普拉格能源 (PLUG) 2013 Q4 法說會逐字稿

Greetings and welcome to the Plug Power fourth quarter 2013 conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Teal Vivacqua, Director of Marketing Communication for Plug Power. Thank you, you may begin.

Good morning, everyone, and welcome to the Plug Power 2013 fourth-quarter and year-end conference call. This call will include statements that are not historical facts and are considered forward-looking within the meaning of [Security] 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including but not limited to, statements regarding our expectations for 2014 business and financial performance, including expected sales orders, revenue, gross margin, EBITDA, operating cash burn rate, geographic and market expansion, inorganic growth, and our expectations regarding the acceptance, performance and impact of our GenKey offering, including a more predictable business model and revenue stream.

These forward-looking statements contain projections of our future results of operations or state -- other forward-looking information. 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 describe in our forward-looking statements. Investors are cautioned not to unduly rely on forward-looking statements because they involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors, including but not limited to, the risks and uncertainties discussed under Item 1A, Risk Factors, in Plug Power's Annual Report on Form 10-K for the fiscal year ending December 31, 2012, filed with the Securities and Exchange Commission on April 1, 2013, and as amended on April 30, 2013, and the reports Plug Power files from time to time with the SEC.

These forward-looking statements speak only as of the date on which the statements were made and are not guarantees of future performance. Except as may be required by law, we do not undertake or intend to update any forward-looking statements after the call.

Thank you, Teal. Good morning, everyone. This is Andy Marsh. A lot has happened since our last earnings call. And when I step back and look at it all, I'm more bullish than ever that Plug Power is in the early stages of a very rapid growth market. I'm also bullish that we will make our goal of EBITDAS breakeven in 2014. I really feel that we are now well-positioned to be a long-term, profitable, market leader and a driving force in the hydrogen fuel-cell markets. What is fueling this optimism is the sales and financing momentum we have seen since we've reported in the third quarter 2013 earnings in November.

In the fourth quarter, new order bookings of more than $32 million from new and expanding customers -- including Walmart, Kroger, BMW and Mercedes -- fueled that growth. In addition, we have strengthened our balance sheet from fundraising and the exercising of warrants. As result, we have $66 million in cash at this present time. Also in the fourth quarter, we announced our GenKey suite of hydrogen fuel-cell products and services, which I can confidently say is an important product for the future of Plug Power.

Our first GenKey order was booked in the fourth quarter from Kroger. In February, we've also received our largest order ever, which was a GenKey order from Walmart. While we are here to talk primarily about the results from the fourth quarter and the full year 2013, I want to mention that this Walmart agreement helped us to exceed our first-quarter 2014 sales booking target of over $32 million. As some of you know, Walmart has been working together with Plug Power since 2007, after successful fuel-cell beta trials led Walmart to purchase GenDrive units for their food distribution center in Washington Courthouse, Ohio, and Walmart Canada facilities in Balzac and Cornwall, for a total of 535 GenDrive deployments.

Last month was a high point in the first quarter 2014, when Walmart again demonstrated its trust in Plug Power by ordering an unprecedented 1738 GenDrive units, more than triple the total original number deployed for six additional North American distribution centers. However, this milestone order is just not for GenDrive; it's for Plug Power's new, all-inclusive GenKey solution, which also includes on-site construction of our GenFuel infrastructure and a multiyear contract for our GenCare maintenance service agreements at each location.

The beauty of GenKey is that it enables a smooth transition away from lead-acid batteries by giving customers the entire start-to-finish package needed for incorporating hydrogen fuel cells into business operations. GenKey has three distinct elements. GenDrive fuel cells: we have a full suite of GenDrive products already developed that match a wide range of forklift and pallet trucks, and we are constantly working on research improvements and innovations to enhance the products we offer the market. GenFuel, hydrogen fueling infrastructure: this put hydrogen storage and refueling technology right outside and enables customers to take advantage of Plug Power economics of scale purchasing power to obtain cost-effective, cost-efficient hydrogen fuel.

