普拉格能源 (PLUG) 2016 Q1 法說會逐字稿

Greetings and welcome to the Plug Power first-quarter 2016 financial results webcast and conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Teal Vivacqua, Director of Marketing Communications for Plug Power. Thank you, you may begin.

Thank you. Good morning and welcome to the Plug Power first-quarter 2016 earnings conference call. This call will include forward-looking statements, including but not limited to, statements regarding 2016 objectives, including those relating to revenue, sales, bookings, gross margins, GenKey and GenFuel installations and GenFund power purchase agreement programs. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

We believe that it is important to communicate our future expectations to investors. However, 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 our annual report on Form 10-K for the fiscal year ending December 31, 2015, as well as other reports we file from time to time with the SEC. These forward-looking statements speak only as of the day on which the statements are made and we do not undertake or intend to update any forward-looking statements after this call.

At this point I would like to turn the call over to Plug Power's CEO, Andy Marsh.

Thank you, Teal. Good morning, everyone. Thank you for joining the Plug Power first-quarter 2016 earnings call. I'm excited to share this quarter's results with you as the health of this business is very good.

We've had several significant initiatives underway to support the growth of the business, including providing our customers with new financing options. All of these initiatives are meeting or exceeding their goals.

I feel good that these initiatives are building a great foundation for the long-term growth. In fact, I was in Dallas last month to make a presentation on the future of hydrogen. We have a vision for hydrogen fuel cells and believe the next big markets for hydrogen vehicles will be those that are similar to our current markets for fork trucks, ones that operate in a captive environment, a defined space where solving the fueling part of the equation is simpler. Tethered vehicles, ones that travel locally but always come back at home at night, such as delivery vehicles, fit into this profile.

Plug Power is the first Company to have developed a truly commercial market for hydrogen and fuel cells with our industry-leading application fork trucks. We're confident in our abilities to continue to grow and expand this business while leveraging our past learnings and strength to penetrate new large markets where we can provide value to our customers, allowing us to maintain our growth into the future.

Now let's turn and talk about the first quarter of 2016. I want to first review the highlights of the quarter and then put these results in the context of our 2016 goals. Let me say that first throughout this call, you are going to hear about adjusted results, such as sales, gross margins and earnings per share. We consider these adjusted numbers a useful metric for both investors and management, as our revenue recognition from product shipments is changing. We believe it provides a clearer picture of the sales and implementation progress of the Company and a consistent comparison to past performance.

Let me start with two figures that underpin the success we've had in this quarter, bookings and units shipped. Bookings hit a record of $72 million in this quarter, which you can see from the chart, puts us ahead of the pace we need to attain, the $275 million in bookings we've estimated for the year. We've also had a record first quarter deploying 834 GenDrive units, tripling what we accomplished in the first quarter of 2015. This results in adjusted revenues of $30.1 million and GAAP revenues of $15.3 million.

As a reminder, we've been working on a number of finance alternatives to eliminate the need for new restricted cash or PPA deals where Plug Power finances the assets directly. In some, or likely all, of the new financing scenarios the cat profile of the transaction will be much better. But the accounting rules dictate we cannot recognize revenues up front as we've done with traditional sale-leaseback arrangements.

The presentation of adjusted numbers is intended to show our performance as if we finance a transaction as we have in the past. Again, we believe it provides a clearer picture of the sales and implementation progress of the Company and a consistent comparison to past performance. Paul will comment on this more shortly.

Highlights for this quarter included three new sites implemented with multiple additional sites in progress. We've also began construction of a second GenKey site for Home Depot at their Savannah, Georgia distribution center. This is a strong show of confidence from a new customer that they are not only realizing value from our solution, they're seeing the results quickly.

The rapid second deployment to Home Depot aligns with one of our critical business goals for 2016, which is expanding the number of anchor accounts that have multiple sites where our solutions can be deployed. Working with these accounts on multi-year programs similar to Walmart will drive predictability and profitable revenue streams. These accounts are large retailers like Home Depot and Kroger, as well as large manufacturers like B&W and P&G.

