普拉格能源 (PLUG) 2007 Q4 法說會逐字稿

Greetings and welcome to the Plug Power, Inc. Q4 and year-end 2007 earnings release call. At this time all participants are any listen-only mode. A question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Cathy Yudzevich, Manager of Investor Relations for Plug Power. Thank you, you may begin.

Good morning. Thank you for joining Plug Power to discuss our fourth-quarter and year-end results for 2007. George McNamee, Chairman of the Board; Roger Saillant, CEO; and Gerry Anderson, CFO, 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 our CEO search. These statements are based on current expectations that are subject to certain assumptions, risks and uncertainties, many of which are difficult to predict or beyond our control and that may cause our actual results to differ materially from the expectations in our forward-looking statements.

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 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 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 duty to update any forward-looking statements as a result of new information or future events. At this time I would like to turn the call over to George McNamee, Chairman of the Board.

Thank you, Cathy, and welcome to everyone on the call. I'm here to speak to you today on behalf of our Board. First I'll update you on the status of our search for a new CEO to replace Roger. I'll then comment on our current strategy for public milestones and guidance for 2008.

As you know, Roger will be retiring from the position of Plug Power CEO effective April 7th of this year. For the last three months we've been conducting a national search. Our consultants interviewed more than 300 people to develop a manageable group for our committee to interview. We've received a very positive response from the population of prospects. Clearly the Plug Power challenge and opportunity resonates. We've been very pleased with the caliber of the candidates. By the end of this month we expect to have narrowed the search to a very small number of finalists.

Because we've promised confidentiality to the contenders I don't want to add much more other than to say that we are focused on making the transition as short and as smooth as possible. And because Plug Power is currently in the final stages of the search for its new CEO, the Board believes it would be premature to announce public milestones for 2008.

However, the Board, senior management and I are fully committed to Plug Power's continued leadership within the industry through strategic partnerships, new product launches and increased commercial traction. Furthermore, we have specific internal objectives to reduce operational and product costs, improve product reliability and strengthen our product offerings. I'll now turn the call over to Roger to discuss fourth-quarter and full-year operational results. Roger?

Thank you, George. Good morning to everyone on the call. During today's call I will first review our 2007 operational results. Gerry Anderson will then provide an overview of our 2007 fourth-quarter and full-year financial results after which we will open up today's call to a brief question-and-answer period.

For Plug Power 2007 was a year of mixed outcomes. We made some huge strides forward, but at the same time missed on achieving some important goals that we had expected to realize. I will discuss the past year's results by offering a brief overview for each of our 2007 milestones with additional commentary on related events and initiatives. I believe that this process will best illustrate our successes, the challenges we face and why we remain optimistic about our future.

First, to quickly restate our 2007 milestones, we expected to -- expand into new fuel cell applications through strategic partnerships or acquisitions; install 400 GenCore systems; reduce GenCore manufacturing costs by 25%; achieve 50% reduction in GenCore support costs by the end of the fourth quarter; and contain total net cash used in operating activities to $50 million to $55 million.

We met our first milestone. Plug Power acquired Cellex Power Products Inc. and General Hydrogen Corp. during the second quarter of 2007, two of the leading providers of fuel cell solutions to the material handling industry. The diversification of our product portfolio through the addition of GenDrive offers substantial synergies with our back-up power business and creates an additional revenue stream for the Company. We already received significant interest in our GenDrive solution for the material handling industry as evidenced by a significant follow-on order from Wal-Mart and our engagement with other large material handling customers.

The other facet of our acquisitions in 2007, which is not easily viewed from the outside, is how well we were able to integrate the two companies from an operational perspective into Plug Power. This was no small task. In less than six months we consolidated all staff in British Columbia into one facility, brought GenDrive manufacturing online in our main facility in Latham, New York to complement the manufacturing and prototyping already occurring in Richmond and have shipped units to customers. And furthermore, we made enormous progress integrating administrative, sales and marketing and information technology functions and systems between the facilities in Richmond and Latham.

More subjectively, I have been impressed with the level and tone of communication among the various stakeholders. We knew as part of the acquisitions of Cellex Power and General Hydrogen that we were gaining a wealth of intellectual capital, but to fully leverage it people must be comfortable working with each other on a daily basis and I am impressed with the nature of the working relationships that have formed across functions and geographies.