GenCare maintenance service: this provides year-round care of the GenDrive units and hydrogen infrastructure by Plug Power technicians and delivers preventive maintenance, rapid response service, system monitoring and periodic system enhancements. I strongly believe that our momentous Walmart order lays the foundation for similar GenKey orders in 2014 and beyond, for both current and brand-new Plug Power customers as the value proposition of a GenKey-based hydrogen fuel-cell infrastructure from a single-source vendor becomes apparent.

GenKey matters to our customers because it offers a dramatically simplified path to a complete hydrogen fuel-cell solution. But GenKey matters to our investors, too. GenKey provides a recurring and increasing revenue stream that is expected to give Plug Power a more predictable business model. Over the last day and yesterday we received our first GenKey order from a new auto manufacturing company. In the coming weeks we will provide an update about this win after discussions with the customer's marketing department. Now, those of you who are wondering if Plug Power has the ability to fulfill the increasingly large number of orders we expect, will be pleased to know that our state of the art manufacturing facility in Latham, New York, has the capacity to produce 10,000 GenDrive fuel cells per year, so we can readily ramp up our expanded production without missing a beat.

Now I would like to provide some guidance by quarter for the remainder of 2014. In the first quarter, we expect to see revenue ranging between $5 million to $6 million, with an EBITDAS loss of minus $5 million to minus $6 million. We will start to see the impact of our $32 million in fourth-quarter bookings in the second quarter. In the second quarter, our revenue will range between $16 million to $18 million with an EBITDAS range of minus $2 million to breakeven. And during our update calls in April as well as in our earnings call in May, I will be providing a breakdown on shipments to date at that time.

For the entire year, we expect revenue of $70 million and positive EBITDAS of $1.5 million to $3 million. The Company is targeting EBITDAS breakeven in the third quarter and net income positive in the fourth quarter, up five -- extraordinary events such as the execution of the remaining 4.5 million warrants outstanding.

When I think about 2014, I am really excited about the momentum that Plug Power has built up and the commercial activity we will be able to execute on. 2014 marks the first complete year where the business will operate with seamless continuity from the previous year. We have high quality products that customers understand are reliable. We no longer have to prove out the value of GenDrive with customers, as the 4500 units now in the field have shown that this is a viable solution for large-scale deployments.

It is our firm belief that orders in 2014 will be a clear indicator of how dependable GenDrive product suite is complemented by the GenFuel and GenCare elements. In 2014, we expect about half of our deals to be GenKey in nature. From an order perspective in 2014, we are projecting over $150 million for the year. We expect the Company will be announcing two to three more multisite customer wins, similar to the milestone mark set with the Walmart contract. We are executing on our plan to reach EBITDAS breakeven this year. Our recent order flow has positioned the Company to dramatically increase -- shipments in 2014 as we turn these orders into sales. We believe we will be able to fully absorb the base load in indirect overhead and drive efficiencies in manufacturing.

I'd like to discuss in some detail improvements the Company is making in reducing material costs and improving the efficiency of our service business. For the past several months, Plug Power has addressed product gross margins for our entire suite of GenDrive products by completing a number of sourcing and engineering initiatives that have helped us achieve more than 10% additional margin for our products that are set for delivery in the first half of 2014. An increase in global sourcing, combined with additional leverage from volume, was a key driver of our cost improvement. Additionally, we completed a detailed cost analysis for each of our key components that allowed us to better understand the raw material markup and further negotiate with the suppliers based on our calculation.

Lastly, our extensive knowledge of the products and application has allowed us to complete the design improvements that have significantly changed our cost structure. A good example of the Company's cost reduction work is the air compressor for our high power product line. In this example, we were able to improve the reliability, manufacturability, and cost, all at once. Due to the increased sales volume, we were able to shift several of the internal components to a lower-cost die-cast process which yields tighter tolerances and reduced machine time. We also helped our supplier utilize our global supply chain to reduce costs for other products internal to the compressor. Overall, we were able to reduce the compressor cost by 29% and product margins by over 1% for just this year. In all, I expect the gross margins for products in 2014 will be above 25%.