We achieved an adjusted gross margin of 12.5% this quarter that was driven by greater than 35% gross margin on the GenDrive units. We've also seen margin improvements for other products as well. Margins for hydrogen infrastructure business following a steady improvement curve that we've seen with GenDrive, and service gross margins sold in continued improvement as we leverage our infrastructure over an increased number of customers and as we see continue up time in reliability improvement in our products.

The up time improvements include the performance of the upgraded stacks and stack membranes, that were rolled out in the fourth quarter of 2015, which continue to perform as expected with a goal of over 10,000 hours of lifetime. Those of you who joined us for the Plug Power January business call update remember that this chart summarized management's key goals and objectives for 2016. Our Q1 results put the Company on track for most of these goals and ahead of the game for others.

We're targeting growth in adjusted revenues of 50% compared to last year, with a target of $150 million. Our $30 million in adjusted revenue for the quarter is 220% higher than the $9.4 million in sales during the same quarter in 2015.

Contract bookings are running ahead of pace for meeting the $275 million goal which supports our goal of deploying 25 sites in 2016. We are maintaining our GAAP gross margin targets and believe the continuous strength of GenDrive margins, along with improvements in other areas, will help us to achieve this goal.

The last goal is tight management of cash so that we use less than $23 million throughout the year. Paul will detail our cash flows in a few minutes, but my comment is I foresee no new equity raises will be needed.

As we've discussed earlier, and in previous calls, we've been spending significant time to expand our GenFund product offering not only to provide additional choices for our customers, but to provide better finance terms for Plug Power and deals that finance directly, including the elimination of the need for restricted new cash. This is a progression similar to what solar went through as it iterates its way to a systematic and repeatable approach to project financing. In fact, our likely solutions for financing our PPA-style customer transactions will be similar to structures to what solar companies do today.

To date, we've identified 50% of our finance project needs for 2016, and we're in the process of lining up longer-term structure for the rest of 2016 and beyond. While we won't get into the details on this call, all this is still a work in progress. Paul will talk a bit more about this in a few minutes. We're confident in our path towards cash flow break even, and we'll continue to explore options to add liquidity to the balance sheet to create both a buffer and a allow for opportunistic strategic investments.

Before I turn this call over to Paul, let me give you an update with some of the long-term strategic activities we are focused on. We continue to make significant progress in our hydrogen fuel and infrastructure segments. New design iterations and ongoing progress with our suppliers continue to drive the capital cost of our existing hydrogen solutions lower. This will allow us not only to achieve our targeted margins on this product line, but will act as an enabler for new markets and for expanded material handling use cases such as smaller sites.

We've also been aggressively pursuing opportunities in on-site performing technologies to create hydrogen at the point of use. This can provide another important step in reducing first costs but also can put us on a more aggressive path towards margin improvement in the molecule itself. We are actively working to close on customer sites in 2016 where we will deploy reformers in conjunction with an industry partner, an exciting new development to our GenFuel product line. More news to come soon on this project.

We've also kicked off expansion of our high-power platform based on Plug Stack and system designs to grow our markets into vehicles that are larger than forklift trucks. We're actively working on the development of the first design for the range extender program with FedEx.

As you recall, FedEx wants to deploy hybrid hydrogen battery-powered delivery trucks to expand the useful range of these vehicles from 60 to 160 miles. This is a perfect example of the captive fleet vehicle and will be a fuel cell and hydrogen platform that will have applicability in many markets in the future. We've also working on the second-generation of GenDrive for ground support equipment we have in Memphis with FedEx that will improve performance and reduce costs, potentially making this the second commercial application in our portfolio.