We did not meet our second milestone which was to install 400 GenCore's. We did, however, more than double our installation in GenCore units year-over-year, 208 compared with 85. Of the 208 installed GenCore units 193 were for telecom applications. This compares with 50 in 2006, almost a quadrupling of our telecommunication activity and reflects our strategy to deliver mission critical solutions to these customers.

Clearly we were too optimistic in forecasting and did not assess the short-term impact of the FCC eight-hour ruling on the strategies of our wireless telecom customers. The order issued by the Federal Communications Commission regarding back-up power was promulgated midyear. This FCC order proposes that wireless telecom carriers must have eight hours of back-up power at their sites.

While this is positive news for the companies offering back-up power, in the near term it has contributed to a slowdown in new orders as carriers perform thorough analyses of their existing sites, consider the enterprise impacts and engage the FCC and suppliers in discussions around the extent of the implementation, logistics and timing. Regardless of the final rules we are seeing increased interest by the telecoms in eight hours of back-up as they build out their networks with new sites.

On a positive product note, during the February 26, 2008 grid failure in Florida which gained national attention, our fleet was called into service for one of our major telecommunications customers and supported their network flawlessly. Examples like these occur almost daily to very little fanfare because when everything works as it's supposed to there's not much to talk about. But it is the reliability and extended run capabilities of our GenCore systems that continue to build customer interest and confidence.

During the fourth quarter 20 GenCore hydrogen fuel cells from Plug Power were installed at five New Mexico National Guard facilities in Santa Fe and Rio Rancho to provide back-up power in times of emergency to its statewide mission critical communications and computer systems. This represents the largest installation of emergency back-up power hydrogen fuel cells in the National Guard. This public/private partnership leverages the expertise and commitment necessary to accelerate the deployment of clean energy technologies throughout New Mexico and the nation.

Regarding our third milestone, we reduced our GenCore manufacturing cost by approximately 20%, missing our goal of 25%. This was accomplished in spite of the increasing cost in basic materials such as copper, steel and so forth. But we believe that this clearly demonstrates that as throughput increases manufacturing costs will come down.

We achieved our fourth milestone by reducing GenCore's support cost by more than 50% -- by more than the 50% goal we set at the beginning of 2007. This reduction is attributable to overall improvements in the reliability of our systems and our growing network of qualified third-party service providers. It demonstrates that we can concurrently drive down cost while enhancing customer satisfaction via improved reliability.

For our fifth milestone our net cash used in operating activities was less than $50 million beating our milestone of $50 million to $55 million. Considering the additional operating costs associated with the acquisitions of Cellex Power and General Hydrogen we were pleased with the outcome of our efforts to contain costs.

We continue to engage in industry-leading partnerships. Of recent note, our ongoing collaboration with Honda to develop a system that combines vehicle refueling with home heating and electricity resulted in the installation of a fourth-generation prototype system at Honda's Torrance, California location. The current iteration represents a 70% reduction in size compared with the first unit while simultaneously producing a significant increase in efficiency.

Our participation in the U.S. Department of Energy and European Union funded transatlantic partnership with several European companies and universities has enabled the ongoing development of a high-temperature PEM combined heat and power system now in its fifth generation. The latest prototype system, intended to be a drop-in replacement for residential furnaces and hot water heaters, will be on display at the upcoming Hanover Fair in Germany beginning April 21st, which is one of the world's largest and most important technology tradeshows.

There's also been significant development in our low-temperature program for off-grid continuous power systems. With funding from the Ohio Department of Development and support from the U.S. Army Engineer Research and Development Center Construction, Engineering, Research Laboratory, CERL, eight GenSys fuel cell systems are installed at the NASA Glenn Research Center. Additionally, eight GenSys units are operating at Montana State University under a program funded by the Department of Energy. The fleet is being managed by the MSU-Billings in conjunction with Montana Dakota Utilities.

On the mode of power side, in the fourth quarter of 2007 Exxon Mobil chose Plug Power as a partner to help commercialize Exxon Mobil's on-vehicle hydrogen production system for use in fuel cell powered lift trucks. The number and quality of partnerships that we continue to forge with Fortune 100 companies, government agencies, academic institutions and others speaks volumes about our ability to attract partners and funding for ongoing technology and product development.