Service margins improved significantly in 2013 but we still have some challenges to improve this part of the business. To achieve profitability in our GenCare service product line, the following factors are critical to driving service margin improvements in 2014. First, there has been enhancements to our class 2 and class 3 GenDrive products that we will be shipping in 2014, that have been updated for improved reliability and easy field serviceability. Second, 2014 sales volume will result in a significant shift in product mix for our installed base. The majority of the installed base mix by year end will be newer models that feature improved reliability over earlier models. Third, we have increased the fuel unit volume service per technician, which has reduced per-unit labor costs. Fourth, improved embedded software-based diagnostic in GenDrive units provides a higher degree of diagnostic accuracy. And fifth, ongoing material cost reductions result in lower replacement cost.

We also expect 2014 to bring some significantly new market activities. Although Plug Power's primary focus has been forklifts and pallet trucks in warehouse distribution center, growth opportunities abound in adjacent markets within the material handling markets. Plug Power has already began testing of market expansion products in three major areas -- transport refrigeration units, or TRU, where the air-conditioning units operate inside the trailers hauled by big rigs, which help keep fresh or frozen products chilled. Installation of fuel cells to power these units reduces noise levels, decreases noxious emissions and cuts operating expenses.

The most significant value, though, is the simplification of the logistic models for our potential customers. Many deliveries cannot occur between 12 to 7 AM because of the acoustic noise of the diesel generators. With fuel cells, there is a potential that companies like Sysco could deliver into metropolitan areas at night, thus reducing the number of required trailers.

As many of you know on the call, also we have exciting programs going on for ground support equipment at airports and vehicle range extenders, which involves the addition of hydrogen fuel cells. The battery power cost of delivery trucks, mail trucks, taxis and ports vehicles that nearly double the distance travel between recharge. This reduces what is known as range anxiety, where drivers would fear their vehicles will run out of juice before they can be recharged. This hybrid system is currently under development by Plug Power based on a $3 million project funded by the US Department of Energy and Federal Express for 20 FedEx electric delivery trucks to be deployed in the LA basin.

What all these opportunities have in common is they take advantage of Plug Power's unique position as the premier integrator of hydrogen fuel cell technology. This position has been hard won. Plug Power products operate in very extreme environments. Forklift trucks are typically driven more hours in a month then a car is driven in a year, and they are lifting up to 3 tons and being driven in freezing cold and in sweltering heat. Through all that, GenDrive products have proven reliable.

As we grow our business, we are looking at two new types of opportunities. First are those opportunities adjacent to our current customer base such as transport refrigeration units. These make sense for Plug Power because they potentially provide our present customers more value from their infrastructure investment. Second, we are looking for markets where the dynamics are very similar to our existing business. That is where customers can cost-justify the fuel cell and infrastructure based on productivity and environmental benefits. Our tugger and hybrid delivery vehicle opportunities fit into this category.

As we explore new geographical markets, we want to find partners that can help us with market entry. Our joint venture with Air Liquide in Europe is starting to bear fruit. We are also looking at potential partners in Asia, and I hope to have some news for you soon about opportunities in that marketplace. Plug Power has been and remains a premier system integrator in the fuel cell industry. We continue to lead the way in commercializing this technology, specifically in the material handling market, by providing a power solutions for electric lift trucks that allow for increased productivity, lower operational costs, and a reduction in greenhouse emissions.

Some may say we are pioneers in this space. Many industries have pioneers lead the way as they grow and become an everyday part of people's lives. I often, with our staff, compare us to the cable TV industry. Cable operators started by serving a niche market in rural towns, have expanded their leadership to a dominant position in broadband throughout the world. They started a hardware business and evolved to address both hardware and content.

Plug Power has put a stake in the ground, commercializing our large niche market of material handling. We are growing and will continue to grow. Plug Power has the right leverage points in place. We are using the volume in the market to reduce our costs. Like the cable TV providers, we are laser focused on increasing our customer base and revenue per customer. Our fueled service offering are now just the content to CATV providers, and is one way which allows us to increase revenue per customer.

