third quarter was $10.5 million, and year-to-date we have used $35.9 million for operating purposes.

At September 30, 2007 the Company had $180.4 million in cash and marketable securities and $180.7 million in working capital.

During the quarter the company also used $900,000 for capital expenditures.

In concluding my comments on our financial results, we are generally pleased with our quarterly performance as it relates to our continued efforts to drive market adoption of our products and evolve our approach to meeting the needs of our customers.

Our balance sheet remains strong, and we will remain diligent in our efforts to more efficiently deploy our assets against the opportunities we have in front of us.

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

Thank you, Gerry.

I will not give you a brief recap of where we stand with respect to our stated 2007 milestones.

I have already presented our latest expectations regarding the 400 installs and 25% reduction in GenCore manufacturing costs of our GenCore product for the year.

We have achieved or expect to achieve the other three milestones, a 50% reduction in GenCore support costs, expand into new fuel cell applications through strategic partnerships or acquisitions, and 50 to $55 million in net cash used in operations, as adjusted in the second quarter conference call.

As 2008 approaches, we remain optimistic about what we are seeing in the pipeline for both of our product lines.

With the FCC rules for backup power now in place and the value our systems have demonstrated in the field, we expect to see further sales traction for our GenCore product.

As mentioned, GenDrive continues to meet expectations as evidenced by the recent Wal-Mart order, and we expect commercialization to continue, as planned.

We further believe that the trend toward corporate social responsibility and sustainability will only continue to gain momentum.

We also know that the solutions we provide for customers must make economic sense.

And we believe they do.

GenDrive for its lower operational costs, increased productivity and operator acceptance, as well as the elimination of infrastructure needed to support the incumbent lead-acid batteries and GenCore for the reliability, flexibility and ultimately the revenue protection it offers to telecom and other customers.

Although we can't be more specific, our customers and potential customers continue to express increasing interest in the products, services and solutions we provide.

It has always been part of our strategy to focus on a few accounts very deeply and become part of our customers' capital budgets.

It is important to remember that Plug Power does not simply sell a product or a system.

The basis of our strategy is that we can provide the most value to our customers by integrating products and services into solutions that meet specific customer need.

Thank you.

That concludes our prepared remarks.

We will now open the call for questions and answers.

(OPERATOR INSTRUCTIONS) Steve Sanders, Stephens Inc.

First, Roger, congratulations on the retirement.

It has been a pleasure working with you over the years; wish you the best of luck.

The first question specific to Wal-Mart, I guess they tested 12 or so units last year.

Then they just gave you a recent order.

Can you just talk a little bit about this testing cycle, how it is different from the initial testing that they did and then kind of how we think about the potential with that customer into 2008 and 2009?

Sure, Steve.

Thanks for your comment about my retirement.

I am going to have Mark Sperry answer that question.

With respect to the Wal-Mart, the way to think about it really is the test last year was really that, a test.

This is a commercial deployment of units in an active distribution center.

And clearly as part of this deployment there is a set of monitoring and basically around the productivity achievements that are being realized as this larger fleet is deployed.

So I would characterize it as a commercial deployment into an active distribution center that will allow us to further characterize the productivity that is being achieved as we move forward.

And what is your role in the Ohio facility?

Do you have people on-site, or are you -- are they essentially running this on their own?

Essentially this is being operated and maintained by Wal-Mart personnel.

Clearly we have people in the area who are available for installation issues that may be encountered.

But for the most part this is being operated very similar to the battery electric trucks that are deployed in the facility today.

Okay.

And then just roughly how many units do you have in the field now, and would you describe that as being with a handful of customers or significantly more than that, just some additional color there if you could.

I would characterize it as a handful of customers in the units.

There are around 50 units that are currently operating in the field.

Okay, and then just maybe a high-level view of your outlook for penetrating the lift truck market versus maybe what you have been going through with GenCore and the telco market.

The way I would characterize the expectation is we expect, Steve, for the market to sort of proceed similarly to what we've seen on the GenCore side in terms of initial test deployments of a handful of units that are being really shaken out, migrating from there to unit deployments that are more in the 20 to 50 or 60 kind of units at specific distribution centers before a mass deployment is made.