I will now turn the call over to our CFO, Gerry Anderson, to present an overview of Plug Power's fourth-quarter and 2007 full year financial results. Gerry?

Thank you, Roger, and good morning, everyone. I'll start by first discussing some of the metrics around our product portfolio activity. During the fourth quarter of 2007 our total product shipments, GenCore, GenDrive and GenSys systems were 81 units. For the full year we tallied 235 unit shipments. Additionally, during the quarter we acquired 122 total new unit orders to bring of full year total orders to 210 units.

We exited 2007 with a total product order backlog of 305 units. During the fourth quarter we did remove 100 units from the backlog for a distributor order that we no longer expect to ship against.

Now turning to our statement of operations, total revenue for the fourth quarter was $5.1 million of which $745,000 was derived from products and services and $4.4 million attributable to research and development contracts. For the year our total revenue was $16.3 million, an $8.4 million increase over the prior year largely driven by $8 million of additional 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 December 31st our deferred product revenue stood at $3.3 million, a $649,000 increase from the prior year end, primarily due to a 55% year-over-year increase in shipped units. We expect to recognize substantially all of this revenue over the next 24 months as the service contracts for these shipments are fulfilled.

Our total cost of revenue for the fourth quarter was $7.8 million and was comprised of $1.3 million for product and service revenue and $6.5 million for R&D contract revenue. For full year 2007 our cost of revenue for product and service revenue was $9.4 million, a $4.6 million increase over the prior year largely due to the 55% increase in total shipped units and service costs, including the $2 million charge we took in our second quarter for a larger installed base. Cost of revenue for R&D contract revenue for the full year was $19 million, an $11.4 million increase over the prior year. But cost as a percentage of revenue remained consistent at 144% and 147% for 2007 and 2006, respectively.

As we have noted in previous calls, our cost of revenue for product and services includes the direct material cost for fuels cell systems shipped during the period combined with the labor and materials associated with servicing all of the installed base, whereas our cost of revenue for R&D contracts is a fully burdened materials, labor and overhead amount.

Research and development expenses, costs incurred for internally funded R&D programs, were $11.8 million for the fourth quarter of 2007 inclusive of $1.2 million in inventory write-offs and adjustments associated with component redesigns and part obsolescence. Full-year 2007 R&D expenses were $39.2 million representing a $2.4 million decline year-over-year. This is attributable to the larger amount of costs absorbed in our R&D contract work reported in cost of revenue for R&D contracts as already discussed. This more than offset the $6.4 million of new R&D spend associated with our 2007 acquisitions.

Selling, general and administrative expenses were $5.1 million for the fourth quarter of 2007 and $19.3 million for the full year, $7 million higher than 2006. The majority of the $7 million year-over-year increase resulted from our acquired companies and the growth of our GenCore sales team. Our net loss for the quarter ended December 31st was $17.5 million or $0.20 per share and the full-year loss was $60.6 million or $0.69 per share. Weighted average shares outstanding were 87.9 million for the quarter and 87.3 million for the year.

Net cash used in operating activities for the fourth quarter was $13.4 million and for the full year $49.3 million, coming in slightly under our stated milestone of $50 million to $55 million. On December 31, 2007 the Company had $165.7 million in cash, cash equivalents and available for sale securities and $163.9 million in working capital. During the quarter the Company also used $800,000 for capital expenditures bringing the full-year CapEx spend to $2.9 million.

In concluding my comments, and to follow on to one of Roger's earlier statements, while we view our 2007 performance as one of mixed results, we have entered 2008 with a diversified product portfolio that allows us to serve several customer markets, strong third-party interest in our programs to advance fuel cell technologies, and a strong balance sheet to weather a challenging economic climate. Thank you. That concludes our prepared remarks. At this point we'll open the call up to questions.

(OPERATOR INSTRUCTIONS). Trey Cobb, Stephens Inc.

Roger, congratulations again on the retirement. I wish you the best of luck.

Thank you, Trey.

The first question we've got is obviously with the FCC's well publicized extended run time requirements for cell sites and the pushback from the wireless providers, can you talk a little bit more about what you're hearing the carriers on your end?