Our longer-term goals has remained the same for many years, which is replacing batteries and diesel engines in a wide variety of applications with our hydrogen fuel-cell solutions, while offering these customers a variety of service. I've worked every day as towards this dream, but to reach that goal one must take care of the present. In 2014, our primary focus is building a huge business in the material handling market that we have already begun to build.

Equipped with a strong balance sheet, Plug Power will continue to explore opportunities to grow this market faster. And we will provide updates on these activities during our April 17 business call. I would now like to turn the discussion over to Dave Waldek for a discussion of our fourth-quarter results.

Thank you, Andy, and good morning, everyone. The financial information we just released and are discussing this morning consists of preliminary estimates prepared by Plug Power's management and, as such, may be subject to final adjustment. Therefore actual results may differ from these estimates. The final financial information will be included in our filing of the Form 10-K on or before March 31, 2014.

As Andy noted, we now have approximately $66 million in cash on hand after our $22.4 million registered stock offering, which closed this past Tuesday. We also have had 46.2 million warrants exercised from 2013 to date, leaving 456,000 warrants outstanding, plus the 4 million warrants issued in January of this year at a $4 stock price.

During the fourth quarter of 2013, we shipped 279 GenDrive units. Our backlog as of December 31, 2013, was over $50 million and was comprised of 1445 unit orders, as well as our GenCare and GenFuel service orders. Currently, our unit backlog is over 3000 units. Product and service revenue for the fourth quarter was $7.8 million compared to $5.7 million for the fourth quarter of 2012. Research and development contract revenue for the quarter was $267,000 compared to $226,000 during the fourth quarter of 2012.

The gross margin for products and services for the fourth quarter of 2013 was a loss of $2.8 million, an improvement compared to the gross margin loss of $3.4 million for the fourth quarter of 2012. The gross margin loss in the fourth quarter 2013 resulted primarily from fixed overhead costs associated with the number of units shipped compared to our capacity, as well as costs incurred to service the installed base.

In our operating expense categories, selling, general and administrative expenses were $3.5 million for the quarter compared to $4 million in the fourth quarter of 2012. The decline in SG&A expenses from the prior year is attributable to the restructuring plan we had announced back in December of 2012. Research and development expense for the quarter was $778,000 compared to $1.3 million during the fourth quarter of 2012.

Operating loss for the quarter was $8 million compared to an operating loss of $9.5 million in the fourth quarter of 2012. Our net loss for the quarter included a $20.9 million non-cash charge related to the change in fair value of common stock warrants. Including that charge, the net loss was $28.9 million or $0.28 per share on a basic and diluted basis. Excluding that charge, the adjusted net loss was $8 million or $0.08 per share on a basic and diluted basis.

Based on the increase in our stock price during the first quarter of 2014, we expect to incur other, additional, significant charges related to the change in the fair value of those warrants in our first-quarter 2014 financial results. Please reference the financial tables in the press release for a reconciliation of net loss to the adjusted net loss.

The net loss for the fourth quarter of 2012 was $8.5 million or $0.22 per share. That included a $1.1 million non-cash benefit related to the change in fair value of common stock warrants. Excluding that benefit, the adjusted net loss was $9.6 million or $0.25 per share on a basic and diluted basis.

In total, our loss before taxes for the quarter included $22.6 million in non-cash expenses from a combination of depreciation, amortization, non-cash stock compensation and the change in fair value of those stock warrants. Weighted average shares outstanding for the quarter were 103.5 million.

EBITDAS loss for the quarter was 6.3 million compared to an EBITDAS loss of $7.9 million in the fourth quarter of 2012. Net cash used in operating activities for the quarter was $8.9 million. As of December 31, 2013, the Company had $5 million in cash and cash equivalents and $11.1 million in working capital. This compares to $9.4 million on cash and $6.9 million in working capital, respectively, at December 31, 2012.

Let me turn it back to Andy for some final comments.

Well, Dave, I think the lines -- to be open for questions. Melissa, I guess we should be polling for questions.