We understand that in order to flip a distribution center in its entirety we are going to have to have the complete family of products.

Today we are shipping the class 3 products.

We are actively working products in the class 2 and class 1 space.

But in order for us to really get to a greenfield application where we would be able to be built right into the distribution center from the beginning, we need to be able to have all three classes of trucks, and we don't see that as being feasible in the '08 timeframe.

So I think '08 will look like initial deployments, initial test programs with a handful of customers very similar to what we are doing on the GenCore side of the business.

It really is a set of customers that you don't have to go beyond a couple dozen to really sweep up the volume that you need to be very successful.

So we will engage deeply with a limited set of customers, move them through the initial testing into the initial deployment stages so that we are prepared to really be able to completely penetrate as we move beyond 2008.

Okay, and then a final question on GenDrive.

Where do you stand in terms of manufacturing capacity?

What are the constraints or gating factors on ramping that going forward?

Our manufacturing capacity, as we had said when we were doing a single pure product, we could do somewhere in the neighborhood of 7 to 9000 of units a year here at Latham.

When we start to change the mix class 1, class 2, class 3 and some variations of GenCore, our capacity will probably level out between 45 and 6500.

We will not be capacity limited.

We transitioned very quickly and have ample space to move the Latham facility to get to the 5000 range in the course of a year or so.

Okay, and obviously you have developed the supply chain pretty well for the GenCore.

But specific to the GenDrive, and I guess you captured in your comments there, but stack availability, electronics, etc.

you don't see any real issues there as you ramp?

No, in fact it is really fortunate that we've been working closely with Ballard in some other areas, and we are working with Ballard on the lift truck, the stack supply today.

So they have the capacity, and we have the relationship.

Okay.

Thank you very much.

Ben Kallo, Pacific Growth Equities.

I was wondering about the new orders this quarter, if you can give a breakdown between the GenCore and GenDrive?

And then maybe some, if you could just talk a little bit about if these are new customers or existing customers.

Gerry, do you have the data right there?

Yes, we have 43 new orders on GenCore.

And I think again, most of those are with customers that we are obviously trying to establish deep relationships with.

We have five orders for GenDrive, again that is also with customers that we have been working with for quite a period of time.

And that would not include any Wal-Mart orders there?

That does not include the Wal-Mart order, which was not confirmed and until the quarter before.

Okay, and kind of a change of subject, but legislation being debated right now in the energy bill, how do you guys see that progressing?

Do you see something happening this year, and then what kind of benefits do you stand to get from that?

The energy bill debate is obviously continuing now over multiple years.

First of all, we have already secured an extension for the tax credit for one more year.

Inside of that, though, we are trying to get additional tax credits for the hydrogen fueling, as well as multiple years for the basic fuel cell system itself.

I think that the -- there is research and development money that is also being considered, and I should mention that the tax credit -- I was just quickly thinking through -- the tax credit we are looking for an extension to the year 2013.

But there are additional monies being considered for R&D, as well as government purchases of product.

In fact, what we have is, we have -- let me just recall -- we have about $160 million previously authorized, but not funded by the federal government to purchase fuel cell systems.

And what we are doing now is we have been meeting with various departments in the government.

Since we are already preapproved we are now working with them to find places to place our -- working with them to find places where they in fact can purchase our product or other fuel cell product.

Okay, great.

Thank you, guys.

[John Spatz], Citi.

Good morning, gentlemen.

Just a couple of quick follow-up questions.

On the FCC mandate is that final at eight hours, or is there still some discussion going on to kind of hone that in?

No, it's final at eight hours.

Thank you.

And then premium pricing has been suggested for GenDrive product, and you have sold some products into the field.

Can you give us some sense for what that might look like?

We are looking for value pricing.

Initially customers are looking at this as a new technology, new company, new kinds of service issues, hydrogen infrastructure and things like that.

Now they are getting beyond that.

And actually validating what we believe is a value that I wouldn't necessarily call premium pricing, but I would certainly call value pricing.

And that allows us to see ways to achieve margin.