Sure. I'm going to have Gerry answer that.

Yes, obviously with the FCC ruling that has classified the wireless infrastructure as critical to national security public safety, we're working with our customers and our perspective customers as they're doing their site audits and they are looking at what they need to do for what they're calling Project 8 for them to go to eight hours of back-up. So we're working with them on several of those plans. We're also seeing renewed interest amongst the telecom equipment manufacturers and system integrators to partner and build solutions.

So it's a wild FCC ruling as a catalyst, I think the industry is regrouping to kind of assess where they're at in back-up power. And I guess I would kind of equate it to the swimmers standing at the edge of a cold pool dipping their toe in seeing how cold it is. And once the first one jumps in then the rest will follow.

It tends to be a conservative industry in terms of accepting new technology. They're still assessing the overall reliability, quick start-up times and the fueling logistics. And the bottom line is it's got to make economic sense for them. So as we work forward on that we're quite confident that our solution for an eight-hour backup is a very viable and competitive solution.

This is Roger again. Gerry Conway and I -- Gerry Conway is our Chief Counsel -- we'll be meeting in Washington next week with the FCC to understand what they see as a possible accelerant, maybe some barriers and understand what their timetable is going to be to further push this regulation throughout the industry sometime in 2008 or perhaps as late as early 2009.

Okay, great. That was helpful. And then I was also wanting to see if you could give us a little more color on what you're seeing in the lift truck market and any updates on the Wal-Mart demo or are there any additional trials going on we should know about?

Well, at present we're still on track with the Wal-Mart commitment to install product in the second quarter this year. Yes, there is considerable traction. I would say that one of the things that I commented on in my remarks was that we have had a lot of close collaboration between Latham and Vancouver. We have placed our Vice President of Engineering in Vancouver to put in practice some of the design verification standards and engineering actions that we found helpful in our GenCore experience.

While he's going through that process with Chris Reid who is our General Manager of the Motive Power division. It's uncertain how fast and what kind of actions will be clear, but it is -- one certainty is that the attractiveness of this product is very strong to the end-users. We need to be very careful in our deployment that we don't get ahead of ourselves, so we're taking very remeasured steps in engaging customers to install and working that out. I'm expecting that 2008, especially in the third and fourth quarter this year, should be very exciting for the Motive Power division.

Okay, great. And then regarding the 100 unit removal from backlog mentioned in the press release, is this independent of the Smart Link cancellation last Q or is this related in --?

It's independent and it relates to a distributor that back in 2006 expected to take advantage of some of the tax credits in the Florida market. And as that legislation is being retooled and sits in front of the Florida governor for sign-off, that distributor has decided to reassess its priorities. However, we continue to address the Florida market with our own direct salesforce and feel that we have opportunities to move our product into that market.

All right, great. Thanks, guys.

[Ben Kaloo], Pacific Growth Equities.

I had a question, maybe it's a clarification. I was thinking that the Wal-Mart order was probably around 100 units, that was my estimate here. And I show that you guys had 122 orders in the fourth quarter. Am I thinking about that correctly? And if so, is that how we should think about these orders going forward -- kind of big orders, kind of lumpy in nature?

First of all, the orders will be lumpy in nature, but our end-user customers have been very careful to instruct us not to give guidance on the size of their orders. So unfortunately we are in a bit of a bind here. We can only give you gross numbers for the year.

Okay. And I know you guys don't want to -- you just said that you don't want to get ahead of yourselves in the lift market, but can you guys give us any updates on any research or development of Class II and Class III products?

I would say that the focus right now is to do the finishing work on the development and to align ourselves with customer partners who can absolutely see the cost benefit. That helps us in pricing and it also helps us in being able to mutually discover advantages and disadvantages that our product offering may have. So I'd say that we're still proceeding very cautiously and we're not free at this time to announce innovative insights nor relationships that we see on the horizon.

Okay. I think maybe the last conference call you should said that we shouldn't expect anything in 2008, so are you still sticking around that?

We said that you shouldn't expect anything?

Right.

No, I don't think that that was --

That's not correct?