(Operator Instructions). Matt Koranda with ROTH Capital.

I just wanted to start out with the 3000 units in your 2014 guidance. Can you break out the percentage of the shipments that you expect where the sites for these units have the hydrogen infrastructure already installed versus where it needs to be installed? What percentage of those shipments -- how does it break down?

Oh, boy, that's a good question, Matt. And I'm going to give you a rough estimate, Matt. And I would say today, probably of those sites, it's probably 25% have the equipment installed already. We have very strong orders from people like Walmart and Kroger, where a large number of units are being shipped, which we are building infrastructure as we speak.

Okay. That's helpful, Andy. And then -- so, you said you would achieve 25% gross margins. Is that for the full year 2014, Andy? And can you talk to us about how gross margins trend during 2014 as volumes begin to pick up?

Sure, Matt. There will be a -- I think that from the product point of view, product margins by the fourth quarter will be over 30%. We have really made some changes, improvements in the product performance. I would expect product margins in the first quarter to be zero or slightly negative, enhancing in the second quarter, ramping further in the third. We are in good shape for Q2 and Q3. One item that I don't know if you caught during the call -- I promised that on the two next update calls in April and on the earnings call in May -- I will really review where we are with shipments during the quarter and revenue, and provide some insights into -- the best I can into where we view the margins at that time. But our factory at the moment is really beginning to pump out units for the second quarter, so it's a pretty exciting time.

Okay, great. And then in terms of bookings, you mentioned $150 million in potential new orders in 2014 with about $60 million already booked for the year.

I committed to that already. That's not a mention. I'm committed to that, Matt.

Yes; just to clarify, that's what you are committing to. But when you strip out the $60 million that has already been booked for the year, I'm getting a $90 million potentially in bookings for the remainder of the year. Maybe could you just break out how you expect this to trend between the remaining quarters in 2014?

Yes. You know, Matt, I tried to -- that's a good question. I would think about the second quarter being in the $20 million to $25 million range in the third and fourth quarter, increasing to $30 million in the third quarter, to $35 million in the fourth quarter. I have been, as I think people on the call know, have been pretty conservative over the last six months about orders. And these are numbers that we are very, very confident of. And quite frankly, we are targeting to do more large deals like the Walmart deal with customers. And that could have a dramatic input on the numbers, but we wanted to give people on the Street a clear view of what's achievable without stretching the Company.

Great. That's it for me, Andy. Thanks.

Rob Stone with Cowen and Company.

Andy, I wonder if you could just spend a minute on helping us understand the timing difference between booking and shipping. You booked a bunch of business in Q4. Shipments remained relatively low, and you are guiding for lower revenue in Q1. So for a new full-site order, what's involved? What is the lead time? And then if you could comment on what amount of your business comes from incremental orders with customers who already have sites and what the lead time is for that sort of thing? Thank you.

Sure, Rob. So I think that I'll use an example of an order we received from Kroger we received in December. And that unit is -- those systems are being shipped as we -- will be being shipped and delivered in the May time frame. And for new sites -- and there can be variations there, Rob, just because sometimes customers may want to push out some deliveries and have some initially delivered. But I think for new sites you can think in terms of four to five months from the time of orders.

For customers who already have units, I think that it's usually about 13 to 14 weeks, and it can be earlier depending upon what the mix is. But that's the delivery time. And I think, Rob, that's kind of, again, why we have these -- and I know they won't continue forever, the monthly update calls that we are trying to put in place. But I personally know during this ramp cycle that the best thing I can do is to have a regular dialogue about what's going in our factory, what's being delivered to customers, what orders are coming in. And that's a commitment I've made to people and we have been doing it since October and we will continue to do that.

A follow-up, Andy, if I may. You talked a lot about things you are going to do to improve product costs this year. I know one thing you've talked about that's longer range is second sourcing and also internal stack development. Can you provide (multiple speakers) there?

Sure. We have been -- we try to give people some guidance. We have a good partnership with Ballard, but we are looking to develop second sourcing. Our target is to start shipping units in late 2014 with second-source stacks and shipping units with our own stacks during 2015. And that's the current plan internally.