Our corporate strategy is focused only on areas where we believe commercial market opportunity exists that leverage our strength and experience. We see quite a few of these opportunities within our core material handling market, which I believe still has tremendous growth potential for many years. But we also see them in adjacent markets that share some of the same characteristics as our core market and in new markets that we will create as we have continued success in making hydrogen fuel ubiquitous. These are exactly the kind of projects that make me excited about the future.

Thank you for your attention. Let me now turn the call over to Plug Power's CFO, Paul Middleton.

Thank you, Andy, and good morning, everyone. As Andy referenced and we have discussed many times, some of our customers access our hydrogen and fuel cell solution through a power purchase agreement, also known as a PPA. In those cases to date, we have been using a sale-leaseback approach to finance the deployment.

Starting in Q1 we're utilizing a new approach that provides better liquidity, and therefore we believe it's critical to convey clarity on what we delivered since this new approach does not follow the same accounting model related to revenue and profit recognition. The equipment at the three PPA sites we deployed in Q1, if we had financed these deployments with traditional sale-leaseback financing, the total revenue and total margin we would have realized would have been $14.8 million and $3.6 million, respectively.

The key take-away is Plug expects similar or better economic returns over time on these projects. When combined with the improved liquidity these alternative financing approaches yield, it is an overall better solution for Plug and its shareholders.

Another key point is that Plug is achieving continued momentum and operational improvement on these programs, just as we are with direct customer programs. This adjusted view on the business is critical to increase transparency about what we are accomplishing commercially and to provide our stakeholders a basis for context, comparability and consistency.

As is the case in other industries such as software as a service or certain new technology sectors such as smartphones and solar, we believe reporting adjusted results will allow us to convey a more clear and comprehensive view. More importantly however, it's how we manage and think about the business. I am confident this will be a meaningful approach to our stake holders this year and beyond as we continue to transition to more robust PPA financing solutions.

Looking at our revenue for the quarter, as we conveyed in our January business update, given seasonality we knew Q1 would be sequentially below Q4 2015, but the commercial traction we achieved in the first quarter exceeded our initial forecast. The growth in the first quarter reflects more GenKey deployments and multiple other customers adding GenDrive units to expand their installed base. Equally important was the growth year over year in units and sites under GenCare contracts and sites where Plug has contracts to provide hydrogen fuel.

We recorded approximately $72 million in orders in the first quarter 2016 and ended the quarter with approximately $278 million in contract backlog. Our contract backlog is a combination of system deployments planned for the near term as well as the service and hydrogen delivery commitments for the next few years. The continued growth in sales, bookings and overall contract backlog is indicative of our success in the market and provides a strong base as we focus on delivering on the 2016 goals and beyond.

Adjusted gross margin as a percentage of sales reflects year-over-year operating improvement and it is indicative of our ongoing progress, both in terms of volume and cost down initiatives. Equally important, it reflects improvements across all product lines, demonstrating the focus we have on driving all offerings to at least 30% margin profiles over the longer term.

If we take a look at GenDrive in Q1, Plug achieved 36% gross margin. We continue to make significant progress in driving GenDrive cost downs, stemming from supply chain leverage, leverage on increased volumes, improved and simplified product designs, and in certain cases, our vertical integration strategy such as the launch of the new Plug Stack in Q4 2015. We anticipate these improvements continuing into 2016 and that we will continue to grow overall GenDrive margin. Given GenDrive's high percentage of our sales, this product offering will continue making tremendous contribution towards us achieving our gross margin goals for 2016 and beyond.

Research and development investment for the first quarter increased over the prior-year first quarter 2015, stemming from incremental investments associated with productizing our hydrogen infrastructure platform, our ongoing stack development and deployment and improving the varied offering designs. SG&A expense for the first quarter 2016 was up slightly over the first quarter of 2015, stemming from our incremental investments required to support and drive our continued growth.

In regards to total administrative expenses, as we have conveyed, during 2015 we achieved critical mass, and we anticipate tremendous leverage as we continue growing. Specifically for 2016, we expect total administrative costs to be at similar levels for the balance of the year.