That was not our intention. What we said was as we integrated the two facilities in Vancouver and then integrated those into Latham we would be in a little period of uncertainty, but we would be looking at the market very aggressively, especially to deliver what we have already committed and to be looking to make other deliveries and announcements in 2008.

Okay, great. Thanks for the clarification.

Brian Gamble, Simmons & Co.

Good morning, guys. Just wanted to potentially get a little bit more color on the CEO search. I know you mentioned what you wanted to mention. I just had a quick question that you might be able to follow up with. You mentioned having a small number of finalists by the end of the month. Roger, with your retirement date set early in that following month, not having much overlap time there with any type of new CEO in a hands-on situation, how do you anticipate facilitating that transition?

Are you going to stick around for a couple months after a new individual is hired to kind of -- not guide them in the direction that you think you should be, but just answer questions as needed? How does that transition work and what are the thoughts there on actually picking a date for trying to get someone in the door?

Well, first of all, I've been here for over seven years and my expectation is that I wouldn't do anything that wouldn't help the Company. So to the question of sticking around, I will be here at the will and leisure of the Board and of the new CEO who I'm expecting will bring his or her own talents and abilities and will use me as needed. Perhaps George would like to comment on that, but I can assure you that there's not going to be a gap that's not well supported.

George, did you have anything to add to that?

No, Brian, I think Roger has provided this company with seven years of both inspired and inspiring leadership. Obviously these are big shoes to fill. We're at the very final stage of the search. We do expect there will be a transition period here. Our goal is to make it as short and smooth as possible. Obviously we are counting on the fact that Roger is going to be as helpful as he can be to his successor. And we are looking forward to filling this position in as distinguished a way as we did seven years in our last CEO search.

But, George, there's no date that the Board has given as an end all date of when you guys need to have someone decided on?

I think it's more a question, Brian, of the individual circumstances of the ultimate finalists here so that there are -- just to put a little bit more texture on that -- we're very, very pleased by the caliber of people in the pool, and with great effort it's been hard to say no to a bunch of the people that we've looked at and talked to. We're down to a smaller number; it will be smaller again by the end of this month.

But it matters whether the finalist is currently a senior executive at an existing Company or whether it's someone whose half of (technical difficulty) company was sold in the last six to 12 months -- the two edges of that envelope. If you successfully sold a company last year you might be able to start soon. And if you are gainfully employed in a senior management position someplace else, you might want to affect your own smooth transition from your existing employer. That's why it's a little hard for us to tell how long this -- I hope for a short transition.

That's fair. I appreciate the color. Roger, moving back to orders for the year, was your commentary before about -- just talking in gross numbers -- meaning that the 81 units that you shipped during the fourth quarter, you can't break that out between the different segments? Is that what you were referring to or were you referring to individual customers in the orders there?

We can break out the number of shipments by product type. Obviously we can't give you the customer. But for the fourth quarter it was 52 GenCore units, eight of the continuous run GenSys systems and 21 GenDrive products.

Okay. And then, when we look at kind of the trending rate on GenCore obviously not going in the right direction for the fourth quarter, down from third quarter or essentially flat, 51 versus 53, when you guys look at what 2008 holds, do you anticipate this backup power ruling in the FCC and the pushback that the telecoms are giving making any type of development work on those numbers backward dated in the back half of the year and the first couple quarters of this year kind of being transitory given what you've seen in that market?

I think I'd go back to what we were intending to say in our remarks that may not have been clear. What's really happened is the FCC ruling is very firm and it has forced the telecoms to make an assessment and be completed with that assessment by October 2008. We anticipate that the people who are building out in their new sites will probably be taking action to install eight hours of back-up. We anticipate that based on our conversations with them and what seems to be their attitude because they see the inevitability of the eight hour riling from the FCC taking over. So they're preparing to do that. We will probably see orders as a result of new buildout.

However, the real impetus is going to be compliance with the ultimate installation part of the FCC ruling. And I know that you probably are very well aware that the user organizations are working in the court system to delay, clarify and modify the regulation as it's been promulgated.

That will work its way through and of course next week we'll have better insight on where we stand on that. But I would expect that that will ultimately resolve itself in situations where people will give first orders with fairly certain timeframes. And we should see some evidence of that in the latter part of '08 if not maybe perhaps into '09. We're just not certain about that right now.