Okay, thanks very much. And with respect to the new markets, you've got three activities there with R&D funding. What are the next milestones we should be looking for in terms of activities this year?

Yes, that's actually a good one. And instead of giving you just a flippant answer, I think I'll promise this. That at the update call -- I think the key item is the delivery time; the windows units are delivered and the deployments start. And I think the key item is -- the next key item, I think, is the Company's decision whether it's an area that more money should be invested in. And to help you -- and I think that's a really fair question, Rob -- to help you, I will provide guidance in April on that. (Multiple speakers) I'd like to sit down with the staff and put it down in writing so we all are shaking our heads, that's right.

You are expecting some units this year, though, to be deployed in each of those areas?

Oh, absolutely, absolutely. As a matter of fact, I expect units to deploy in all three this year.

Two quick housekeeping questions for Dave, if I may. Could you give us the split between product revenue and service revenue?

We are actually providing that detailed information; it will be in our 10-K. We are in the process of breaking that out. And you will look for it and we can follow up on the next conference call on questions you might have on there. But it will be in the 10-K that we file.

Okay. And roughly how many shares are outstanding as of now, given all the warrant exercise and recent offerings and so forth? End of this quarter, where might you be on fully diluted shares?

It's approximately about 130 million. That will be in the K as well. I believe -- I don't have that number right in front of me, but it should be approximately 130 million.

Okay, thanks very much.

(Operator Instructions). Alex Blanton, Clear Harbor Asset Management.

I'm new to the stock, so keep that in mind. I might ask some questions that people already know the answers to. But what is the dollar capacity that -- you mentioned a capacity of 10,000 units a year in your current plants. What's the dollar amount of that?

That's about $250 million annually.

$250 million? Okay. And did I hear you right that you said that, at the volumes you are talking about, have a 25% EBITDA margin?

No, you did not. You heard that for the year that product gross margins will exceed 25%.

Oh, the gross margin? Okay.

Right.

All right. And let me just check some numbers that you gave earlier. You said for the year $70 million in sales is your guidance. And was it $1.5 million to $3 million in EBITDA?

That is correct.

Okay. And the DA part of that is about $4 million in the year, correct?

I'm sorry; I didn't hear the last question.

The depreciation and amortization is about $4 million?

That is correct. I think, Dave -- let me get it right -- Dave, I think it may be a little higher than that. Correct?

Yes. Just the depreciation and amortization is about the $4 million. With the stock compensation, yes, that's up to about about (multiple speakers).

Yes, because $1.5 million to $3 million, does that includes stock compensation?

No. So, let me (multiple speakers).

Before that? It's before that?

It's $4 million with depreciation and amortization, and about -- I believe the number is actually between $5.5 million to $6 million when you add in stock compensation.

Well, I guess what I should ask really is what is EBIT alone?

Okay, so EBITDAS will be between $1.5 million to $3 million on $70 million this year. And we have guided people that we expect that if you think about a $100 million business it will be in the 10% to 11% range.

10% to 11% on (multiple speakers).

Right, on $100 million and approximate a 17% on $150 million, is the guidance we told people.

17% on $150 million?

Right.

Okay, good. And you said about $8 million loss in the first half (multiple speakers).

That's -- I'm sorry?

And so you would have something like $11 million in the second half, correct?

I'm sorry; could you ask that question again?

Yes. You said -- I think you said, for the first half, the first two quarters of the year at about an $8 million loss in total.

Yes.

And then for the year, say $3 million. So you would have a profit of $11 million in the second half on $47 million of sales?

That is correct.

Okay, good. One other question. I'm sure that lots of people know that answer to this, but what is it about the lift truck business that got you started there? Obviously, there are lots of other markets for fuel cells in mobile equipment. What are the characteristics of the lift truck business that made you go in that direction at the beginning?