And certainly with the GenDrive we've seen some specialty applications which we are still not free to discuss, where it is pretty impressive what we've been able to -- it is pretty impressive what the customer has recognized as the true value of the product and what they are willing to pay for it.

I'd add a little bit of amplification.

The way to think about it is when you look at the cost of a fuel cell pack head up against the cost of the battery, we are at a premium versus the capital.

But when you look at the total cost of ownership equation we clearly are adding value, i.e.

when you look at the all up cost our pricing scenarios really indicate that we come in cheaper from the total cost of ownership perspective than the other battery alternatives.

in a relatively short period of time.

It appears some customers might not to put a punt out there, but some customers might want to do a forklift upgrade of an existing center while others might want to obviously rollout kind of staged fashion.

We could all imagine different scenarios unfolding, but if the number of or if the dollar amount from an efficiency standpoint, labor reductions, square footage, if you lay that all out, put the matrix on the table we could see a mix of potentially forklift upgrades, if you will occurring out there.

Is there any sense that we could see -- I know it's early days -- but an acceleration more towards the wholesale kind of replacement scenario?

I do think so, John.

And again it will be gated by the ultimate solution that the customers are looking for is a completely fuel cell based environment.

Which means we would have to have product to be able to integrate into all of their electric vehicles today.

Today we have solutions for the class 3, and we are working diligently at one.

In fact, we have many class 1 in the field today, and the class 2 work is well underway.

So in order to completely swap out a facility it will depend -- the mix varies depending on whether you are in a distribution center or you are in an industrial facility as to how many class 1, 2s and 3s distribution centers typically operate with class 2 and 3 trucks and the industrial, some of those are all class 1, some 1 and 2.

Some have all three units.

So I think it will be gated by our ability to provide product, it being a complete facility swap-out as opposed to customer interest.

The way I see that really progressing is again, an initial trial period of a handful of units.

And then implementing a partial implementation at an existing facility that would then lead to completely upgrading an entire facility.

Okay.

Thank you, gentlemen.

One further comment, John, is that clearly in the distribution centers we need hydrogen infrastructure support sufficient for 50 to 150 to 200 lift trucks.

Part of the earlier question about what is going on with the government is to get tax credit for that infrastructure support.

So that is all part of what is going to unfold to enable this technology to grow in application.

Thank you.

Jeff Osborne, Thomas Weisel.

I just had a few questions.

Could you talk about what the 400 units in backlog -- sorry, the goal of fitting 400 units in the production versus prior guidance, is most of that based on the cancellation of Smart Link, or is there something else there?

Actually it was not predicated on what would happen with Smart Link at all.

What we thought we saw and what we experienced were really quite different.

We thought we saw a more rapid deployment based on installation.

But there were some regional moves that we didn't anticipate, for example we were going to do installations in one state and then the decision was made to do it in another state.

That caused a delay.

There was the need to do some unexpected but important extended-run tests in various parts of the country that we hadn't planned on in terms of an additional barrier.

They were a very natural course of business decisions by our customers that held us up.

It was nothing, no one singular and certainly not the Smart Link decision.

Understand.

Thanks.

And could you just give some detail on the mix between Cellex and General Hydrogen and your view and outlook going into 2008?

And in particular having seen a lot on the class 3 side, just what's going on there?

The way I would view it is a lot of the activity in the field today is in and around the larger class trucks.

With the recent announcements we made, the much more heavily weighted towards the class 3 trucks.

So I think we will get to pretty much a parity with respect to the ones and threes as we move through the early part of next year.

And I expect that will continue as we go through the year.

Okay, and just a few more questions.

You mentioned in your prepared remarks that Sprint had 200 sites with fuel cells.

Can you just talk about what your market share is at those sites?

We can say that Sprint is a customer of ours, but we are not allowed to share the number.

Okay.

Do you see the greater opportunity with the eight-hour or the 24-hour backup?

The CL located or remote sites?

I think the advantage for us as a fuel cell industry really begins to become quite clear at about five hours.

And I think when it starts getting up beyond 25 hours that that will require us to do some extra design work to make it more attractive.

And it may require some technology development.