That's fair. And then touching a little bit on both the third-quarter Kuwaiti order backout on the backlog side and then again this quarter with what you said is a Florida market distributor. Obviously Kuwait is a market that might be a little harder to penetrate without a distributor there, but how do you see the internal distribution at Plug being able to take advantage of a type of order cancellation such as the Florida market?

I mean, if something like this were to occur next quarter and you pulled another 50 units off and you order in a different market, how do you see yourself being able to step in behind a distributor like that and kind of get those sales back or penetrate that market in a way that enables some sort of buildout and not a total loss of all of those orders?

First of all, the loss of the orders is really more of an adjustment. We have a Middle East based distributor in Kuwait today. In fact, our Vice President of Sales, Allen Greenberg, is over there in the Middle East because we've made a product change that makes our GenCore product even more suitable to the area and he was invited back because now that that prove-out period has gone through they would like to talk to him about putting in place growing numbers of orders not only in Kuwait but through the Middle East.

So I just want to just clarify that we moved from one distributor group to another distributor group which in fact had carry forward relationships when we moved to the second one. So necessarily we had to terminate the one set of orders in anticipation of what would happen next.

In the Florida situation, as Gerry Anderson said -- I might point out that there are a number of states now that have tax incentives in place and the number of states is growing. We've been going to the end users who are employing the tax incentive strategy as part of their purchase of back-up power. However, we do have this compounding issue going on with the FCC eight-hour back-up. So there's a little bit of teetering going on now between what would they have done on their own without the regulation, what are they going to do now in terms of retrofit and what are they going to do for all new and they'll bring the Florida tax credit into play.

I should point out that anybody who puts the tax credit into play has to have a tax paying entity located in Florida. So that's another issue in terms of who the carrier is and who the purchaser of our product might be in order to take advantage of that in Florida or in any of the states where tax credits exist.

That color was very helpful. Thank you, Roger.

(OPERATOR INSTRUCTIONS). Jeff Osborne, Thomas Weisel Partners.

Good morning, guys. I just had a few questions; most of them have been answered. But on the Wal-Mart side, should we think about the bulk of revenue recognition for that being in the second and third quarter, so kind of straight in the middle of the year and then as that project rolls down slowing down? I know you're not doing full-quarter guidance, but -- or full-year guidance, but how should we think about that specific contract, just given its lumpy nature that you alluded to?

Jeff, this is Gerry. One of the challenges we have obviously as we remain in the development stage accounting process is that we are spreading that revenue recognition over the life of the contracts. While we can't discuss the terms of the Wal-Mart contract, it will extend well beyond the latter quarters of 2008 and through 2009 and beyond. So I guess we'd leave it at that. And going forward what we'd hope to able to talk more about is what our actual invoiceable revenue is which will help give you better guidance on momentum that we're getting in revenue generation from our products.

Understand. Also on the topic of revenue visibility, can you just talk about what you have in terms of R&D contract revenue visibility for 2008? Clearly that was a source of strength here in the latter parts of '07.

Sure, Jeff. And again, as we commented on and obviously with oil at $109 a barrel there's a lot of interest in renewable and alternative energies. We have a tremendous number of third parties that are interested in our technologies. We worked on 24 different programs that were third-party funded in 2007. We already have 18 that are carrying over through 2008; there's another 25 that we are evaluating to determine whether or not we want to put proposals in on. And again, that's based on whether or not those individual programs align with some of the R&D work that we're already doing. So it is a very promising picture for us.

Great. Good to hear. And then on the 25 programs that you're evaluating, should we continue to think about the same cost to revenue ratio being 140 to 150%, or are you looking for more breakeven revenue opportunities there?

Obviously we'd like to have more breakeven opportunities, but in general most of the DOD and DOE programs that we are looking at would have the same kind of cost share relationship.

I'd like to emphasize, Jeff, that the projects that we take on are really intended to support our long-range product development strategy. And during this period, especially while we've got this pause because of the FCC rulings, we're using this as an opportunity to upgrade based on market information what our product offering is going to be. And we're using these external monies to help us achieve those new designs in as short a period in as cost effective a manner as possible.