In regards to adjusted EBITDA and operating cash flow in Q1 2016, we achieved strong performance given the ramp in sales, improvements in margin and focus on working capital. For the first quarter of 2016 Plug achieved an operating cash flow usage rate that was almost 50% less than the prior-year first quarter. This was driven from the adjusted revenue growth of over 220% as well as the significant progress in driving down costs down. This first quarter is a strong indication that we are on track for our goal of using less than $20 million for the year in operating cash flows as we continue to grow sales and ramp costs down further.

As we move forward through 2016, Plug represents an enterprise growing over 50% per year, a Company that has developed a platform that includes some of the top financial institutions in the world to finance Plug Power's customers' deployments and a Company with a strong financial asset base, including a substantial pool of on- and off-balance sheet escrowed funds that will be distributed to Plug over the next few years. In addition, Plug Power continues to work with market-leading financial institutions that are collaborating on innovative ways to fund Plug's deals that will yield even greater economics and more robust capital solutions for Plug in 2016 and beyond.

Let me reiterate our key goals around liquidity and funding our growth. Our key goals remain to continue driving more efficient and seamless direct customer financing platforms, develop more robust project financing solutions for our PPA-style transactions, maintain sufficient working capital to support the growing backlog of deployments and avoid dilution of existing equity owners. A major step in this direction is aligning with the right capital partners that can help provide access to a broader set of investors for our PPA-style transactions, who in turn can provide more robust capital solutions.

The project funding facility we recently completed in Q1 is intended to help Plug Power fund the deployment of its 2016 PPA pipeline and more importantly is the first platform in what we see emerging in a range of new project funding approaches. Looking specifically at 2016, we have set a clear goal to use less than $20 million in operating cash flows as we move towards cash flow-positive operating run rates. This represents over a 50% reduction from the prior year, demonstrating Plug's success in volume and cost downs.

In addition, to deploy our planned PPA sites it will require approximately $45 million to $50 million to finance these new deployments in 2016. Our goal here is to do so without having to restrict cash or raise equity to deploy this pipeline. The project funding facility we completed has provided over half of this PPA financing requirement for this year and we are actively working on the next phases of this partnership, as well as other partnerships that collectively will provide the balance of the financing capital required for 2016. We will be able to share more during the year as these platforms develop.

I would have you think about some of the varied approaches used in funding solar and wind to give you some perspective on the range of approaches we are considering. In addition to short-term liquidity advantages, most of these approaches will position Plug to leverage these deployed assets even further in the future given the nature of the structures. In addition, these are not only more attractive financing opportunities on the near term deployments, but the platform could open up new possibilities in how plug deploys and utilizes its assets in the future and may even enable Plug to accelerate market penetration.

As we close the first quarter and move further into 2016, and as Andy pointed out earlier, we believe our first quarter success provides a great start and platform for all our 2016 goals. We look forward to sharing with you our continued progress as we move through the year. We also believe that we are continuing to make the right market and product investments in developing appropriate financing solutions to not only achieve our 2016 goals but also achieve our long-term business objectives.

We'll now open the line up for any questions.

(Operator Instructions)

Eric Stine, Craig-Hallum.

Hi, Andy. Hi, Paul.

Hi, Eric.

Good morning. Just wanted to start with the bookings number. Obviously the transition more to the PPA model is to help on the cash side but also accelerate adoption. Just curious, of those orders that you've secured in the first quarter how those break down between an outright product sale and those using the financing options.

About 50/50, Eric.

Okay, so it was driver in that. To look beyond bookings but at the backlog, is there a way to think about how it breaks down there? What I'm getting at, you have obviously reiterated your goal for adjusted revenues, but also thinking about how we should think about the GAAP revenue number in 2016.

I'm just trying to understand your question, Eric. I think what we've talked about is if you look at the adjusted revenue approach coming into the year, and we talked about it in January, we had over 70% of that in backlog. And in the first quarter of closing orders that we have, we continue to close the gap on the balance.