It's actually pretty simple. I'm a firm believer that when it comes to alternative energy products you have to find a way to save customers money. And because in the forklift truck business there are batteries that have to be changed every six hours by people like Walmart that can take up to 15 minutes; batteries decline in performance by 12% per shift; that we could help eliminate the battery room and customers can see payback times in less than six months for new construction and less than two years for old construction.

And it's a large market, since there's over 6 million trucks worldwide. So we were able to offer the customer a value proposition that made sense, and that's why we have been able to convince people like the number one and number two food retailers, Walmart and Kroger; number one consumer product company in the world -- P&G has four sites. So that's why people have done it. They are good questions. And boy, I know there's other people on the line who have questions and we would be happy to talk to you more. If you contact Teal I'm sure we can set up a call and talk more.

Thanks.

Rob Stone with Cowen and Company.

Andy, my follow-up question is with respect to the benefit from investment tax credits. Obviously, that applies only to your US customers, but can you help us understand how much that factors into the current business and how you see addressing that change at the end of 2016 if the ITC goes away? Thank you.

Rob, first, it's about 70% of our customers leverage the ITC in the US today. We mentioned that there's two sites with Walmart; there's sites with IKEA in France at the moment; with BMW in Germany. Also who don't use -- we don't have access to the ITC. And there's a lot of international companies in the States who haven't used it, but I'd say about 70% have leveraged it.

We've always ran this business assuming that it would go away. And we've been dramatically reducing our product costs. I think that people are going to be surprised, come the fourth quarter, where we are with product cost. But we see our product cost declining 10% to 12% per year. And we will be in a very strong position when the ITC is done. It's one of the reasons, quite frankly, we are doing our own stack development at the moment, because it can help us reduce the cost.

How much do you think internal stack development could help you on margins for high-power stacks?

Our estimates show that -- you are making me give away too much information here, Rob.

Okay. I know (multiple speakers).

It's significant, so it is important to us.

Jerome Brown with Garcia Venture Capital.

Congratulations on the new GenKey customer with a major auto company -- huge, so huge.

I think it is important because it's actually convincing manufacturers to make the change to a -- very, very process-oriented. And we went through a long due diligence process. And when I announced the name, people are going to just shake their head and say, yes, these are guys who wouldn't do it unless it really makes sense. And when you can convince somebody like we've convinced to turn their system over to us as a turnkey deal, I think it says a lot about the Company.

Absolutely great, Andy. And my question involves another Andy, Andy Left. And I really feel bad for him today. It was great news and I'm kind of glad he's going to suffer for it. But my question is, he says the Walmart deal -- that you are giving them the service for free. Is that true? Are you receiving revenue for the service for the Walmart deal?

We are receiving revenue for the service for the Walmart deal. I've never talked to Andrew, so I really don't know where he got that information. But we are receiving payment for the product, the service, the hydrogen infrastructure and hydrogen fuel. And it is a separate deal. I mean we had, as I mentioned in the talk, that we have already deployed 500-plus units with Walmart. This is a brand-new order, brand-new opportunity. They are paying for everything. And they are paying at fair market value of the product, and it's over 1700 units.

Excellent. It was a great deal. It's a huge success story for Plug Power. We haven't gotten any financials on the Walmart deal. When do you think that they will be available?

I think you will be able to see them incorporated in the second and third quarter results. So we are giving guidance for the second and third quarter. I don't think, customers probably won't -- I think I have been -- the guidance I've given people is that the margins and profitabilities of the deal are in line with other customers in the second and third quarter.

Thank you. Mr. Marsh, we have come to the end of our time for questions and I would like to turn the floor back to you for any closing comments.

Well, thank you. I appreciate everyone joining the call today. I am looking forward to talking to you again on April 17 and in our May's earnings call, as well as our shareholders' meeting in May. And what I continue to commit to the Street is that this company will be extremely transparent during this ramp, because it's a -- as you are growing as fast as we are, it's difficult to keep track of everything, for investors. And we will continue to have regular updates and provide insights. We appreciate everyone taking the time in listening to our call today. So thank you, everyone.

Thank you. This concludes today's teleconference. You may disconnect your lines, and have a wonderful day.