Very good. And then just a few quick ones on the telco side. Can you just remind us if to date you have any strategic partners that you'd be responding to RFQs or potentially RFPs in the future? People like [CONSCOPE], ADC Telecom, those types of people? Or is this more of a direct sale opportunity? What's the avenue to market there?

We look at both avenues as strong opportunities for us. And I can say that we're working both through the OEMs as well as with the end customers and we're doing a similar thing on the Motive Power side. I think that there's no way in the long run to avoid using integrators, avoid using our own ability to stimulate the end user interest and develop the market conditions suitable for selling.

Okay. And then the last one is you mentioned the challenging economy in reference to your strong balance sheet. But just flipping the question over, can you just talk about the challenging economy and the impact to light mobility and forklift evaluations? Are people viewing this more as something that they were perhaps interested in maybe nine months ago and is this putting any type of pricing pressure on your product? What's the hurdle internally as people evaluate this? Is it a three-year payback period that maybe you're having to accelerate through discounts or is that not the case?

I think it's more dependent on what some of our end customers are looking at in terms of how the economy is affecting their business. Again, when you look at the liquidity crunch, you look at the mortgage industry and the impact on the home market and construction, obviously the Big Box distributors like the Home Depot's and the Lowe's that have huge distribution centers, the carpet manufacturers -- all those that are tied to that industry obviously are impacted.

So while we're evaluating what their uptick is going to be on capital spending, they have to evaluate from their own assessment on how that market is impacting them. We still see strong customer demand and strong customer pull. I would say in terms of the payback we're still in that phase again of demonstrating the reliability and the overall value proposition of the product and we feel we have good opportunities to continue to expand that in 2008.

Very good. Thanks a lot.

Walter Nasdeo, Ardour Capital.

Good morning. I know you guys have talked about the Motive quite a bit, but I just want to get a little bit more clarity on if there is still or if you've been able to integrate, smooth out the distinction between what Cellex was doing and what General Hydrogen was doing in the different classes?

Absolutely. In fact, Cellex was very clearly working on Class 3, which is the kind of product that goes into the distribution centers, whereas General Hydrogen was working on Class 1, which is the more conventional ride and drive lift trucks which you use, for example, in manufacturing facilities. And both companies were converging on Class 2 which basically service the high aisle products as well as in and out of low-temperature freezer areas. So by putting the two companies together we've been able to take the IP on the two extremes of Class 3 and Class 1, look at that and accelerate our evaluation of Class 2 and offer a full portfolio product to a broader suite of customers.

Very good. And can you just briefly go into a little bit of the makeup of your sales effort as far as how many in-house sales guys, where do you deploy them, how do they get out, how do they go out and sell the product?

That's a very variable kind of -- I think it's complex. We've been talking to OEMs and customers. We've taken people from the end customer, from the integrators, from the OEMs. We've taken salespeople from each of the end-users the integrators and the OEMs and have basically used their contact lists and their experience to help not only redefine our products to optimize them for the markets, but to build on the relationships.

All of our sales really involve conditioning the customer to understanding that, A, fuel cells offer a value proposition; B, that the barriers that they consider like cost, reliability, serviceability and that includes delivering hydrogen, are things that we understand and can take care of and maybe even offer in terms of a customer service to them. This education process, no matter where you come from as a salesperson, is multifaceted. So there's no one strategy, no one sales strategy that I think fits all cases in any form of generality.

Thanks. I appreciate it.

In conclusion with no more questions I thought that since this is my final investor call on behalf of Plug Power that I'd make several comments. Although commercial traction is moving more slowly than I expected when I first joined Plug Power seven years ago, I still very much believe in the commercial viability of fuel cell technology and in the ultimate success of this company specifically and the industry in general.

Heightened public awareness of the problems inherent within our current energy system will continue to enhance the economic value offered by fuel cells and drive policy decisions that further stimulate our markets. In early April Plug Power will release its first corporate sustainability report. I am deeply gratified that the sustainability initiative has taken root on my watch and I thank the group here at Plug that has spearheaded this effort.

I believe that national and international strategies based on sustainability principles are fundamentally linked to the financial well-being of Plug Power and our continued attention to the principles of sustainability will create competitive advantages for us. Thank you for your questions and, again, we appreciate your time and interest in Plug Power.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.