So we've got pretty good visibility to this year. In fact, I would call it very high visibility to accomplishing our goals and plan this year. And certainly the backlog is a key element of that. For the sake of clarity, as you can probably gather, the backlog is on the same basis right now. So the portion that's in backlog associated with PPA sites we've kept on that same basis for the time being. So it's all consistent and on the same platform.

I think the question, Paul, we expect about one-third to one-fourth of our revenue this year to be recognized on a PPA-type format.

Okay. And just to clarify, your reiteration of that 50% year-over-year view, that is on an adjusted basis if it were apples to apples versus the past, right? That's not -- reiterating that number and on top of that will you have the PPA business which limited first quarter from a GAAP perspective.

Year-over-year 50% on a similar basis, yes.

Okay, got it. And just to confirm in the slide you put up, and it's gone now, but from a gross margin perspective, though, your iteration of 12%, that is on a GAAP basis, is that correct?

Yes, that's correct.

Okay, that's helpful.

That's really good news, Eric, when you think about how the numbers filter out. So on lower revenue, the margins will be similar; that's really positive. I think in the past quarter, when you think about in the fourth quarter of 2015, we had on $42 million in non-GAAP revenue, 10% gross margin; this quarter on $30 million of non-GAAP revenue we had over 12% gross margin. So there's been a significant improvement in the gross margins just on quarter to quarter here.

Definitely, that's very good to see. Thanks for the clarity there. Last one for me, where you stand in terms of transitioning to your own stacks. Just wondering, class 3, I believe you're fully transitioned there, but when you might be fully transitioned to class 1 and class 2.

We have shipped over 1,000, almost 1,000, units with our own stack. So we view that as a significant milestone. We do, and I think we've always presented that we will keep a certain percentage of our business with a second source, just to provide long-term -- as the business grows, don't want to be single source on any component. So that process is ongoing, and as we've said before, we expect the majority of the units being shipped, and I think that's happening today, to be quite frank, with Plug stacks.

Okay, thank you very much.

Okay, thanks, Eric.

Carter Driscoll, FBR.

Good morning, guys.

Hey, Carter.

How are you?

Good.

Nice improvement on the services gross margin. Is that largely a function of increased deployments and scale and being able to leverage the existing infrastructure? Or is there a different component beyond that?

That's really the heart of it. It's part of the road map we've had. As you know, we believe infrastructure improvements will happen quicker. There is a drive that by the end of this year or early next year that the service business will turn positive.

Next question. I may have missed it, you talked about the number of hydrogen sites you installed in the first quarter?

We did three sites, but we had many more in progress.

Okay. Is it a timing issue? You expect a gap up in 2Q? Help me understand like how close those are to completion. Thinking from our modeling perspectives over the balance of the year, any clarity would be helpful.

I think growth rates, the best way I think to think about it is, if you take last year's numbers, and look at the improvements over the last year's numbers, and I would say that you'll see the same progression of revenue and margins throughout the year.

Okay. A question for Paul. Paul, can you talk with a little bit more detail over some of those financing options that you're vetting? Maybe rank one or two of them ahead of -- and then talk about the characteristics of why they're better for you, to help the investors better understand those potential options since you still have about 50% left to close on for this year.

Yes, so probably -- two things. One is, of the different things we're working on, which are many, the partner that we've aligned with is a specialty finance company that has done a number of alternative energy financings in different spaces with different industries and different companies. And that's the number one partner that we're working with on these structures. We've been working pretty actively to take -- to move to the next phase, where we will be launching these structures shortly.

And the facility that we put in place was really a funding advance of the projects that we will be working with them and partners like them as we move forward. So more to come on that as the quarter unfolds and we move into that second phase of that effort.