But right now the emphasis is on satisfying the eight-hour wireless carrier requirement, which I think is a huge potential market for us and a real catalyst.

If you recall in the prepared remarks what we said is that that will force each wireless carrier to reassess their backup approach, and that invites an opportunity for us to be considered.

And with the endorsement from Sprint, for example, I think it is quite credible that fuel cells will be given their fair look.

Understand.

Thanks for the detail there, Roger.

And then the last question I had is can you just talk about -- I believe in the Wal-Mart press release you had some details about the emission saves by moving to a fuel cell infrastructure.

And I was just a little confused.

I didn't think the lead-acid batteries was emitting anything.

So can you just talk about the selling proposition?

Most of the conversation today has been more on the OpEx basis, which I completely understand, but do people really care about the greening of a forklift, or is that just something that Wal-Mart can put in a press release?

No, I think people really do care.

What I would like to do is reserve our discussion of green versus gray versus brown versus black both from a hydrogen perspective, as well as say from a lead-acid battery and an internal combustion engine perspective.

We have data that basically it is very clear that the systemic problems with lead are quite profound, not only internationally profound, but in terms of ground pollution and air pollution.

We need to gather more data.

We know that there was a pollution reduction notation with the Wal-Mart, which really was derived from the fact that that was a recovered hydrogen source rather than an all new hydrogen.

And like I said, we would like to talk about that in the future.

But conceptually, Jeff, what you want to think about is in order to charge batteries electricity is required; and in order to generate that electricity emissions are generated.

So be it the high-level analysis, think about it in the context of in order to create electricity, and we have the data specific to Ohio and what that mix looks like, you need to -- you basically have emissions.

And by not needing to recharge batteries you no longer have that emissions, and that is consumption where the offset comes from.

So just a follow-up to that then where is Wal-Mart getting the hydrogen from?

The specifics of the hydrogen delivery are confidential, but at the end of the day it is recovered hydrogen is the way to think about it, independent of who is providing it.

So there were no emissions created in the generation of the hydrogen, then.

Is that right?

That's correct.

Okay.

Thank you.

(OPERATOR INSTRUCTIONS) Pearce Hamond, Simmons & Co.

International.

Can you give a refresh on unit economics for the GenDrive system if you can, like as far as the cost per unit or the cost per kilowatt?

And the number of units that you think you need to sell in order to generate a reasonable margin, just that level unit economics?

The way I would think about it is when we look at our modeling, again it is a total value proposition, so it depends quite a bit on the specifics of the enterprise and the operation.

So how many trucks are in use, what is the complexion in terms of class 1, class 2 and class 3, how many hours are they operating, so on and so forth.

When you look at relative pricing points you should think about the smaller trucks as depending on the operation and the other elements that go into the equation of being in a range of 10 to 15 or $16,000 kind of range for what we can afford to charge.

Obviously you can go well beyond that with the larger trucks, up maybe into the 30 to $40,000 range.

And then there is some specialty applications where we actually in our modeling can approach $100,000 in terms of what we could charge and still provide value to the customer.

So it really does depend quite a bit on the particulars of the operation, how many trucks are there, that drives things like what are you really going to pay for the delivered hydrogen.

You know it is different for 5 trucks versus 50 trucks versus 500 trucks.

And that drives the value proposition quite heavily.

So if you think about what are customers currently paying, low-end batteries or batteries for the smaller trucks are in the 15 to $1800 range.

They can range up to three or four times that for some of the larger vehicles.

So all those things need to get factored into the equation.

Most of our pricing conversations with our customers are completely on a total cost of ownership basis.

And they are really on a negotiated deal.

So I wouldn't in your mind think that we are going to have standard list prices and those kinds of things for that side of the business.

It really is kind of a negotiated contract depending on the particulars of the customer.

Okay, great.

And just on average, say for example a Wal-Mart warehouse, like the food distribution warehouse, how many class trucks does it have of class 1, 2 and 3 on average in a warehouse like that?

You could think about heavily weighted for distribution side hundreds of trucks in the pallet size of class 3, a smaller set typically in class 2.

But you can literally in these larger distribution centers get up and do, at and a little bit about 1000 units.