Specifically on these programs, in the past year, as you know, in the sale-leaseback transactions we've done with more of the traditional commercial banks, they've structured it where the cash gets released over the duration of the agreements. And these new structures, by working with a broader pool of investors and different project financing structures, what it provides for is a larger portion of that project proceeds to be accessible early on in the project, if not day one, in all cases.

So again, there will be different structures that we will work through, and our primary goal is the best collective answer, both in terms of economics and liquidity for Plug and its shareholders. I think the chart that we've had before really got to the heart of timing of those cash flows.

But the other real important take-away is that these structures, unlike when we do a sale-leaseback to the bank and the bank owns the assets at the end, these are long-lived assets that we know have a lot of leverage opportunity in those outer years. In most cases, if not all cases, Plug retains the assets or will recover the assets in these structures at the end of those agreements. So there's tremendous leverage opportunity in those outer periods, both strategically as well as economically as we look forward.

There's a multitude of reasons why this is a good path for us. More to come as this unfolds in the coming months.

All right, just to follow up on that, so it sounds like it could be as soon as potentially this calendar quarter that you could have an update on the more specifics with that specialty finance partner, one.

And then it's almost as though -- it makes this quarter and last year's first quarter not necessarily an apples to apples because of that transition in the sale-leaseback. Is that fair? And that should accelerate potentially over the balance of the year, almost making it even harder to -- even on adjusted basis it sounds like that is not necessarily the right -- not a perfect comparison at least, in terms of the way your business continues to evolve in the financing perspective. That a fair characterization?

Our intent really to be clear, is that the adjusted basis is really intended to be apples and apples and more transparent and more clear in terms of what we are delivering and how we think about the business. So on that basis, it should be more comparable, and you are definitely going to see the progression in sales and margin profile. And I think as we start rolling out these other approaches, we'll be able to share more about the very specifics of the variation in accounting and timing of recognition on the results.

Okay, I'll take the rest off-line. Appreciate the time, thank you.

Craig Irwin, Roth Capital Markets.

Good morning and thank you for taking my question.

Good morning, Craig.

Good morning, Andy. In the discussion of PPAs, you made some parallels to the solar industry. When we look back at the evolution of PPAs, First Solar was the first company to write a major PPA back in 2008. And they sold that project to NRG, actually relatively quickly. It was well under a year before they sold it.

Can you help us understand if this $45 million to $50 million incremental needs in cash for what you're looking at this year is likely to be it? Will that be sufficient for the book of projects that you expect to roll? I guess what I'm asking backwards is, do you expect to be able to sell these projects and monetize them the way companies in the solar industry have? Thank you.

The answer is yes. I think those approaches that they've used are good proxies to think about how we might approach it. We'll continue to evaluate the 10 different paths we have which is a good position to be in, in terms of options, and pick the best choices for the Company.

But in regards to that capital, the answer is yes. And to the extent this actually enables us to accelerate penetration, the capital requirement goes up, but that's for a high-class problem. As we sit today to achieve that $150 million plan that we have, that's the extent of the capital for that bogey.

I think, Paul, another, like solar, we'll be selling these assets more in maybe a partnership flip-type model. I think, as you mentioned during your commentary, we'll own the assets at the end of the term. And we view those assets as quite valuable, especially the hydrogen infrastructure. And actually makes our sale, which is sticky today, even stickier.

That's correct.

Definitely good to hear. So then on the shape of the PPA revenue, or I would say pro forma revenue contribution throughout the year, should we expect this to be somewhat lumpy? Or do you have a specific book of projects that is building consistent with your revenue growth rate as revenue progresses throughout the year?

The answer is, we expect it to be rather linear, so the answer is yes. I would take the number range we talked about where 25% to 33% of the deals will be PPA-like based on the booking and based on funding mechanisms. And I think, Craig, that will help you in your modeling. And when we talk later, maybe we can help provide additional guidance there.

Great, thank you. And then last one, if I may, before I hop back in the queue, 36% GenDrive margins, pretty impressive. I have to say congratulations on that. It sounds, from your commentary, your prepared remarks, like there might be a little bit more to go there, particularly given that there are some headwinds versus if you were completely internally supplied. The cost of external suppliers, the cost of switching over additional products internally.

Can you say how much further you have to go on that? Is this really potentially a 45% margin product if we were to look at all Plug stacks exiting this fiscal year?

That's a good question, Craig, and let me put in the way. If you would have asked me a year ago, I would have told you we would not be at 35% gross margins with GenDrive. And we continue to make improvements. I don't want to put a cap on it, but the kind of numbers you're putting out are the kind of numbers that we talk about internally.

Okay, that's fine. And then if I can squeeze one last one in. Andy, you know our conversation's been going a couple of years, right? And I have been a big believer that switching over to an internally manufactured stack would allow you to have very significant cost savings that would potentially allow you to do something on price that might help the rate of adoption for customers. So if you were to see margins on that product, maybe see the internal conversations that you just referenced, would you maybe consider a different pricing regime that might help accelerate the adoption of your product?

That's actually another good question. I think, Craig, we prefer to -- I think one of the reasons we've been spending so much time on the financing aspect of the business is to continue to capture the most potential margins we can for Plug, but simultaneously, offer our customers a better short-term model that they can capture more. So I think we're trying to accomplish that goal more today through financing and through reducing Plug's margins on our products. So I think that's why this financing activity has become prominent when we think about how to grow sales with our customers, how to improve our cash position, as well as using as a leverage point so that we don't have to give up margins.

Great, thanks again for take my questions.

Okay, Craig.

(Operator Instructions)

Jeff Osborne, Cowen and Company.

Hey, good morning, guys, just a couple of questions on my end. I was wondering on the bookings of $275 million, given the tax credit expiration at the end of the year, I assume that's going to be pretty front-end loaded. Is that a fair assumption?

I don't think so, Jeff. It's another good question. The Company has been working with all the industrial gas companies, with folks like the American Gas Association, with all the fuel cell companies.

I'm sure if you talk to my peers, they'll all tell you that based on discussions with leadership, both Republicans and Democrats, and I've talked to the very, very conservative members of the Senate and very, very liberal members of the Senate, but all of us think this tax credit is going to happen. I've had Senators offer to call customers for me to explain how they believe this will evolve. So we don't believe it's going to be front-end loaded. We continue to believe the tax credit will be put in place. It's really, quite honestly, finding the appropriate vehicle for it to move in the Senate, and that's where it needs to move.

Got it, that's understandable. So if I understand you, Paul alluded to good coverage this year in terms of backlog. So to hit the adjusted revenue guidance coupled with the orders that you received in calendar Q1, you feel pretty comfortable. Then the bulk of the $275 million is projects that are on the drawing board that you're aware of for 2017 and beyond? Is that fair? Or do you need to see meaningful additional orders to hit the guidance for this year on an adjusted basis?

I think your first comment is correct, Jeff.

Got it. It certainly is unique to see government leadership admit they made a mistake. But that being said, what is the plan B based on your conversations, if on July 15 when the current FAA bill expires, if they're not in a position to add attachments to the hopefully permanent bill at that time?

Is there another bill that you have in mind, or they have in mind, to potentially attach fuel cell along with geothermal and other items, too? Or is that still TBD and maybe we need an election and would you have to wait for a tax extender still at the end of the year?

The answer to your first question, Jeff, is that, yes, there are other bills under consideration I probably don't want to publicly be talking about since people shared it in confidence with me. But I also would say that I don't think it's out of the realm of possibilities that this is a post-election event.

Got it, that was my sense as well. And then, Paul, what is the accounting treatment? Is there a rule of thumb with the financing that you've done, at least for the half of your financing needs? How do we think about the reconciliation from non-GAAP or adjusted, as you refer to it, to GAAP? Is it ratable over a period of time? Does it at the end of the term all turn into GAAP? Can you help us understand how we should reconcile the two revenue lines over time?