When you look at some of the industrial manufacturing types of companies, again it is measured in multiple hundreds approaching thousands, sometimes pushing through that.

And if you were to outline maybe two or three major milestones that you would need to hit to get Wal-Mart to become a bigger customer, what would those be?

Earlier in the conversation here in the Q&A you mentioned needing a broader platform of class 1, 2 and 3.

Of course right now the focus a little bit more on 3.

What are some other major milestones you feel like you need to hit?

I think you clearly hit an important milestone, which is we need to have the products be available if Wal-Mart deploys today and then we need to be successful in our initial commercial deployments here.

So I think we need to validate beyond where we have today the value proposition and the productivity that is being realized with Wal-Mart.

And we are pretty confident that we are going to be able to do that.

How quickly do you think that validation could occur that you might see another incremental order from Wal-Mart?

Pierce, I wouldn't want to speculate on that.

I am hopeful but I just wouldn't want to speculate on that.

Okay.

And two more questions.

Just Tyco, an update on that and the last one is what went into Smart Link's decision to disengage on the fuel cell front?

With respect to Tyco I would say you may be aware that the term of our agreement is pretty much up, and we are in the process of renegotiating that.

So I would say that that is under way.

And the decision around with respect to Smart Link was a very recent decision, and again we expect there still is an opportunity in the region.

We just at this point thought the responsible thing to do was remove that from the backlog.

Thank you very much.

[Anthony Reilly], RBC Capital Markets.

This is Anthony for Stewart.

Stewart is traveling this morning.

If I could circle back to Wal-Mart real briefly, and I'm not going to ask for specific numbers, but could you just talk about how the margin on that sale compares to some of your other GenDrive orders that you've placed recently, just directionally?

What I would say is it is different.

Different?

I really don't want to comment on each deal specifically.

So I would just tell you that in all seriousness, the variability with respect to the price points and the margins is quite large.

Understood.

And then also over what time period do you see that contract kind of rolling through the income statement?

At this point when we are in the state of accounting that we are we typically will recognize that revenue over the life of the contract.

So it will be deferred over a considerable period of time.

And just one more question concerning the Ballard Exide arrangement.

I guess how would you comment that that impacts kind of your long-term relationship there over the next two to three years?

We've had some conversations with Ballard back and forth about that.

In fact, even before it was agreed to.

It is part of the activity that you would expect in this space because fuel cells are, in fact, really batteries with continuous sources of fuel.

And I think battery companies are eager to learn as much as they possibly can.

And they are looking at it compared to their other types of technologies that they are bringing forward at a rapid rate.

And they want to measure themselves, I think against what is going on in the fuel cell space.

So my view is this is kind of a testament to the reality of the fact that fuel cells represent a significant threat to batteries.

So you don't see that potentially one day there could be a -- I guess you get down at competition between the two of you?

No, I think this is -- their strategy, Exide's strategy and Ballard's strategy with them could in fact eventually, however that evolves it could involve us more and more because in the end, Ballard has stated very clearly that they want to be a stack supplier of various types of stacks.

And they look at us as a strong systems company.

So in the end, as they go down that path it is potential that as systems engineering becomes more important that we would have a role.

Thank you, guys.

And now I would like to turn the presentation back over to Mr.

Roger Saillant for the closing comments.

Thank you.

In closing, thank you for your questions.

I would like to end today's call by leaving you with a few key points.

One, the FCC ruling affecting wireless backup requirements will necessitate a reevaluation by wireless carriers of their current backup power infrastructure, and position the GenCore fuel cell solution as a viable, and we believe preferable, alternative to batteries and diesel gensets.

We expect the FCC ruling to help drive commercialization of our GenCore backup power solution.

Point two, GenDrive is consistently achieving its milestones, and we expect commercialization to continue according to plan.

And three, although my retirement announcement may come as a surprise to many, it is something I have been considering for some time.

I am pleased that I can step down at a time when I believe strongly in the future success of Plug Power.

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

Thank you.

Ladies and gentlemen, we thank you for your participation in today's conference.

This does conclude your presentation, and you may now disconnect.

Have a wonderful day.