Yes. So on the top line, since it's not sale-leaseback, the revenue numbers are going to be different. What we focus on is the economic profit, really and that's similar or better returns over time. So you're going to see those earnings show up in the result of Plug over time from a book standpoint.

Depending on the particular structure and the timing, that will vary as well. But what we focus on is the economic profit as well as the liquidity element of it. That's really the key criteria we're using as we think about these options and how we focus on it. But I think it will become a little more apparent as time goes forward and we continue to show the GAAP results and the adjusted results, we're going to be able to walk you through more and more over time to be able to make that a little bit more clear.

Jeff, I know in our one-on-one calls today, if you have time we'd be more than happy to walk through in greater detail with you.

Absolutely.

Got it, I appreciate it. Last question for you, Andy, what's your thoughts on M&A out there given the cash balance as well as the hydrogen strategy that you referenced for quite some time? Obviously done well on the GenFuel and partnership sides and turnkey, but in terms of pure hydrogen generation to go after the non-distribution sites for materials handling.

Good question, Jeff. On the reformer side, we have been working closely with a partner. I think on the M&A side, quite honestly we're going to make sure that our cash position is secure here at Plug. That's top and foremost in our issues, how to secure that we never to have dilute our shareholders again. As we focus on that, that's the top priority, building some partnerships around that.

Quite honestly, if we find a way to make sure that we have a strong cash position, we could get more aggressive on hydrogen and some other activities sooner rather than later. First and foremost, we're going to make sure that there's plenty of cash in house.

Got it. Last question. For 2017 should the tax credit not be extended, I assume for a large majority of your materials handling customers, the economics would be unfavorable. You mentioned commercializing other products in the market, range extenders, you've got telecom as well. Which of those will be ready for prime time in 2017 that would be applications for your products that don't need tax credits to justify some of the economics?

I guess, Jeff, probably this past quarter, 14 or 15 of my bookings were actually without the tax credit. I think that's a positive sign. I think that one of the reasons we've been spending so much time on financing options, we believe these financing options will actually lower the cost to our customers, especially as Plug owns the assets in the end. And I think a combination of those events, we talked about the GenDrive gross margins, I think a combination of those events, we have internal models which show the business remaining healthy, whether a tax credit is in place or not.

What I will say, though, is a tax credit will help us grow this business quicker, as well as the tax credit will keep more people employed in the United States, which I think is important to Congress. I think Congress looks at this issue as not only a market fairness issue with solar and wind, because there's been a market distortion created, especially when you think about stationary power products.

There's an issue of national security. Fuel cells are American made. There is an issue associated with the fuel we use. If you look at hydrogen, if you look at some of the work people like fuel cells engage with, we use American natural gas. And I think all these issues resonate with Congress.

That's why we think a tax credit, based on our discussions with members and based on who the long list of supporters we have in this effort. We're just a minor player in all this, that these tax credits we expect will be extended. We do have plan B, and we have a plan B for a very healthy Plug Power.

That's great to hear. Just a quick clarification. Is the 14, 15 I assume you're referencing international orders that don't have the tax credits? Or is it for some other domestic application?

International.

Got it, thanks much, guys.

Okay.

Thank you. Ladies and gentlemen, there are no further questions at this time. I will turn the conference back over to Mr. Andrew Marsh for closing remarks. Thank you.

Thank you for your continued interest in Plug Power. We're excited about the tremendous progress we've made and will continue to make in the future. We have a strong business that's growing 50% per year, a clear path to cash flow break even and significant profitability, exciting project financing options which will allow us to continue to scale the business without the need for additional equity. And we have a very smart and dedicated team that's developing the next-generation of commercial hydrogen fuel cell technologies applications. We've created some material handling markets and we'll continue to lead this market and industry as it evolves and expands, driving value for customers and shareholders in the future. Thank you, everyone.

Thank you. This concludes today's conference call. All parties may disconnect. Have a good day.